Reorder Checks   For Sale   Links   

Coverdell Education Savings Account - formerly known as the Education IRA

The Taxpayer Relief Act of 1997 created the Education IRA, now known as the Coverdell Education Savings Account. The Coverdell Education Savings Account is not an IRA at all, but a new way to save for qualified higher education expenses such as tuition, fees, books, supplies, equipment (including the purchase of a computer, educational software and internet access) required for college, vocational, public and private elementary and high schools. These options were improved by the economic Growth and Tax Relief Reconciliation Act of 2001.

How Does The Coverdell Education Savings Account Work?

Education Savings Accounts are available only to children under 18. Each child can receive up to $2,000 per year in after-tax contributions from relatives and friends whose adjusted gross income (AGI) is $220,000 or less if married, or $110,000 if single. Earnings grow tax-free.

Contributions can be made for beneficiaries with special needs (determined by the Treasury) over age 18. Coverdell Education Savings Account balances for those with special needs are not required to be distributed by age 30.

 Distributions taken after five years are tax free and must be used for qualified higher education expenses. Tax penalties apply for early withdrawals and use for non-qualified expenses.

Please consult a tax advisor to determine how federal, state, and local tax laws affect Education Savings Accounts.