The Basics of a Coverdell Education Savings Account

The Coverdell education savings account is a type of account that many individuals use to pay for college tuition for their children. This type of account carries with it tax advantages that allow individuals to accumulate more money towards education expenses.

Every year, parents can contribute as much as $2000 to a child's account. Parents could start this type of account for each of their children. However, each child can have only one account, regardless of who starts it for him or her or funds it.

The Coverdell education savings account is funded with after-tax money. Once the contribution is made, the account owner can put the money into many different types of investments, such as mutual funds and stocks. The money that is made from returns on the investment is allowed to grow without any taxes being paid on it. When the child uses the money for education expenses, no taxes are due on it at that point either.

As long as the money in the account is withdrawn by the time the child reaches 30 years old, he or she will not have to pay any taxes or penalties on the money. The money can also be transferred to another beneficiary at some point in the future.

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