Education savings account


Also found in: Dictionary, Legal, Encyclopedia.
Related to Education savings account: 529 College Savings Plan

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.

Education savings account (ESA).

You can put up to $2,000 a year into a Coverdell education savings account (ESA) that you establish in the name of a minor child. The assets in the account can be invested any way you choose.

There is no limit to the number of accounts you can set up for different beneficiaries, but no more than a total of $2,000 can be contributed in a single beneficiary's name in any one year. If you choose, you may switch the beneficiary of an ESA to another member of the same extended family.

Your contribution is not tax deductible. But any earnings that accumulate in the account can be withdrawn tax free if they're used to pay qualified educational expenses for the beneficiary until he or she reaches age 30. The costs can be incurred at any level, from elementary school through a graduate degree, or at a qualified post-secondary technical or vocational school.

There are no restrictions on using ESA money in the same year the student uses other tax-free savings, or the student, parent, or guardian uses tax credits for educational expenses. But you can't take a credit for expenses you covered with tax-free withdrawals.

To qualify to make a full $2,000 contribution to an ESA, your modified adjusted gross income (MAGI) must be $95,000 or less, and your right to make any contribution at all is phased out if your MAGI is $110,000 if you're a single taxpayer. The comparable range if you're married and file a joint return is $190,000, phased out at $220,000.

References in periodicals archive ?
After 2001, there would be no phase-out of the availability of a Coverdell Education Savings Account for the couple, and they would receive full benefit of a contribution.
National survey of parents reveals missed opportunities to improve and expand education savings accounts
The ability to contribute to an Education Savings Account is phased out for taxpayers filing jointly with Adjusted Gross Income (AGI) between $150,000 and $160,000, while for those filing singly the phase-out AGI is between $95,000 and $110,000.
Not wanting to waste what they perceived as a valuable opportunity to work with a like-minded Congress, groups such as the Christian Coalition and Focus on the Family developed a "wish list" of legislative priorities, including school vouchers, education savings accounts for private school costs and even a constitutional amendment virtually erasing church-state separation from the Bill of Rights.
After parents and teens have assessed their financial status and anticipated their impending needs, the next step is to compare the features of different education savings choices, such as a 529 College Savings Plan, custodial account, or Coverdell Education Savings Account, to determine which may be the best fit.
But while you can't write off your child's parochial school education as a deduction, you can get some tax benefit by establishing a Coverdell Education Savings Account (formerly an Education IRA that pays qualified education expenses for a designated beneficiary.
College savings accounts such as a state-sponsored 529 plan or Coverdell Education Savings Account offer tax-free investment growth potential as long as withdrawals are used for qualified education expenses.
Best of all, those with a 529 plan or Coverdell Education Savings Account may not be affected at all.
In its rankings of all 49 programs, the Friedman Foundation showed voucher and education savings account programs tend to have stronger funding but weaker eligibility, whereas tax-credit programs have higher eligibility but low per-student funding.
For instance, the Coverdell Education Savings Account (CESA) sponsored by Madison Mosaic Funds waives the account fee of $12.
6) Don't count out the ESA -- Think a Coverdell Education Savings Account (ESA) is too limited?
Also, the minimum initial investment required to open a Vanguard Education Savings Account has increased to $2,000 (the maximum annual contribution amount set forth by law), from $1,000.

Full browser ?