Coverdell Accounts
Coverdell Education Savings Accounts (formerly called Education IRAs) are a tax-deferred way for parents or guardians to invest in a child's education.
How They Work
A child can receive up to $2,000 annually in contributions to the account until he or she turns 18. Eligibility to make contributions to a Coverdell Education Savings Account is phased out based on the contributor's modified adjusted gross income (MAGI). The current phase-out range for joint filers is $190,000 to $220,000. There is no charge to open a Coverdell Account.How They Can Be Used
The money from a Coverdell account can be used for K-12 expenses for both public and private schools, and eligible expenses at accredited post-secondary institutions.Tax Savings
- You can't deduct your contribution, but the account's earnings grow tax-deferred.
- You can withdraw funds on a tax-free basis if they are used for qualified expenses like tuition, books, and room and board.
- Funds in a Coverdell Education Savings Account must be used by the time the child turns 30. If not, they can be transferred to another family member's Coverdell Education Savings Account.
- Any earnings remaining in the account will be taxed and subject to a 10% penalty upon distribution.
Convenience
Any child under age 18 is eligible to have contributions made to a Coverdell Education Savings Account for them. You don't have to be related to the beneficiary to contribute to the account; anyone who meets the MAGI eligibility limits can contribute (e.g., grandparents).Flexibility
You can contribute up to $2,000 per year, and distributions may be used for qualified education expenses. Distributions from Coverdell Education Savings Accounts will not disqualify the use of HOPE or Lifetime Learning credits if the distribution isn't used for the same education expenses for which the credit was claimed.
For more information on Coverdell Education Savings Accounts, contact a Thrivent Financial representative.
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