Savings in Coverdell Education Savings Accounts are tax free when distributed and used for secondary education (k through 12) expenses at approved schools. This feature of the CESA will not be available after December 31, 2010.
CESA accounts can not be used for home schooling expenses.
CESA accounts can also be used to pay for qualified higher education expenses. This may become a bit of a chore when trying to coordinate the CESA distribution with other tax advantes such as the HOPE Tax Credit, Life Time Learning Tax Credit, and the Tuition and Fees Deduction.
The maximum annual contribution to a CESA is $2,000 per beneficiary. This needs to be watched when more than one person is making contributions. Some of the contributors may be contributing to other CESAs. Contributions to the CESA are considered a completed gift to the beneficiary and may need to be considered for gift tax purposes.
The CESA must be emptied by the time the beneficiary reaches age 30.
A CSEA can be moved to a 529 account. Because of the higher annual contribution limits, a 529 plan can not be moved to a CESA.
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