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William Perez

Consider Funding a Coverdell Education Savings Account

By October 9, 2012

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Parents, grandparents, and other family members may want to consider funding a Coverdell Education Savings Account ("ESA") for 2012. Coverdell ESA's are tax-advantaged savings plans combining tax-deferral on investment earnings and tax-free withdrawals if the beneficiary of the savings plan withdraws funds to pay for qualified education expenses. Coverdell ESAs are funded using post-tax dollars (no deduction is allowed for contributing to the account) and allow for contributions up to $2,000 per year per beneficiary. Contributions to a Coverdell plan can be contributed as late as April 15th, 2013, for the year 2012, and must be contributed before the beneficiary turns 18 years old, reports Fairmark.com.

The CCH Tax Briefing on 2012 Year-End Tax Planning brought to my attention an added incentive for contributing to a Coverdell ESA for 2012: "Unless extended, the maximum annual contribution for a Coverdell ESA is scheduled to decrease to $500 after 2012."

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