Coverdell Education Savings Account

The Coverdell Education Savings Account, formerly called the Education IRA, is designed to encourage savings for post-secondary education. The Coverdell Education Savings account allows taxpayers to make annual nondeductible contributions, which may not be subject to any gift tax, of up to $2,000 on behalf of any beneficiary who is 18 years old or younger. Earnings are tax-free when utilized for qualified education expenses. Earnings are also tax-free when utilized for elementary and secondary school education expenses. The Education Savings Account can be transferred from one family member to another.

Contributions to a Coverdell Education Savings Account are not tax deductible for the contributor. The beneficiary, not the contributor, is liable for taxes on earnings if the funds are not used for qualified educational expenses.

Account Requirements
The document creating and governing the account must be in writing and must satisfy the following requirements:

  • The trustee or custodian must be a bank or an entity approved by the IRS.
  • The document must provide that the trustee or custodian can only accept a contribution that is in cash, is made before the beneficiary reaches age 18, and, would not result in total contributions for the tax year of more than $2,000.
  • Money in the account cannot be invested in life insurance contracts.
  • Money in the account cannot be combined with other property except in a common trust fund or common investment fund.

Generally, the balance in the account must be distributed within 30 days after the following events: the beneficiary reaches age 30, the beneficiary's death (distribution is not required if, as the result of the death of the designated beneficiary), the Coverdell Education Savings Account is transferred to a surviving spouse or other family member under age 30.

Contributions made to a qualified State Tuition Program from CESA assets are also qualified expenses.

Consult your tax advisor to determine whether particular expenses incurred are qualified.

All United's CDs are available as a Coverdell Education Savings Account as long as the minimum requirements are met.

Please contact an United Bank Office Manager for more information and to open your account today!