- Purpose is to pay a child’s education expenses.
- Earnings are tax-free if used for qualified education expenses. *
- Qualified expenses can be for public, private or parochial elementary, secondary or post-secondary expenses.
- Qualified expenses may include tuition, fees, books, supplies and equipment, computer technology or equipment.
- Room and board may qualify if certain conditions are met.
- Non-qualified distributions may be subject to tax and penalty.*
- The Designated Beneficiary (child) must be under age 18 for regular contributions, unless the child is a special needs student.
- Responsible Individual must be the child’s parent or legal guardian.
- Persons other than parents may make contributions, though certain income restrictions apply.
- Companies, including tax-exempt organizations, are allowed to contribute to an Education Savings Account.
- Contributions are not tax-deductible.*
- Total contributions may not exceed $2,000 per child per year (2011).
- Coverdell ESAs are flexible and can be moved to a qualifying family member if not used by the original Designated Beneficiary.
- Funds must be used or transferred to the ESA of a qualifying family member by the 30th birthday of the original Designated Beneficiary.
Fees could reduce the earnings on the account.
*Consult with a qualified professional for tax advice.