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Not much flexibility for Coverdell accounts

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in Small Business Tax

Q. Can I increase Coverdell contributions for my child by having my parents make separate contributions? A.S., Portsmouth, N.H.

A. It depends. The annual contribution limit for a Coverdell Education Savings Account (CESA) is only $2,000, relatively low when compared to other college saving devices. Furthermore, the annual limit for CESAs applies to a child from all sources. In other words, you can contribute $1,500 per year for your child and your parents can chip in another $500. However, if you’ve already reached the $2,000 limit, your parents can’t add to that amount or set up a separate account for the same child.

Tip: Explore other options with higher limits like Section 529 plans.

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