Ready to open a Coverdell Education Savings Account?
An ESA is a savings solution with the specific purpose of paying for a student’s education expenses. We’re talking tuition, fees, books, supplies, equipment, and to pay for qualified education expenses for elementary, secondary and higher education (college). The contributions aren’t tax deductible, but they can earn tax-deferred interest until they’re distributed. And the student won’t owe tax on any distribution from the account if it’s equal to or less than his or her qualified education expenses.
The total contributions for a child for a taxable year cannot exceed $2,000. Eligible taxpayers may contribute up to $2,000 for multiple children in a year.
Amounts distributed from an ESA that exceed the child’s qualified expenses in a taxable year may be subject to income tax and an additional 10 percent penalty tax. If the child doesn’t need the money for education expenses, the assets may be rolled over or transferred to a qualified family member’s ESA or to a qualified tuition program (QTP).