Coverdell Educational Savings
Designed to fund higher education expenses. Known as the Coverdell IRA.
- No set-up fees or annual maintenance fees
- $2000 annual limit is in addition to the $2,000 per year total allowed for traditional IRA and Roth IRA contributions
- A safe, smart way to help pave the way to your child's success
- Your Coverdell Education Savings Account can not only be used for higher-education expenses, but also for K-12 costs
- Accounts Federally Insured to $250,000 by NCUA an agency of the U.S. Government.
Q&A Coverdell IRA Brochure
Is an Education IRA a useful way to save for my child's future?
If you've questioned whether it was worth contributing to an Education IRA (now known as the Coverdell Education Savings Account) in the past, you may want to reconsider now that it's new and improved. The key advantage of an Education IRA remains the same - tax- and penalty-free withdrawals (including earnings!) for qualified education expenses. But starting in tax year 2002, you can put $2,000 per child, per year into an Education IRA instead of the previous $500 limit. And qualified expenses apply to not only college costs, but also to primary and secondary education. By putting $2,000 into an Education IRA every year for 10 years, you'd have $59,000 with a 5% return. This is $44,000 more than you would've had by contributing $500 given the same time period and return.
Am I eligible to contribute to an Education IRA (now known as the Coverdell Education Savings Account)?
If you're married and you file a joint tax return, your likelihood of being eligible to make Education IRA contributions is better than ever starting in tax year 2002. That's because the new laws increased the "phase-out" income range for contributions by joint filers from $150,000-$160,000 to $190,000$220,000. Any joint filers within the phase-out range can make partial contributions to an Education IRA. Joint filers with income under $190,000 can contribute the full $2,000 per year, per child.
The phase-out range for single filers is the same as it was: $95,000 - $110,000. Maximum $2,000 annual contributions are allowed for single filers with income under $95,000.
When is the contribution deadline for Education IRAs?
As of tax year 2002, the new contribution deadline is the federal income tax deadline. For example, Education IRA contributions for 2012 will be allowed until April 15, 2013 - just like contributions to traditional and Roth IRAs.
So now you have even more time to make sure you set aside that money your child needs for primary, secondary or college education expenses.
Can I use my Education IRA to fund my child's private elementary school costs?
Yes, you can. Your Education IRA (now known as the Coverdell Education Savings Account) can be used not only for higher-education expenses but also for K-12 costs. And qualified primary and secondary education expenses aren't limited to just tuition, fees and room and board. They also include uniforms, transportation, extended day care, and even home computers.
With more qualified reasons for tax and penalty-free withdrawals, Education IRAs are a smarter way than ever to help fund your child's education.
Can I use an Education IRA in combination with other education savings incentives?
Under the old rules, contributions to and distributions from an Education IRA (now known as the Coverdell Education Savings Account) prevented the use of other tax-favored options in the same year - including the Lifetime Learning and HOPE Scholarship tax credits. But starting in tax year 2002, you can claim either of these credits for your child and exclude from gross income any amounts distributed from that same child's Education IRA. The only caution is you can't claim a credit and take an Education IRA distribution for the same expenses in the same tax year. In other words, you couldn't use both for schoolbooks - but you could use one for schoolbooks and one for tuition.
The new rules also let you put money into a 529 state college savings plan in the same year that you contribute to an Education IRA - or withdraw from both in the same year.
What do we do with Education IRA funds if our child decides not to go to college?
Withdrawals of earnings from an Education IRA (now known as the Coverdell Education Savings Account) are only tax-free if they're used for qualified K-12 or higher education expenses. But you can roll any unused funds into the Education IRA of a family member. That not only includes siblings and step-siblings of the original Education IRA beneficiary, but also nieces, nephews, spouses, children, and other relatives. The magic number is 30 - the new beneficiary must be under age 30 at the time of the rollover and must use the funds before he or she turns 30.
*Consult a tax professional regarding your specific circumstances.