Coverdell Education Savings Account
As with many investments, a Coverdell ESA is subject to a range of regulations that a Financial Advisor or tax professional could discuss in more depth. In a Coverdell ESA, contributions are made post-tax and any accumulated growth is tax-free for qualified distributions. Additionally, when a student applies for financial aid, any funds held in the Coverdell ESA may be excluded from the calculation of financial aid; as noted above, a Financial Advisor or tax professional could also assist with these calculations. Also with a Coverdell ESA, the money you save in the account can be used for qualified education expenses from elementary school through higher education (such as college).
Coverdell ESA qualified education expenses include:
- Tuition and fees
- Room and board
- Supplies and equipment
- Special needs services
Managing a Coverdell Education Savings Account
There are many things to keep in mind when selecting a Coverdell ESA. First, contributions can only be made until the beneficiary turns 18, and the current maximum annual contribution is $2,000. These contributions can only be made in cash. The beneficiary is also required to take all distributions by age 30. You can transfer any remaining money in the Coverdell ESA to a Qualified Tuition Program, such as a 529 plan, for the same beneficiary, or to an ESA of an eligible family member, such as another dependent minor.
Are You Eligible?
To be eligible to contribute to a Coverdell ESA, your modified adjusted gross income (MAGI) for the year must be less than $110,000. For married couples filing a joint return, your MAGI must be under $220,000; note that both of these limits can change annually. Anyone can make contributions to the Coverdell account, including the child who is the beneficiary of the account, their parents, grandparents or other relatives, provided they are eligible according to their MAGI.
To open a Coverdell ESA with Delta Community Credit Union, please contact our ESA Specialists at 404-677-4600.