What is a Coverdell Education Savings Account?

Formerly known as the Education IRA, Coverdell Education Savings Accounts (Coverdell ESAs) allow investors to contribute up to $2,000 annually per beneficiary to a specially designated investment trust account. The designated beneficiary must be a child under the age of 18, and contributions must be ceased when the beneficiary attains age 18. While contributions are non-deductible, any account growth is free from federal income taxes and account withdrawals for qualified education expenses are tax-free as well. The account must be fully withdrawn by the time the beneficiary reaches age 30, or else it may be subject to tax and penalties. Certain additional requirements must be met in the years that contributions and withdrawals are made.

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