What Are the Coverdell Education Savings Accounts(ESA)?
The Coverdell ESAs are trusts or custodial accounts set up for a beneficiary, such as a college student, to pay for qualified education expenses, such as tuition. These accounts can be opened at a bank or another IRS-approved organization that offers these plans, and the amount of money in the account can grow tax-free. If you make withdrawals for approved costs related to your college degree, like tuition, books and supplies, these withdrawals are also tax-free. There are certain limitations to Coverdell ESAs. The beneficiary must be under 18 when the savings account is set up, all contributions must be made in cash, and there is a $2,000 annual limit for contributions to the beneficiary, regardless of how many accounts are set up for that person. The amount of money for college someone can contribute to the savings account depends on their income. Also, if the beneficiary doesn’t use all the funds by age 30, these funds will be taxed as income.
