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College Funding |
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Coverdell Education Savings Account (formerly known as an Education IRA) |
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| How much can you invest? | $2,000 maximum annual contribution per child up to age 18 except for rollover |
| Who controls the account? | -Parent or other responsible individual |
| Tax Treatment |
-Earnings are tax free if used for qualified
education expenses -You may also contribute to a 529 plan without penalty |
| Restrictions on using the money | -Withdrawals must be used for qualified elementary or secondary expenses (K-12) or qualified higher education expenses |
| Financial Aid Considerations |
-Considered the account owner’s -Earnings are taxable in years HOPE or Lifetime Learning Credit is used |
| Advantages |
-Contributions can be made by anyone -Can transfer account to another qualifying family members -Withdrawals can be used fork-12 expenses |
| Disadvantages |
-Tax and 10% penalty on earnings for non-qualified withdrawals -Low contribution limit -Not available for taxpayers with Adjusted Gross Incomes over $220,000 (joint) or $110,000 (single) |