Coverdell Education Savings Account

What is a Coverdell Education Savings Account?

A Coverdell Education Savings Account is a type of tax-preferred savings and investment account authorized by Internal Revenue Code Section 530 to encourage taxpayers to save for future education expenses. Coverdell Education Savings Accounts first became available as of January 1, 1998, for the 1998 calendar year, as a result of the taxpayer Relief Act of 1997. The annual contribution limit for contributions during the period of 1998-2001 was $500 per designated beneficiary. The current annual contribution limit is $2,000 per designated beneficiary.

Who generally establishes Coverdell Education Savings Accounts?

Grandparents and parents generally are the individuals who establish Coverdell Education Savings Accounts. However, there is no legal requirement that a person must be a relative of the person for whom they wish to contribute funds to a Coverdell Education Savings Account.

What is the purpose for Coverdell Education Savings Accounts?

The primary reason for creating and establishing Coverdell Education Savings Accounts has been greatly expanded. Prior to EGTRRA, the defined purpose of a Coverdell Education Savings Account was to accumulate funds to be used to pay for college, technical school, or postgraduate work. After 2001, the Coverdell Education Savings Account may be used to pay for elementary and secondary education (kindergarten through grade 12) expenses incurred in a public, private, or religious schools, as well as for college, technical school, or postgraduate work.

For further information, please contact us.