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Coverdell Education Savings Accounts Invest After-tax Dollars

Coverdell Education Savings Accounts are tax-exempt trusts. Contributions are made using after-tax dollars, similar to a Roth IRA, and are not deductible at the time of contribution. A tax benefit is created when there are qualified distributions from the account, as they are not included in gross income to the extent the distributions are used for qualified educational expenses.

Which expenses qualify under a Coverdell Account?

Qualified education expenses include post-secondary tuition, fees, books, supplies, equipment, "special-needs services" and reasonable room and board, if the student is enrolled in an institution at least half-time. For tax years up to 2011, qualified educational expenses also include K-through-12 tuition, extended day programs and most computer-related expenses.

What are the contribution requirements?

All Coverdell account contributions must be made before the beneficiary's 18th birthday and may not exceed $2,000 per year (limited to $500 a year after 2010). This contribution ceiling is applied on a per-beneficiary basis. All amounts in the Coverdell account must be distributed by the beneficiary's 30th birthday.

What are the income limitations?

The maximum allowable Coverdell account contribution is phased out for single taxpayers with a modified AGI in excess of $95,000 and for married taxpayers with a modified AGI in excess of $190,000. The Coverdell account is completely phased out for single taxpayers with a modified AGI of $110,000 and married taxpayers with a modified AGI of $220,000.

For more information, contact Mike Calahan at 312-980-2996 or Tara Wells at 312-980-3277 for more information.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.