A Coverdell Education Savings Account (CESA) is an investment tool created for the purpose of paying for a child's education. The plan allows total after-tax contributions of $2,000 per year for each child until they reach the age of 18. These contributions and their subsequent earnings are tax free when withdrawn to pay for qualified education expenses.

What is a qualified education expense? A qualified education expense is one that is required for the enrollment or attendance by your child at an eligible educational institution, including elementary, secondary, or post-secondary institutions. These expenses include tuition, fees, books, supplies, and equipment.                                                 Funds must be distributed and completely used by the time the child reaches age 30. Consult your tax advisor.

Who can contribute to a CESA? Almost anyone can contribute to a CESA. This account is an ideal way for parents, grandparents, friends or even corporations to invest for any child's future education expenses. There are two key limitations.                                      Each child can receive a total of $2,000 per year in contributions from all sources. It does not make a difference if this is done in a single account or with multiple accounts designed to benefit the same child.                                                A person may be limited in the amount of their contributions if their modified adjusted gross income exceeds $95,000 ($190,000 for joint return). No contribution is allowed if your modified adjusted gross income exceeds $110,000 ($220,000 for joint returns).

Am I allowed to change the designated beneficiary? You may change the designated beneficiary (i.e., child). For example, the person responsible for the CESA may wish to change the designated beneficiary because the current designated beneficiary has finished schooling and there are funds remaining. The only limitation is that the new designated beneficiary must be an eligible member of the family. An eligible family is fairly broad, but contributions can be made only for those under the age of 18, unless the beneficiary is a special needs beneficiary.