Eligibility:
Any adult can establish a Coverdell ESA for any child under the age of 18. The child, known as the “designated beneficiary”, does not have to be related to the person establishing the account.
Contribution Rules:
A child’s Coverdell ESA can accept contributions up until their 18th birthday, unless the child is considered “special needs.” The maximum annual contribution allowed is $2,000 per designated beneficiary, not per adult contributor.If a child has more than one Coverdell account (for example, one established my mom and dad, and another by a grandparent), the total contributions for a given year may not exceed $2,000 between all accounts.
The full $2,000 contribution may only be made by individuals whose “modified adjusted gross income”, or MAGI, is below a certain dollar amount in the year they contribute. If their income is above this amount, but below the “ceiling,” they may make a partial contribution.
Through 2010 the contribution limits are as follows:
For taxpayers claiming a single, head of household, or married filing separately status:
$95,000 (MAGI) or less– The full $2,000 contribution is permitted.
$95,000 - $110,000 (MAGI) – A partial contribution is permitted.
$110,000 (MAGI) or more– No contribution is permitted.
For taxpayers claiming a married filing jointly status:
$190,000 (MAGI) or less– The full $2,000 contribution is permitted.
$190,000 - $220,000 (MAGI) – A partial contribution is permitted.
$220,000 or more – No contribution is permitted.
Contribution Deadline:
Contributions to a Coverdell ESA for the previous year must be made by the contributor’s tax filing deadline, without extensions.For example, you have until April 15th, 2009, to make a contribution for your 2008 tax year, even if you file an extension with the IRS.
