Give the Gift of Education with a Coverdell Education Savings Account
Prepare for the Future with a Coverdell ESA
The Coverdell Education Savings Account (ESA) is a trust or custodial account that offers you a tax-advantaged method to save up to $2,000 per year for your child's education — both elementary/secondary education (kindergarten through grade 12) and post-secondary education (college, graduate school, vocational school, etc.). You can establish a Coverdell Education Savings Account through State Farm® for the benefit of any child generally under age 18.
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Ages and Accounts
You can contribute to a Coverdell Education Savings Account anytime up to the child's 18th birthday. Contributions will not be accepted after that time, unless the child is a special needs beneficiary (as defined by Treasury Department regulations).
There is no limit to the number of Coverdell Education Savings Accounts that can be established designating a particular child as beneficiary.
You may contribute up to $2,000 annually to a child's Coverdell Education Savings Account if your modified adjusted gross income (see table below) is less than $95,000 as a single tax filer (or married filing separate) or $190,000 as a married couple filing jointly in the tax year in which you contribute. The $2,000 maximum contribution limit is gradually reduced if your modified adjusted gross income exceeds these limits.
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 income guidelines and the total of all contributions for one beneficiary for the tax year does not exceed the $2,000 limit.
$2,000 per child (designated beneficiary of the account), regardless of the number of accounts designating a particular child as beneficiary.
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 If the excess contributions (and the earnings attributable to them) are not withdrawn from the child's account(s) before June 1 of the following tax year, the excess contributions are subject to a 6% excise tax (reported on the beneficiary's tax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.
Contributions may be made to both a Coverdell Education Savings Account and a qualified tuition program on behalf of the same designated beneficiary for the same taxable year.
You can make annual contributions to a Coverdell Education Savings Account from January 1st through the tax-filing deadline (excluding extensions) for the year, generally April 15.
The annual amount you can contribute to a Coverdell Education Savings Account is dependent on your modified adjusted gross income as determined on your federal income tax return. The following table should help you determine whether or not you are eligible to contribute:
|For Tax Year 2013 & 2014||
|Your Tax Filing Status||Full Contribution||Partial Contribution||Not Eligible|
|Single/Head of Household||Up to $95,000||$95,000 - $110,000||Above $110,000|
|Married Filing Jointly||Up to $190,000||$190,000 - $220,000||Above $220,000|
Contributions to a Coverdell Education Savings Account are not deductible, but amounts deposited in the account grow tax free until distributed.
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, such as tuition and fees, required books, supplies and equipment, and qualified expenses for room and board.
The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell Education Savings Account, as long as the same expenses are not used for both benefits.1
To avoid taxes and penalties on earnings, distributions must not exceed the amount of qualified education expenses for the year in which they are taken.
Qualified education expenses include (1) qualified elementary and secondary education expenses and (2) qualified higher education expenses. Qualified education expenses also include any contribution to a qualified tuition program on behalf of the designated beneficiary.
Qualified elementary and secondary education expenses include expenses for:
Tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment incurred in connection with the enrollment or attendance of the designated beneficiary as an elementary or secondary school student at a public, private, or religious school. (School means any school that provides elementary or secondary education [kindergarten through grade 12] as determined under state law.)
Room and board, uniforms, transportation, and supplementary items and services (including extended-day programs) that are required or provided by a public, private, or religious school in connection with enrollment or attendance.
Expenses for the purchase of any computer technology or equipment, or to pay for Internet access and related services, are considered qualified education expenses if such technology, equipment, or services are to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in school (not including expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature).
Tuition, fees, special needs services in the case of a special needs beneficiary, books, supplies, and equipment required for the enrollment or attendance of the designated beneficiary at an eligible educational institution.
The cost of room and board is a qualified education expense if the designated beneficiary is at least a half-time student* at an eligible educational institution. The expense for room and board is generally limited to:
- The school's posted room and board charge for students living on campus, or
- $2,500 each year for students living off campus and not at home.
* A half-time student is enrolled "at least half-time" if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing as determined under the standards of the school where the student is enrolled.
An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in the student aid programs administered by the Department of Education. This category includes virtually all accredited public, nonprofit, and proprietary postsecondary institutions. (These same eligibility requirements for institutions apply for the Hope Scholarship Credit, the Lifetime Learning Credit, and early withdrawals from IRAs for qualified higher education expenses.) The educational institution should be able to tell you if it is an eligible educational institution.
If funds remain in the account after the beneficiary completes his/her post-secondary education or reaches the age of 30,* there are two available options to distribute the funds:
The amount remaining in the account may be withdrawn for the designated beneficiary. The funds will be subject to both income tax and a 10% withdrawal penalty tax on the portion of the withdrawal that represents earnings.
The designated beneficiary may roll over the full balance to a different Coverdell Education Savings Account for another family member, thus avoiding the taxes and penalty described above.
* If there is a balance in the Coverdell Education Savings Account when the beneficiary reaches age 30, it must generally be distributed within 30 days.1
State Farm nor its agents provide investment, tax or legal advise. Consult your investment, tax or legal advisor regarding your personal situation.
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