Coverdell ESA Tax Benefits
Federal Coverdell ESA Tax Benefits for All U. S. Residents:
- Earnings grow tax-free.
- Distributions to pay qualified education expenses are tax-free.
- Anyone can participate and there are no income limitations.
- Participants also benefit through tax-free gifting. Account owners can make annual gifts of up to $14,000 single and $28,000 joint to a designated beneficiary for all accounts without incurring federal gift tax. For contributions over the limit, you may treat the money (up to $65,000 single and $130,000 joint) as having been made ratably over a five-year period.
- At any time you may prepay as much college and graduate school as you'd like up to $374,000 - the current maximum contribution limit.
- Assets in a 529 account are not treated as part of the federal taxable estate of the account owner who is not a designated beneficiary.
- U.S. Savings Bond owners generally may redeem bonds purchased after 1989 tax-free and deposit the proceeds in a 529 plan. IRS restrictions apply. Please see the IRS Tax Benefits for Education for current income limitations or call 1-800-888-2723 for more information.
- If the child does not go to college you can change the beneficiary penalty free. To avoid taxes and penalties, your new beneficiary must be a member of the family of your original beneficiary. Certain restrictions apply. Please consult your tax advisor and the Plan Disclosure for more detailed information regarding a change in beneficiary.
Please note: Before investing in any 529 plan, you should consider the benefits of your home state's 529 plan. It may provide taxpayers with state tax and other benefits that are only available through your home state's 529 plans. You should also consult your financial, tax, or other advisor to learn how state-based benefits (or limitations) would apply to your specific circumstances. You also may wish to contact your home state's 529 plan[s], or any other 529 college savings plan, to learn more about those plans' features, benefits and limitations. Keep in mind that state-based benefits should be one of many appropriately weighted factors to be considered when making an investment decision.
NexBank, SSB and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.