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Beginner's Guide to a Coverdell Account (ESA)

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Investment Options and Tax Benefits for a Coverdell Account (ESA)

Investment Options:

Coverdell ESA’s can be invested in individual stocks, bonds, CD’s, or mutual funds. Coverdell ESA’s are not permitted to directly own real estate, precious metals, collectibles, or partnerships in private businesses.

Tax Benefits:

There is no “tax deduction” for putting money into a Coverdell ESA. Contributions are made with “after-tax” dollars and will not lower your tax bill in the year you contribute.

The big tax benefit of the Coverdell ESA is that it allows for tax-deferred accumulation and tax-free withdrawals for qualified expenses. In other words, you do not have to pay tax on any of the annual growth of your original investment if the money is used for education.

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