What is an Educational Savings Account (ESA)?

An Education Savings Account (ESA - also known as a Coverdell ESA) is a trust created for the purpose of providing for the qualified educational expenses of the Designated Beneficiary. Contributions are made on an after-tax basis, and earnings generated may not be subject to taxes (upon a qualified distribution).

For tax years 2002 - 2010, you may contribute up to $2,000 to an Education Savings Account on behalf of the Designated Beneficiary each year. Contributions may be made by any individual whose modified adjusted gross income for the year is less than $110,000 (subject to phase-out starting at $95,000) for those filing singly or $220,000 (subject to phase-out starting at $190,000) for individuals filing a joint return. Corporations and other entities (trusts, etc.) may also contribute to an ESA and are not subject to any income requirements.

Note: Contributions made to an Education Savings Accounts do not provide a tax break or tax deduction for the contributor.