I just downloaded the forms for opening a Coverdell Education Savings Account for my son. I opened an ESA for my daughter a few years ago, when she was four. My son will be four in a few days, and I am ready to begin funding an ESA for him.
Contributions to a Coverdell ESA grow tax-free.
Total contributions are limited to $2000 per year, per child.
Contributions can be made by parents, grandparents, friends, etc.
Our goal, in the next 14 months, is to fully-fund my son’s ESA for 2007 (by April 15 of 2008) and for 2008 (by April 15 of 2009).
As is the case with most retirement or education savings accounts, there are contribution limits, income limits, and tax implications associated with the Coverdell Education Savings Account.
Contribution limits – $2000 per child, per year. (Information current as of December 30, 2007)
Income limits – $2000 can be contributed as long as modified adjusted gross income is less than ($190,000 filing joint or $95 filing single).
Tax Implications – Distributions are tax-free, as long as the money is used to pay for qualified education expense.
(Side note: Unless Congress acts, certain benefits may expire in 2010. I’m not really worried about this, because I expect that Congress will act. But, it is worth noting.)
For more information about the Coverdell Education Savings Account, visit Savingforcollege and the IRS website.
Please note, I am NOT a financial planner or tax professional. PLEASE, consult a qualified financial planner and / or tax professional if you have any questions about opening or funding an Education Savings Account.