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Question for the Money Doctors

Question submitted on Jul 15, 2011.

Question

Foolishly, I got myself into this COVERDELL ESA deal for my gradson. IRA Certified of Deposit under his name. Dividend rate 1.55 % for 5 years. I am the contributor. He is the Designated Beneficiary. I thought that was 529 PLAN I asked for. Singed papers of COVERDELL ESA! There was some problems going through their system.

Thought it won''t work. So I signed up with another financial system for 529 PLAN. I am the Account Holder for my gradson.

Under the LAW, is it ok to have both COVERDELL ESA (Account under his name) 529 PLAN (Account
Holder with my name)?

PLEASE, advise me.

Sincerely,
Shawpei G. Loh




name)

Answer

It is legal to have both a (Coverdell Education Savings Account) and a 529 Plan or QTP (Qualified Tuition Program).

Annual contributions to CESAs (Coverdell Education Savings Account) for any beneficiary can’t exceed $2,000, must be made in cash, and can’t be made after the beneficiary turns age 18, unless the beneficiary has special needs. 

A person can make a nondeductible cash contribution of any amount to a 529 Plan or QTP (Qualified Tuition Program) on behalf of a designated beneficiary.

Gifts to the CESA and the  QTP are treated as present gifts that can qualify for the gift tax annual exclusion, which is currently $13,000. 


For additional information visit http://www.360financialliteracy.org/