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 But any earnings that accumulate in the account can be withdrawn tax free if they're used to pay qualified educational expenses for the beneficiary until he or she reaches age 30.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 ?
Public education advocates did an about-face on the bill once they saw it included education savings accounts, with about 40 organizations sending letters to all Senate offices asking them to vote against it.
One reform in particular has large potential to transform American education: education savings accounts. (22) It is an idea I am proud to say was born in my former organization, the Goldwater Institute, (23) and it was born of necessity.
A taxpayer may claim an American Opportunity Credit or Lifetime Learning Credit for the same taxable year there are distributions from an Education Savings Account, provided the distributions are used to pay for different education costs.
Common funding alternatives include Education Savings Accounts (ESAs), Section 529 savings plans, and Uniform Transfers to Minors Act (UTMA) accounts.
This article will focus on Education Savings Accounts and Qualified State Tuition Programs, also known as Section 529 plans.
While contributions to a Coverdell Education Savings Account aren't deductible, distributions are tax free as long as the money is used to pay for qualified education expenses.
Lee's plan would divert $25 million away from public schools to fund an education savings account voucher program.
This legislation would amend create an opt-in for military families who choose to pursue alternative educational options to apply for an education savings account worth $6,000 annually.
High school students each received a $1,000 check and middle school students each received a tax-advantaged Coverdell Education Savings Account (CESA) with $500 deposited, to encourage future saving.
"An education savings account would afford them a much different dynamic and approach to be able to get their education in the way that best works for them."
Anyone with income below set limits can contribute up to $2,000 annually to a Coverdell Education Savings Account (ESA) for a beneficiary who has not yet attained age 18 [IRC section 530(b)(1)(A)(ii)]; contributions can be made until the birthday.

Full browser ?