Contributions

Q: What happens if contributions to a Coverdell ESA are more than the allowable limit?

A: Aggregate contributions for the benefit of a particular child in excess of $2,000 for a taxable year are treated as excess contributions. If the excess contributions (and the earnings attributable to them) are not withdrawn from the child's account(s) before June 1 of the following tax year, the excess contributions are subject to a 6% excise tax (reported on the beneficiary's tax return) for each year the excess amount remains in the account.

Q: Are contributions made to a Coverdell ESA tax deductible?

A: No. However, all earnings in the account accumulate on a tax-deferred basis and can be withdrawn from the account tax-free if used to pay for qualified education expenses.

Q: May contributions be made to both a Coverdell ESA and a qualified tuition program on behalf of the same designated beneficiary for the same taxable year?

A: Yes.

Q: Does an individual have to be related to a child to contribute to the child's Coverdell ESA?

A: No. Anyone (including the child for whose benefit the account is established) may contribute to a child's Coverdell ESA as long as his or her income falls within the adjusted gross income guidelines.

Q: What are the income limits for determining eligibility to contribute to a Coverdell ESA?

A: Please refer to the following table.

Q: What is the annual deadline for contributing to a Coverdell ESA?

A: For tax year 2002 and beyond, contributions to a Coverdell ESA can be made up to the due date of the depositor's income tax return for that year excluding extensions (usually April 15 of the following year). For example, 2002 Coverdell ESA contributions can be made from January 1, 2002 through April 15, 2003.