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 Contributions are not tax-deductible, but earnings grow tax-deferred until withdrawn. Money withdrawn prior to the child turning age 30 to pay for elementary, secondary, or postsecondary education expenses after high school is not subject to federal income tax.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 ?
NO" to expanding education IRAs allowing tax credits to be used for elementary and secondary education expenses 6/27/1997.
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)
Education IRAs, child care credits, and shifting income to children and kiddie tax planning come to mind.
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.
Several changes to the contribution rules have been enacted by the 2002 tax law that affect Coverdell Education Savings Accounts--formerly known as Education IRAs Here's a recap:
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.
In 2001, Education IRAs have been renamed Coverdell Education Savings Accounts.
In addition, the income cap is on contributors, rather than the child's parents, which prohibits generous individuals who earn more than $95,000 a year from setting up Education IRAs for needy children.

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