• Coverdell Education Savings Accounts help build education funds.old naval college in greenwich image by thomas owen from Fotolia.com
  
  Education IRA is the old name for the Coverdell Education Savings Account (ESA). There are many tax incentives for college funding in addition to the Coverdell ESA, including section 529 plans and several education tax credits. Having knowledge of the various tools available will help you decide which strategy, or combination of strategies, is best for your situation.
  
  

Beneficiary

• A Coverdell ESA is established to provide education funds for a beneficiary. The beneficiary must be under 18 years of age when the account is established, or be a special needs beneficiary.
  
  

Contribution Limits

• The contributions in any year cannot exceed $2,000 for any one beneficiary. The total applies to all accounts established for a beneficiary. Accounts funded by others, such as grandparents, are included under the limit. Individuals exceeding income limits cannot contribute to a Coverdell ESA. Income limits are adjusted annually; current year income limits can be found in IRS Publication 970.
  
  

Contribution Timing

• Contributions must be made no later than the due date of the contributor's tax return, not including extensions.
  
  

Tax Benefits

• Coverdell ESA contributions are not tax deductible. Earnings accumulate tax free prior to distribution.
  
  

Distributions

• Distributions to pay for the qualified higher education expenses of the beneficiary are tax free. Distributions must be completed by the time the beneficiary turns 30. The age limit does not apply to special needs beneficiaries.
  
  

Rollovers

• Coverdell ESAs may be rolled over to another Coverdell ESA tax free. The beneficiary of the new ESA must be either the same or a family member for the rollover to be tax free.
  
  

Tip

• You may change the beneficiary of a Coverdell ESA. This may be useful if a beneficiary does not use all the funds, in which case you can change the beneficiary to another family member under age 30.