Introduction

You may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. Until July 26, 2001, this type of account was called an education individual retirement arrangement (or Education IRA).

Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until withdrawn.

• During 2001, you could contribute up to $500 cash to a Coverdell ESA for a beneficiary under age 18.
• For 2002, you can contribute up to $2,000 cash and, in some cases, the beneficiary can be 18 or older.

There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. However, total contributions for the beneficiary cannot be more than $500 for 2001 ($2,000 for 2002) no matter how many accounts have been established. See Contributions, later.

If, for a year, withdrawals from an account are not more than a designated beneficiary's qualified education expenses at an eligible educational institution, the beneficiary will not owe tax on the withdrawals. See Withdrawals, later.

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