Learn More About Coverdell Education Savings Plans (CESAs)

Eligibility

Your eligibility to contribute to a Coverdell Education Saving Plan (CESA) depends on your modified adjusted gross income. To be able to make a full contribution:

• Individuals must have a modified adjusted gross income of less than $95,000.
• Couples who file jointly must have an income of less than $190,000.
• You do not need to earn any income in order to contribute nor do you need to be related to the account’s beneficiary.

Contributions

If eligible, you may contribute:

• Up to $2000 a year for each child under 18.
• An exception to the age limitation can be made for special needs children. These are defined as persons requiring more time to complete their education due to a physical, mental or emotional condition or learning disability.

Tax Savings

Your contributions to a Coverdell Education Saving Plans (CESAs) are not tax-deductible. However, the money you contribute will accumulate and grow tax-free as long as it is used to pay qualified education expenses.

Distributions:

Before you contribute to a Coverdell Education Saving Plan (CESA), here are a few things you need to know about “distributions”, the money you or your child will eventually withdraw from the account:

• Distributions are tax-free if used for qualified education expenses. These include: tuition, fees, academic tutoring, special needs services, books, supplies, equipment, uniforms, transportation, education computer technology or equipment (including Internet access) and (for a student enrolled at least on a half-time basis or more) room and board.
• Besides college, qualified education expenses also apply to elementary and secondary schools, whether public, private or religious.
• Distributions are tax-free and penalty-free if used by the beneficiary for qualified education expenses before reaching the age of 30.
• If NOT distributed prior to the beneficiary's 30th birthday, the balance must be distributed to the beneficiary with the earnings taxable and subject to a 10% IRS penalty.