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No room to skirt Coverdell limits

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Q. The Coverdell limit is ridiculously low. Can different family members, such as my parents, contribute separately to my child’s account? C.B.T., Great Neck, NY

A.  Not in the way that you mean. The annual limit for contributions to a Coverdell Education Savings Account (ESA) is only $2,000 per year. This applies to all contributions made on behalf of the child regardless of the source. So you can contribute $1,000 while your parents chip in another $1,000, but you can’t collectively exceed the $2,000 limit.

Any excess is subject to a 6% penalty tax if not corrected. You must withdraw the excess contributions plus any earnings attributable to the excess.

Tip: Coordinate a Coverdell ESA with a Section 529 plan or some other tax-favored college savings device.

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