A special investment account to accumulate funds for a child's education expenses. You can open a CESA for any child - your son, daughter, grandchild, niece, nephew, or even a friend.
Individuals (subject to income limitations) and entities are eligible to contribute to a Coverdell Education Savings Account. $2,000 per taxable year is the total aggregate contribution that may be made on behalf of a child under the age of 18. Contributor has until April 15th of the current year to make previous year's contribution. The designated beneficiary must take qualified distributions between the ages of 18 and 30. Contributions are not tax deductible. Interest accrues daily and is compounded monthly and credited to the account monthly. The IRS assesses a penalty for excess contributions. There may be penalties for early withdrawal (both IRS and Bank).
The money must be used for the beneficiary's qualified education expense (such as tuition, fees, books, supplies, equipment, etc.*) at an eligible education institution; distributions are made during the year in which the education expense occurred; and the beneficiary is between the ages of 18 and 30.
*Please contact your local Katahdin Trust Company branch for a complete list of qualified education expenses.
Single persons with modified adjusted gross income below $95,000 and married couples filing jointly with modified adjusted gross income less than $190,000 may make full contributions. A phase out contribution is allowed for singles with incomes between $95,000 and $110,000 and married couples with incomes from $190,000 to $220,000. There are no income limitations for entities.