Coverdell Education Savings Accounts (CESA), Education IRA

Coverdell Education Savings Accounts

Save for School

Coverdell Education Savings Accounts (CESAs), also referred to as Education IRA, have been in effect since 1998 as a vehicle for making education investments for minors. While this type of account does not qualify for tax exemption at the time of deposit, the earnings on a CESA are not taxable at the time of distribution, so long as the distribution is used for qualified educational expenses for the designated beneficiary.

The depositor must meet certain modified gross income requirements. (Refer to your financial planner or CPA for qualifying criteria.) This individual will most likely be the parent or guardian of the designated beneficiary (but doesn’t have to be), and this person has the power to direct all investments and interact with the financial organization regarding administration, management and distribution of the account.

Some CESA Regulations

The CESA is available for a maximum contribution of $2,000 per child, per year, until the beneficiary’s 18th birthday. CESA deposits can be made in addition to a regular and/or Roth IRA contribution. All contributions must be made prior to the due date of the contributor’s tax return. Acceptable distributions from a CESA for higher education include tuition, books, required supplies and equipment and room and board.