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	Coverdell Education Savings Accounts FAQs What is a Coverdell ESA ? It is a Trust account that anyone can contribute to for qualified education expenses of a child, from elementary all the way through college. Are contributions tax deductible? Contributions are not tax deductible. All contributions are made with after tax dollars. However, all earnings are tax free. Are distributions tax free? Yes, as long as the withdrawal is made for the purpose of paying for a qualified education expense, and does not exceed the cost of that expense, and is made in the year in which there are education expenses. Withdrawals are also tax free when rolled over to another Education Savings Account for the same person or certain members of that person's family. Who can have a Coverdell Savings Account? Any child under the age of 18. Is there an age limitation for contributions? Contributions must cease at age 18 unless the beneficiary is a special needs beneficiary. Who can contribute to an Education Savings Account? Anyone, including the beneficiary of the ESA can contribute. Keep in mind, however, the contribution amount will be phased out for individuals with an adjusted gross income (AGI) between $95,000 and $110,000, and for married couples with an AGI between $190,000 and $220,000. An individual with an AGI of more than $110,000 or a married couple with and AGI of more than $220,000 may not make a contribution to an ESA. How many Education Savings Accounts can a beneficiary have? Actually there is no limit on the number of accounts that can be established for the same beneficiary. However, current IRS regulations state the total contributions to all accounts for the same beneficiary cannot exceed $2,000 annually. For example: Jimmy's parents set up a Coverdell ESA for him and contributed $1,000. Jimmy's Grandparents are contributing $500 and Aunt Sally is contributing $500 for a total of $2,000. Any additional contributions for the same year would be subject to penalties. You should consult your tax advisor to determine your individual contribution limits as they may be affected by your AGI. Can I contribute to more than one ESA if they are not owned by the same beneficiary? Generally you can contribute up to $2,000 for each designated beneficiary. You should consult your tax advisor to determine your individual contribution limits as they may be affected by your AGI. What happens to funds that are left in the account when the beneficiary has completed his/her education? Any funds that are remaining in the account at the time the beneficiary has completed school, may be withdrawn or rolled into another Education Savings Account. The earnings on an unqualified withdrawal would be subject to income tax and an additional 10 percent tax. However, if the funds are rolled into a new Education Savings Account for the benefit of another qualified family member, then the funds are not subject to tax. You can change the designated beneficiary to a member of the same family as long as they are under age 30. Is there a certain age when the funds in an ESA must be distributed? Generally all funds must be withdrawn by age 30 or the designated beneficiary's date of death. When must contributions be made? Contributions must be made by the due date of the beneficiary's tax return and do not include extensions. What are qualified education expenses? These include tuition, fees, books, supplies and equipment needed for enrollment, or attendance and room and board. Also included in the list are elementary and secondary school expenses. What is considered an eligible education institution? An eligible institution is any college, university, or vocational school. It includes almost all accredited public, nonprofit, and proprietary educational institutions. What if I have a Qualified Tuition Program? Can I still have a Coverdell ESA and make contributions to both, penalty free? The law permits contributions to be made, without penalty, to both a Coverdell ESA and a QTP in the same year for the same beneficiary. I have heard that companies can make contributions to Coverdell Education Savings Accounts. Is that true? That is correct. Organizations such as corporations, not for profits and trusts can make contributions to a Coverdell ESA, and they are not subject to income limits. Keep in mind that they are subject to the same maximum contribution limits of $2,000 per annum for each designated beneficiary. Who is held responsible for the taxes on non-qualified distributions? Any non-qualified distributions to a Coverdell ESA will be taxed against the Designated Beneficiary. Who's social security number is used to report contributions to a Coverdell ESA? All contributions to a Coverdell ESA are reported under the Designated Beneficiary's name and social security number. What if I want to rollover or transfer funds I have in a 529 account into a Coverdell ESA. Can I do so and is there a penalty for doing so? You are permitted to do a rollover or direct transfer between Coverdell ESA's without penalty. However, you are not permitted to rollover or directly transfer funds from a 529 savings plan to a Coverdell ESA. As always, consult with your tax advisor for any tax related questions. If you have additional questions or would like more information about Coverdell Education Savings Accounts, please contact a First Northern Credit Union advisor at 888-328-8677. First Northern Credit Union strongly advises you to consult with your tax advisor before purchasing this product.