Frequently Asked Questions
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Coverdell
1. What is a Coverdell Education Savings Account (CESA)?
     

The Coverdell Education Savings Account (CESA) was formerly known as the Education IRA.  In 2001, it was renamed the Coverdell Education Savings Account and along with a new name, came changes that made it a much more attractive vehicle for saving for a child’s education.  The major features currently include: 

  • a contribution limit of $2,000 per child per year
  • income limits of $220,000 for married contributors who file joint tax returns
  • contributions may come from income-qualified individuals, corporations, businesses, unions, foundations, tax-exempt organizations
  • qualified expenses cover costs required for enrollment or attendance for years k-12 as well as higher education
  • upon establishment of a new account, beneficiary must be under 18 years old and contributions may be made to the account until the beneficiary reaches 18.  Funds in account must be used by the time beneficiary reaches age 30.  There is a waiver of age restriction for certain special needs children.
 
2. How much can be contributed for each child in a given year?
3. What is a qualified expense?
4. Who may contribute to a Coverdell Education Savings Account?
5. Other than the Financial Organization, who are the parties involved in the CESA?
6. Am I allowed to change the beneficiary?
7. Do I have to pay taxes on the account earnings?
8. Who is a member of the family?
9. Can fund be rolled over from one CESA to another CESA established for another family member?
10. Can a CESA be rolled over to a 529 College Savings Plan?
11. Can funds from a Qualified Tuition Plan (529 Plan) be rolled over to a CESA?
12. How long can you make CESA contributions for the Designated Beneficiary?
13. What is the deadline for CESA contributions?
14. Why is the age 30 important?
15. Does the Designated Beneficiary get control of the money when he or she reaches the age of majority?
16. Do CESA’s mirror IRA’s in that the Contributor needs to have earned income?
17. What happens if the funds are not used for education purposes?
18. What happens if the annual contributions for a child exceed the $2,000 limit?
19. Are transfers between CESA’s non-reportable as they are with IRA’s?
20. What reporting is required to the financial organization in the case of a trustee-to-trustee transfer?
21. Will the CESA prevent me from taking advantage of other education savings options?
22. What are the tax consequences if the Designated Beneficiary doesn’t need the money because they have received a scholarship?
23. Are contributions to a CESA tax deductible?
24. What does the age waiver for a special needs beneficiary entail?
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