Telhio: Coverdell Education Chart

Coverdell Education Savings Account (CESA)

The education IRA, a vehicle that allows individuals to save money for a child's education on a tax-favored basis was renamed the Coverdell Education Savings Account (CESA) on July 26, 2001. Some of the more exciting changes to the CESA include:

Increased annual contribution limit from $500 to $2,000
Expanded definition of qualified education expenses
Changed contribution deadline from December 31 of the tax year to the tax-filing due date (not including extensions) - generally April 15

Feature

Education IRA

Eligible to contribute Anyone (even nonindividuals) can be a CESA contributor: a parent or other relative, neighbor, friend, and even the child on whose behalf the contribution is made. A CESA contribution is not tax deductible.

Income qualifications Based on adjusted gross income: Single up to $110,000; Married filing joint return, up to $220,000.

Tax treatment of contribution Post-tax dollars. Taxes paid on amount contributed. Earnings (interest) are tax-free at time of withdrawal as long as qualifications are met.

Mandatory distributions None

Penalty May be subject to 10% if withdrawals are used for other than education purposes.

Penalty-free withdrawals

When withdrawn to pay educational expenses for designated child
Death of designated child
Disability of designated child
Due to scholarship payment received

Contribution amount allowed As of January 1, 2002, also the state contribution deadline, $2,000 per year per child is allowed. This is in addition to any contribution made to a Traditional or Roth IRA. Contribution to a CESA does not reduce the annual amount that can be contributed to a Traditional or Roth IRA and is not deductible. Contributions may be made to a CESA and to a qualified state tuition program (QSTP) in the same year.
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Feature	Education IRA
Eligible to contribute	Anyone (even nonindividuals) can be a CESA contributor: a parent or other relative, neighbor, friend, and even the child on whose behalf the contribution is made. A CESA contribution is not tax deductible.
Income qualifications	Based on adjusted gross income: Single up to $110,000; Married filing joint return, up to $220,000.
Tax treatment of contribution	Post-tax dollars. Taxes paid on amount contributed. Earnings (interest) are tax-free at time of withdrawal as long as qualifications are met.
Mandatory distributions	None
Penalty	May be subject to 10% if withdrawals are used for other than education purposes.
Penalty-free withdrawals	When withdrawn to pay educational expenses for designated child Death of designated child Disability of designated child Due to scholarship payment received
Contribution amount allowed	As of January 1, 2002, also the state contribution deadline, $2,000 per year per child is allowed. This is in addition to any contribution made to a Traditional or Roth IRA. Contribution to a CESA does not reduce the annual amount that can be contributed to a Traditional or Roth IRA and is not deductible. Contributions may be made to a CESA and to a qualified state tuition program (QSTP) in the same year.