Coverdell Savings Accounts
A Coverdell Education Savings Account is a nondeductible education savings account. The investment earnings from these accounts accrue and are withdrawn tax-free, provided the proceeds are used to pay qualified higher education expenses of the account beneficiary.
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Contributions are nondeductible
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Annual contribution is limited to $2,000
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Contributions are subject to an AGI Phase Out (no annual Inflation adjustment)
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Joint - $190,000 – $220,000
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Others - $95,000 - $110,000
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Earnings are tax-free if used for qualified expenses.
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Expenses include Kindergarten and above
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6% excess contribution penalty
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10% unqualified distribution penalty
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Can be rolled over or transferred to another qualified member of the taxpayer’s family who is between the ages 0 and 29
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Mandatory distributions prior to age 30 except for special needs students.
Related IRC and IRS Publications and Forms
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Pub 970 – Tax Benefits for Education
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Form 1099-Q - Payments from Qualified Education Programs
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Form 5498-ESA Coverdell ESA Contribution Information
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Form 5329 – Add’l Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts
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IRC Sec 530