Specially designed to help you save for college, you can now start investing in your child's educational future today with a Coverdell Education Savings Account.
Start a savings plan for your children or grandchildren.
Invest up to $2,000 per child, per year.
Receive tax-free and penalty-free distributions.
Additional terms may apply – please see our CD Disclosures.
COVERDELL EDUCATION SAVINGS ACCOUNT (CESA) is set up to pay the qualified education expenses of a designated beneficiary. This type account is set up for a child under the age of 18. Generally anybody (including the child) can make contributions. This section covers the rules that apply to COVERDELL EDUCATION SAVINGS ACCOUNTS. Additional information on Education accounts can be found in IRS Publication 970. Adobe Acrobat is required to download the file.
WHO CAN OPEN AND MAKE CONTRIBUTIONS?
Individual
The account may be opened for living individuals. Members may open and/or make contributions to more than one Coverdell Education Savings Account. There is no limit to the number of Accounts members may have as long as they are eligible to open or make contributions. There are limits on the amount of money that may be contributed.
Age
For Contributions, the beneficiary must be under the age of 18. There are no age restrictions for the contributors. The 18 year age limit may be extended for beneficiaries with special needs.
Income
The contributor's MAGI must be under $220K if married ; $110K if single.
Contributor
Any person of any age meeting the MAGI requirements may contribute to a child's CESA. There is no requirement that the contributor be related to the child. The child may even make contributions to the account. The total contributions from all sources made on behalf of the beneficiary may not exceed $2000 in any tax year. The person making the deposit may select the type of account to be opened.
Beneficiary
A CESA may be established for the benefit of any child under age 18- who becomes the 'beneficiary' on the account. Rollover's may be accepted for beneficiaries up to the age of 30. Rollovers must be to an eligible person.
Responsible Individual
The Responsible Individual is named by the Contributor and must be a parent or legal guardian of the Designated Beneficiary. The Responsible Individual may name the Successor Responsible Individual. If no Successor is named, the other parent or guardian is the automatic successor if the child is still a minor. If the child is not a minor the child becomes the Responsible Individual. The Responsible Individual has the right to redirect the investments; for example, if the Account was originally a variable rate account, the Responsible Individual has the authority to tell SSFCU to move the money to a CD or even transfer it out of the Credit Union. If the Beneficiary is over 18 at the time the account is opened (this could only happen with a Rollover) The Beneficiary may be the Responsible Individual. The Contributor decides whether or not the Responsible Individual may change Beneficiaries by marking the box on the Simplifier for yes or no. The Contributor decides whether or not the Responsible Individual continues as Responsible Individual after the child reaches 18 by marking the box on the Simplifier for yes or no.
CONTRIBUTION LIMITS
Amounts
The CESA can have a total of $2000 from all sources. No more than $2000 can be put in the account per tax year. The child beneficiary is also allowed to participate in a state tuition program.
Deadline
Current year contributions are made anytime between January 1 and December 31. Prior year contributions are made between January 1 and the tax filing deadline, usually April 15th.
Income
The contributor's MAGI must be under $220K if married ; $110K if single.
Deductibility
Contributions to CESA are not tax deductible.
CESA DISTRIBUTION RULES
The beneficiary of the IRA may take withdrawals at any age as long as all funds have been used by age 30.
If the withdrawal is used for the designated beneficiary’s qualified education expense, the withdrawal is tax-free.
Starting January 1, 2002, the withdrawals may be used tax free for elementary and secondary education expense.
If the withdrawal is not used for the designated beneficiary’s education expenses, then the amount withdrawn is taxable income for the beneficiary. A nonqualified distribution is also subject to a 10% IRS penalty.
Amounts not withdrawn by age 30 may be rolled over into another beneficiary’s CESA.
QUALIFIED EDUCATION EXPENSES
Qualified expenses are those expenses necessary for enrollment or attendance at an eligible institution; they are:
TUITION, FEES, BOOKS, SUPPLIES, EQUIPMENT, ROOM
REQUIRED DISTRIBUTIONS
Qualified expenses are those expenses necessary for enrollment or attendance at an eligible institution; they are:
CESA's must be completely distributed by the time the beneficiary is age 30.
Amounts still in the IRA after 30 become taxable income and subject to the 10% penalty for a nonqualified distribution.
The CESA may be rolled over to another CESA for any one of the following relatives of the original beneficiary:
Child, grandchild or stepchild; Brother, sister, stepbrother, stepsister; Niece or nephew
