Coverdell Education Savings Account

Because the designated beneficiary is a minor at the time contributions to the account are made, an adult (initially a parent or guardian) is named as the “responsible individual” to administer the account for the benefit of the minor. Depending on what is specified when the account is established, the responsible individual may be able to retain authority for the account for as long as the account is open, or the authority may be transferred to the designated beneficiary when they reach age 18.

A successor responsible individual can be named on the account in the event the initial responsible individual becomes incapacitated or dies before the beneficiary reaches the age of 18. The successor responsible individual does not have to be a parent or a legal guardian.

Qualified elementary and secondary education expenses can include the following:

• Tuition, fees, academic tutoring, books, supplies, and equipment expenditures incurred by the designated beneficiary in connection with enrollment or attendance at a public or private school.
• Room and board, uniforms, transportation, and supplemental items and services (such as extended day programs) required or provided by a public or private school.
• Computer technology, equipment or Internet access and related services, if used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is in school. This does not include non-educational software designed for sports, games or hobbies.
• In the case of special needs beneficiaries, expenses for special needs services incurred in connection with enrollment or attendance at an eligible institution.

Any individual who meets adjusted gross income (AGI) requirements can make a non-deductible contribution on behalf of an eligible beneficiary, as long as total contributions from all individuals for that beneficiary do not exceed $2,000 for that tax year. Contributions for each tax year can be made from January 1 until the tax filing deadline in the following year. Contributions can be made until the designated beneficiary turns 18, or longer if the beneficiary has special needs.

The responsible individual determines when distributions¹ from the account are taken. If the disbursed amount does not exceed the beneficiary’s qualified education expenses for the year, there is generally no tax liability. If the disbursed amount exceeds these expenses, a portion of the distribution that represents earnings is taxable to the beneficiary and is generally subject to a 10% tax penalty. The tax penalty will not apply if the distribution is due to the death or disability of the designated beneficiary, or if the beneficiary receives a qualified scholarship.