Tax Free Education Savings
You have a young family and you dream of your children getting a quality education, but you are concerned about the toll it will take on your finances. You are prepared to start saving now.
Starting in 1998, a new type of savings account (Coverdell Education Savings Account - CESA) was created specifically for paying qualified* education expenses. Contributions are non-deductible and distributions are tax-free, if used to pay for the account beneficiary's tuition, fees, books, supplies, equipment, or room and board at an eligible college or school.
Who is eligible to contribute to a CESA?
Beginning in Tax year 2002, anyone - whether related to the account beneficiary or not - may contribute toward the combined maximum of $2000 annually to a child's CESA, provided their modified adjusted gross income is less than $190,000 (for married couples filing jointly) or $95,000 (individual filers). Proportionately smaller contributions are permitted for couples between $190,000 and $220,000 and for individuals with MAGI between $95,000 and $110,000.
Are there other rules or limitations?
Yes, here are some additional rules you should know:
* Eligible schools include elementary, secondary, private and religious schools.