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Coverdell Education Savings Accounts

Coverdell Education Savings Accounts (formerly called Education IRAs) are designed exclusively to pay for education expenses, including expenses for qualified elementary and secondary school as well as higher education expenses.

How Do They Work?
A child can receive up to $2,000¹ 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 $220,000².

What Are the Benefits?

Tax savings. While you cannot deduct your contribution, earnings in the account grow tax-deferred and you can withdraw funds on a tax-free basis if they are used for qualified expenses such as 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 percent penalty upon distribution.
Convenience. Any child under age 18 is eligible to have a Coverdell Education Savings Account. 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 may contribute up to $2,000 per year, and distributions may be used for qualified primary and secondary education expenses as well as for higher education expenses. Distributions from Coverdell Education Savings Accounts will not disqualify the use of HOPE or Lifetime Learning credits, as long as the distribution is not used for the same education expenses for which the credit was claimed.

How Do You Get Started?
For more information on Coverdell Education Savings Accounts call your financial representative with Thrivent Financial for Lutherans.

¹ Effective Jan. 1, 2002.
² Effective Jan. 1, 2002.

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