You may be able to contribute to a Coverdell Education Savings Account (ESA) to finance a beneficiary's qualified education expenses. The contribution is NOT deductible.

A Coverdell ESA is a trust or custodial account set up in the United States solely for the purpose of paying qualified education expenses for the designated beneficiary of the account. Qualified higher education expenses include expenses for tuition, fees, books, supplies, and equipment required for enrollment or attendance. If the designated beneficiary is enrolled at least half time at an eligible educational institution, certain room and board expenses are qualified education expenses. Expenses also include amounts contributed to a qualified tuition program for the same designated beneficiary. Qualified expenses include public, private and religious elementary and secondary school expenses.

The designated beneficiary must be under the age of 18 when the account is established. Any balance in a Coverdell ESA must be distributed within 30 days after the date the beneficiary reaches age 30. These age limits do not apply to beneficiaries with special needs.

There is no limit to the number of Coverdell ESAs that can be established for one beneficiary. However, total contributions made to all Coverdell ESAs for any beneficiary in one tax year cannot be greater than $2,000.

In general, the designated beneficiary of a Coverdell ESA can receive tax free distributions to pay qualified education expenses. The distributions are tax free to the extent the amount of the distributions do not exceed the beneficiary's qualified education expenses. If a distribution does exceed the beneficiary's qualified education expenses, a portion of the distribution is taxable. For information on how to determine the part of any distribution that is taxable earnings, refer to Publication 970, Tax Benefits for Education.

The Hope Credit or the Lifetime Learning Credit may be claimed for certain qualified higher education expenses in the same year in which the student receives a tax free distribution from a Coverdell ESA as long as the distribution is not used for the same educational expenses for which the credit was taken.

For more information, you may refer to Chapter 7, Publication 970, Tax Benefits for Education.