A Coverdell education savings account is a tax-advantaged account that you set up and manage for the benefit of your minor child. It is used to pay for a child's qualified education expenses at elementary, secondary and university, including public, private and religious schools.
If you meet the income requirements for contributing to a Coverdell, this may be the way to go.
| Your preferred investment option: |
|
Azzad Mutual Funds |
Download Important Information |
Prospectus |
Minimum to open |
$500 |
Download Coverdell Application |
Application |
| Contributions |
Contributor Eligibility |
To contribute full amount, your modified adjusted gross income for the year must be less than $95,000 or $190,000 if married filing jointly |
Contribution Deadline |
Tax filing deadline (usually April 15) |
Minor Eligibility |
Minor must be under 18 when account is established; must have a social security number. |
Annual Contribution Limit |
$2,000 |
Tax Advantages |
Contributions |
Not tax-deductible |
Earnings |
Grow tax-deferred until withdrawn (must be withdrawn before child reaches age 30) |
Withdrawals |
Tax-free (if withdrawn for qualified educational expenses before child reaches age 30) |
| Withdrawals |
Qualified Education Expenses |
Withdrawals will be penalty-free, tax-free if used to pay for: Elementary, secondary and post-secondary education expenses, including tuition, fees, tutoring, books, supplies, room and board, uniforms, transportation and related equipment. Note: computers are qualified expenses for elementary and secondary school, even if the school doesn't require it. However, they are NOT qualified at the post-secondary level unless the college requires one. |
| Key Strengths |
Key Tradeoffs |
|
- Tax free growth until withdrawn
- Tax free withdrawals for qualified expenses
- Unused funds can be rolled over without penalty into a Coverdell for the benefit of a qualifying family member
- A Coverdell is considered a parent's asset for federal financial aid purposes; has a low impact on child's financial aid eligibility
|
- Can contribute only $2,000 per year
- Ability to contribute depends on your income
- Contributions not allowed after age 18, unless child has special needs
- Account must be closed after child reaches age 30, unless he has special needs
- Non-qualified withdrawals are considered taxable income and incur a 10% penalty
|
* This information is not intended as tax advice. For more complete guidance on your particular financial situation, please consult your tax advisor or speak to an Azzad investment advisor at 888-862-9923. Please make sure to read the Azzad mutual funds' prospectus.
