A Coverdell Education Savings Account, or ESA (formerly known as an Education IRA), is a tax-favored education funding option for your children or grandchildren ― from kindergarten to college.
A Coverdell account can be used to pay qualified education expenses, including tuition and fees, books, uniforms, tutoring, room and board, transportation and computers for students in elementary through high school, college and graduate school. Consider these features and requirements of ESAs:
A maximum contribution of $2,000 per child, per year, until the child reaches age 181.
Contributions are not tax-deductible, but Coverdell savings account earnings and distributions accumulate tax-deferred.
Contributions phase out for incomes between $95,000 and $110,000 (single filers) or between $190,000 and $220,000 (married filing jointly).
The education funds must be used by the time the child reaches age 30, or rolled over to another ESA for a qualified family member, or the earnings will be taxed as ordinary income of the account owner, plus a 10 percent IRS penalty.
You can contribute to both a Coverdell Account and a Section 529 College Savings Plan in the same year, but there may be gift tax implications if you give more than $11,000 per child.
The account owner may assume control of the account until the student reaches the age of majority.
A Coverdell Education Savings Account from Farm bureau offers these well-respected mutual fund families to manage your education funding investment — American Funds®, Dreyfus Premier Funds and EquiTrust® Mutual Funds.
For help comparing 529 plans and ESAs or other education funding options, find a local agent.
1 This provision is currently set to expire in 2010.