A Coverdell ESA is an investment tool created for the purpose of paying for the future cost of a child’s post-secondary education. The plan allows total after-tax contributions of $2,000 per year for each child until they reach the age of 18. These contributions and their subsequent earnings are tax-free when withdrawn to pay for qualified education expenses.
A qualified education expense is one that is required for the enrollment or attendance by your child at an eligible educational institution, including elementary, secondary or post-secondary institutions. These expenses include tuition, fees, books, supplies and equipment.
The Coverdell ESA does not specify that the contributor must be a member of the family. With this broad range of potential contributors, it is possible that more than one person may want to contribute for the same child. A coordinated effort should be encouraged to avoid excess contributions.
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