CESA (Coverdell Educational Savings Account)
Coverdell Education Savings Accounts allow individuals to invest funds for educational purposes. Formerly known as an Education IRA, this trust or custodial account is created for the purpose of paying qualified education expenses of the designated beneficiary. Contributions to a Coverdell ESA are not deductible, but all distributions are tax free if they are less than qualified education expenses at an eligible institution. Education Savings Accounts can be applied to qualified elementary, secondary and higher education expenses.
Why Should I Open a CESA?
Establish a CESA to pay qualified educational costs for a beneficiary. Contribute annually, and invest in the assets that you know best. All earnings from the investments are tax-free, and all distributions are tax free if used for qualified educational expenses. For 2012, the maximum contribution to a Coverdell ESA is $2,000.
See a full list of ira contribution limits for 2012 for all Equity Trust IRAs and retirement plans.
A CESA can be opened for a beneficiary who is under the age of 18 or for someone with special needs. Unlike other savings plans that require earned income, you don't need income to open a CESA. However, if you do have earned income you must fall within certain modified adjusted gross income limits (MAGI). Your MAGI for the year that you open the account must be less than $95,000-$110,000 ($190,000-$220,000 for a joint return).