IRS Tax Tip 2003-38, (Feb. 24, 2003) -- The Coverdell Education Savings Account is an incentive to help parents and students save for education. Up to $2,000 may be contributed to a child’s Coverdell ESA each year; the limit was $500 before 2002. Earnings on contributions will be distributed tax free, provided that they are used to pay the beneficiary’s elementary or secondary school or college education expenses.

Any individual who meets adjusted gross income (AGI) requirements can make a non-deductible contribution on behalf of a child under the age of 18. The AGI requirements are $95,000 for single taxpayers and $190,000 for married taxpayers. The $2,000 annual contribution limit is phased out for single taxpayers with AGI of $95,000 to $110,000 and for joint filers with AGI of $190,000 to $220,000.

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