Coverdell ESA: Eligibility & Tax-Free Education Savings

The Education IRA, now called the Coverdell ESA, is a savings plan that parents or guardians of children under the age of 18 contribute to for future education costs. The contributions are nondeductible. When needed, the appropriate funds can be withdrawn for education expenses tax-free and without a penalty.

Eligibility Criteria for the Education IRA

In order for you to contribute to the Education IRA, there are certain requirements that must be met. If your tax status is single, head of household or married filing separately, your modified adjusted gross income (MAGI) must be less than $110,000 in order to contribute to an Education IRA. If your tax status is married filing jointly and your MAGI is $220,000 or more, a contribution isn't permitted.

In order to contribute the maximum amount of $2,000 to the Education IRA, your MAGI should be on the lower end of the income scale. In addition to meeting income guidelines, the beneficiary of the IRA must not be over the age of 18. The only exception is if the child has special needs, and that is determined by the Treasury department. Anyone can contribute money, as long as the total combined amount doesn't exceed $2,000.