Coverdell Education Savings Account

Contributions

You can contribute to a Coverdell Education Savings Account, even if you don’t have earned income. Contributions are made with after-tax dollars, and you cannot take a deduction for the contribution. Your contribution is limited to $2,000 per year per child until the child reaches the age of 18.¹ Contributions are phased out as your adjusted gross income increases from $190,000 to $220,000 for married couples filing jointly and from $95,000 to $110,000 for individuals.

Earnings

Earnings grow tax-free.

Withdrawals

Withdrawals used for qualified education expenses — tuition, books, and room and board for kindergarten through high school — are free from federal income tax through 2010.¹ Withdrawals for higher education expenses are tax-free.

If any balance remains in the account after all education expenses are paid for, the account can be rolled over to another Coverdell Education Savings Account for another eligible family member. If the beneficiary, also called the recipient, reaches age 30 and the balance has not been rolled over, the account balance must be distributed as ordinary income, with income taxes and a 10% penalty on earnings due.

Withdrawals for non-education expenses may be subject to federal income tax and a 10% federal tax penalty on earnings.

Credits/qualified tuition program

The beneficiary can claim a Hope Scholarship or Lifetime Learning credit and take a qualified distribution from an education savings account in the same tax year, as long as the amounts are used to pay for different educational purposes.

Contributions can be made to a Coverdell Education Savings Account and to a qualified tuition program for the same beneficiary in the same tax year as long as the amounts are used to pay for different educational purposes.

Visit our college savings comparison chart to quickly view the advantages of the most popular ways people save for college.

¹ These tax benefits are effective through 2010 unless extended by Congress.