A Coverdell Education Savings Account (CESA) is an investment tool created to pay for a child's education. The plan allows after-tax contributions of $2,000 per year for each child until they reach age 18. These contributions and their subsequent earnings are tax-free when withdrawn to pay for qualified education expenses.
What is a qualified education expense?
A qualified education expense requires that your child be enrolled at or attending an eligible educational institution, including elementary, secondary, or post-secondary institutions. Expenses include tuition, fees, books, supplies, and equipment. Funds must be distributed and completely used by the time the child reaches age 30.
Who can contribute to a CESA?
Almost anyone can contribute to a CESA; it's an ideal way to invest for a child's future education expenses. A child can receive up to $2,000 per year in contributions from all sources and it makes no difference if this is done with a single account or multiple accounts benefiting the same child.
The amount of a person's contributions may be limited if their modified adjusted gross income exceeds $95,000 ($190,000 for joint returns). No contribution is allowed if your modified adjusted gross income exceeds $110,000 ($220,000 for joint returns).
Am I allowed to change the designated beneficiary?
Yes. Often, the person responsible for the CESA will wish to name a new beneficiary because there are remaining funds after the current beneficiary has finished schooling. The only requirement is that the new beneficiary be an eligible family member under the age of 18 (unless the beneficiary is a special needs beneficiary).