Designed to grow and protect money that you set aside for educational expenses, the Coverdell Education Savings Account (formerly known as the Education IRA) is a convenient and effective way to save funds for college for all those who qualify.
You can make full contributions to a Coverdell Education Savings Account on behalf of a child under the age of 18 unless you are:
- An individual who makes between $95,000 and $110,000
- A married couple that makes between $190,000 and $220,000
(For individuals or couples in these income ranges, your contribution will be phased out.)
Advantages
Tax-free withdrawals
Earnings on investments and withdrawals are tax free, provided distributions are used to pay for qualifying education expenses.
Flexible contributions
Even if you are currently funding a 529 College Savings Plan, you may still make contributions of up to $2,000 per year to a Coverdell Education Savings Account.
Ease of transfer
Funds in a Coverdell Education Savings Account that are no longer needed can be rolled into a second account for another eligible family member without experiencing any adverse tax consequences.