Coverdell Education Savings Account

In order to accumulate enough money for the education needs of your children and at the same time enjoy tax-free attitude, you may consider the opening of a Coverdell Education Savings Account (CESA), commonly referred to as Education IRA.

Education IRA Contribution Rules

Every year you can contribute to an Education IRA account up to $2,000 per student. Additionally, the amount of these contributions is not of a tax deductible character. Grandparents are also allowed to open an Education IRA account on behalf of their children regardless of the fact that they don't earn any income. The students on whose behalf the Education IRA account is opened should be below the age of 18. You can also make contributions to a 529 Plan, no matter that you already own an Education IRA account. Finally, limitations on the contribution amounts are set depending on the AGI (adjusted gross income).

Education IRA Earnings and Withdrawals Considerations

The earnings you make in your Education IRA account are exempt form taxes if they are used for the purpose of financing qualified higher education. Additionally, earnings are deferred from taxes. In order to avoid paying any taxes or penalties, withdrawals should be made before the student reaches the age of 30.

Additional Education IRA Implications

Whenever you need the need to, you can transfer mutual funds into your Education IRA account. The mutual funds should be part of a qualified family. Considerations about who will be in charge of the Education IRA account after the beneficiary reaches the age of 18 should be made before the opening of the account.

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