Education Savings Accounts
education savings accounts (also known as Education
IRAs. It is also commonly misspelled as Coverdale)
are used to save for education or college expenses.
The money in the Coverdell grows tax deferred as long
as the funds are used for qualified education expenses.
can be used to pay for elementary and secondary school
expenses. This means kindergarten, through 12th grade
and college or trade schools.
and 529 plans
can contribute to a Coverdell education savings
account AND contribute to a 529 plan at the same time.
One of the great advantages to a Coverdell account
is that you can decide exactly which investment vehicle
to invest in. For most people this would be a mutual
fund. With a 529 plan, you have to invest in the specific
funds that each state selects.
major advantage over 529 plans are expenses. Some state
529 have outrageous fees, both in sales commissions
and ongoing yearly management expense ratios. You get
to select the mutual fund when you open up a Coverdell
education savings account.
unlike a 529 plan, you can use the funds from a Coverdell
account for kindergarten through 12th grade.
Coverdell Education Savings Account Considerations
maximum contribution for each beneficiary is currently
$2,000 a year. (It used to be only $500 a year prior
to 2002, making this a much more viable savings
vehicle for college!). A 529 plan does not have
must earn less than $220,000 for married couples
and $110,000 for single filers in order to be eligible
to make contributions.
are not federally tax deductible. Only a small number
of states allow deductions.
to a Coverdell education savings account can be
made until the tax filing deadline (Usually this
is April 15), not including extensions. For example,
if you wanted to make a contribution for the 2004
tax year, you have until April 15, 2005 to fund
Coverdell account must be completely withdrawn by
the time the beneficiary reaches 30 years of age.
If the account still has a balance beyond that point,
the balance is subject to taxes and penalties.
to what I have read on some sites, the money in
a Coverdell education savings account are the assets
of the custodian. These accounts receive the same
treatment as 529 plans when applying for federal
additional information on Coverdell education savings
accounts check out these helpful sites:
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