Coverdell Education Savings Account

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Coverdell Education Savings Account

An account into which one may deposit funds on a tax-deferred basis, on the assumption that they will be used to pay for the education of the account holder. The funds are invested in a portfolio, much like an IRA or another retirement account. If the funds are in fact used for education, withdrawals from a Coverdell account are tax-exempt up to the total cost of education. Importantly, any tax liability on a Coverdell account is assessed at the account holder's bracket, rather than the contributor's. This protects the account holder from an excessive tax liability in the event a wealthy parent made most or all of the contributions. It was formerly called an education IRA.

Coverdell Education Savings Account

A special individual retirement account opened on behalf of a child under age 18. Contributions of up to $2,000 annually may be made by anyone who meets specified income limits. Contributions are not tax-deductible, but earnings grow tax-deferred until withdrawn. Money withdrawn prior to the child turning age 30 to pay for elementary, secondary, or postsecondary education expenses after high school is not subject to federal income tax. Formerly called Education IRA.

Coverdell Education Savings Account (ESA)

A tax-favored savings plan under which any number of taxpayers may contribute up to a total of $2,000 per year per eligible beneficiary. Contributions are nondeductible. Earnings withdrawals are tax free and penalty free if they do not exceed the amount of qualified education expenses for the year.
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Talk to a bank or investment firm for more information or to set up a Coverdell ESA.
Previously, the tax benefits of 529's were to expire after 2010 8) Coverdell ESA -- A Coverdell Education Savings Account (ESA) is a savings account that is created in trust for minors -- Contributions are not deductible, but interest grows tax-free and qualified withdrawals are also tax-free -- Multiple family members can create a Coverdell ESA for the same student; however, each cannot contribute more than $2,000 each year -- The Pension Act does not pertain to Coverdell education savings accounts, which will still face a 2010 sunset of tax benefits
Like 529 savings plans, Coverdell ESA funds available for the beneficiary's education depend solely on investment performance.
94) As with 529 Plans, a Coverdell ESA is exempt from federal income tax, but is subject to the same rules as a charitable organization regarding taxation of unrelated business income.
00 Table 6: Coordination of Tax Incentives-Scholarships, Credits, Coverdell ESA Assume that the following expenditures were made: Tuition and fees $15,000 Books, supplies, equipment 4,000 University-provided room & board 6,000 Total expenses $25,000 Sources of funds were: Scholarship $5,000 Coverdell ESA 15,000 ($10,000 earnings/$5,000 principal) Total funds $20,000 Scenario One--Take the Lifetime Learning Credit Apply the scholarship exclusion, which applies to tuition and fees and books, etc.
The Coverdell ESA is an investment vehicle offered through full-service banks and other financial service institutions to contributors with adjusted gross incomes of less than $110,000 for those who file their income tax singly and $220,000 for couples who file jointly.
John Bogert, financial advisor at Merrill Lynch in Mentor, doesn't see the Coverdell ESA utilized often but appreciates the benefits the plan offers.
Beneficiaries may have contributions made to both a Coverdell ESA and a state tuition program in the same year.
Certain restrictions prevent some upper-income families from participating, but anyone making less than $220,000 a year may open a Coverdell ESA, and may contribute up to $2000 a year.
While a Section 529 plan may only be used for qualified higher education expenses, a Coverdell ESA can be used towards elementary school, high school and college expenses.
Unlike most other education plans, the Coverdell ESA covers the QEEs of a beneficiary attending elementary or secondary school (i.
Topics for saving for College include: Upromise Rewards, 529 college savings plans, Upromise College Fund 529 Plan, Prepaid tuition plan and Coverdell ESA.