Who can contribute to a Coverdell plan?
Any individual (including the beneficiary) can contribute to a Coverdell as long as their modified adjusted gross income (MAGI) for the year is less than $110,000, or less than $220,000 if filing a joint return. However, contribution limits are reduced with MAGI greater than $95,000 for single or $190,000 for joint filers.
Organizations, such as corporations and trusts, can also contribute to a Coverdell account, and may do so without income restrictions.
While several people can contribute to a Coverdell account for the same beneficiary in any given year, the total of all contributions cannot exceed $2,000. However, you may contribute up to $2,000 for several different beneficiaries in any one year. For example, if you have two children or grandchildren, you may contribute up to $2,000 for each of them, as long as the total contributions received by each child from all contributors is no higher than $2,000.
You should be aware, however, that the assets in a Coverdell plan will likely reduce the beneficiary’s eligibility for need-based financial aid. Assets held in any pre-paid tuition plans and college savings plans are treated as parental assets in the calculation of the expected family contribution toward college costs.
Where can you use Coverdell savings?
Eligible postsecondary school. Your Coverdell savings may be used for any college, university, vocational school or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. This includes all accredited public, nonprofit and proprietary (privately owned profit-making) postsecondary institutions. In fact, some educational institutions located outside the U.S. also qualify for Coverdell savings.
Eligible elementary or secondary school. You may also use your Coverdell savings to pay qualified expenses at any public, private or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law.