Coverdell Education Savings Accounts


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Coverdell ESA

A Coverdell ESA is a savings account set up to help fund the college education of some beneficiary. It gains it's name from the late Senator Paul Coverdell (R-GA) who helped push it through Congress. Formerly known as an Education IRA (Individual Retirement Account), the Coverdell ESA has one advantage over the popular 529 plans...money from the ESA can also be used for primary and secondary school expenses. You may only contribute up to $2,000 per year to a Coverdell account, unlike the 529's which do not have an upper limit to yearly contributions until the maximum lifetime limit is reached.

While 529 investments are limited to what is available in each state's program, almost any investment, including stocks, bonds and mutual funds can be placed into a Coverdell ESA. ESA's follow the same investment rules as Individual Retirement Accounts, which provide some added flexibility for the donor. There are income limitations to follow. Those making an MAGI (Modified Adjusted Gross Income) of more than $110,000 ($220,000 for those filing jointly) are not eligible to donate to a Coverdell Account, though there is no such restriction on a 529 College Savings Plan.

Since the yearly limit that can be placed into all ESA's for a beneficiary is $2,000, the Coverdell program has lost some of it's luster and most people have turned to 529 college savings plans to help fund college educations.

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