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 Contributions are not tax-deductible, but earnings grow tax-deferred until withdrawn. Money withdrawn prior to the child turning age 30 to pay for elementary, secondary, or postsecondary education expenses after high school is not subject to federal income tax.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.
References in periodicals archive ?
Coverdell Education Savings Account--These plans were originally called Education IRAs, but that moniker created confusion because they were really not retirement accounts.
These accounts were formerly known as Education IRAs.
Contribute to a Coverdell account: Formerly known ns education IRAs, these accounts are limited to $2,000 per child per year, and must be made by April 15th of the year following the year to which de contribution applies.
Education IRAs (or Coverdell Education Savings Accounts)
The discussion of education costs include Education IRAs, 529 plans, QTPs and various educational credits, as well as how to apply for college financial aid.
The amounts that can be contributed to Section 529 Plans are not limited as Education IRAs are.
Under the old law, a taxpayer could make nondeductible contributions of up to $500 per designated beneficiary to education IRAS exclusively to pay for qualified higher education expenses such as tuition, fees, books, supplies, and equipment.
Similarly, the same exceptions from the penalty for education IRAs apply.
Another way to save on educational expenses is with Coverdell Education Savings Accounts (ESAs), formerly known as Education IRAs.
Similar to the Education IRAs, you can get both the Hope or Lifetime Learning Credit and tax-free distributions from your Section 529 plan in the same year, as long as they cover different expenses.
Further, contribution limit for education IRAs goes up to $2,000 for 2002.

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