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Education IRA
(Coverdell Education Savings Account)

An Education IRA is meant to give a tax shield to savings for educational purposes.  Contributions to an Education IRA are considered to be a gift to the beneficiary of the account. These contributions are not tax-deductible. Only the beneficiary may make withdrawals from this account for qualifying elementary, secondary, and higher education expenses.

 

Education IRA (Coverdell Education Savings Account)
Who can contribute? You are eligible if you earn compensation and your MAGI* is less than the defined limits set by Congress.  If your MAGI is too high to contribute the annual contribution limit, you may be able to make a smaller contribution.

Contributions not allowed after the beneficiary reaches age 18 (except for special-needs beneficiaries)
How much can I contribute? $2,000 per child

Limit applies to all Coverdell Education Savings Accounts (ESA) for the same child
Who can make deductible contributions? No one can deduct contributions
What are the tax advantages? Withdrawals for certain qualified education expenses are tax-free

Special-needs beneficiaries can withdraw funds tax-free to pay for qualified education expenses at any age

Qualified education expenses may include tuition, fees, books, computer equipment and technology required for elementary, secondary and post-secondary education

A beneficiary may receive tax-free distributions from a Coverdell ESA in the same year he or she claims the Lifetime Learning or HOPE Scholarship tax credits
When can I withdraw without restrictions?

Withdrawals are tax- and penalty-free only for qualified education expenses (earnings are subject to tax and penalty for most other withdrawals)

Funds can be transferred from one child's account to an account for another child in the family

* MAGI - modified adjusted gross income from the federal tax form
** Lifetime limit for exemption on first-time home purchase is $10,000
*** Formerly known as the Education IRA


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