THE BASICS OF MONEY
HOW TO INVEST, MANAGE YOUR MONEY AND SPEND WISELY
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A Coverdell education savings account, formerly known as an education IRA, gives you complete control over your college savings investments.
You can set up an account through a brokerage firm and pick your own stocks, bonds or mutual funds. And you get a little more flexibility on how you spend the money. For example, you can make tax-free withdrawals to pay for elementary and high school expenses.
If you meet the income tests, you can put up to $2,000 a year into a Coverdell ESA (education savings account) for any child under age 18. You can't deduct the contribution, but your account grows tax-deferred. And if you use withdrawals to pay college expenses, they are completely tax-free.
You're eligible to make the full $2,000 contribution if your adjusted gross income is less than $190,000 on a joint return or $95,000 on a single return. You can make partial contributions with AGI up to $220,000 and $110,000, respectively. The income limits apply to whoever funds the account, which doesn't have to be the student's parent.
Be aware that the Coverdell ESA account could be considered the child's asset under financial-aid formulas, which would reduce the amount of financial aid you might receive.
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