Frequently Asked Questions
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Coverdell
5. Other than the Financial Organization, who are the parties involved in the CESA?
     

Unlike IRA’s, where there is only one person (IRA holder) involved, there are a number of different parties with a CESA.  Lets look at these parties and their roles.

  • Designated Beneficiary - The Designated Beneficiary is the child on whose behalf the CESA is established.  The child is typically considered the owner of the CESA.
  • Grantor/Depositor - This is the person who establishes the account for the benefit of the Designated Beneficiary.  Typically this person is a grandparent, parent, or other family member.  However, there is no requirement that the person has to have a relationship with the Designated Beneficiary.
  • Responsible Individual - The Responsible Individual is generally a parent or legal guardian of the Designated Beneficiary.  However, there are plan agreements (including the BISYS Simplifier) which allows someone other than the parent or legal guardian to serve as Responsible Individual.  The Responsible Individual directs the investments of the CESA and authorizes distributions of the funds.
  • Contributor - A Contributor can be anyone who wishes to contribute on behalf of the Designated Beneficiary.  It does not necessarily have to be the Grantor/Depositor or Responsible Individual who is identified within the CESA document.  Any individual or entity, whether named in the document or not, may contribute.
  • Designated Death Beneficiary - The Designated Death Beneficiary is the individual intended to receive the funds upon the Designated Beneficiary's death.
  • Successor Responsible Individual - The Successor Responsible Individual is the person who will become the Responsible Individual upon the Responsible Individual's death.
 
1. What is a Coverdell Education Savings Account (CESA)?
2. How much can be contributed for each child in a given year?
3. What is a qualified expense?
4. Who may contribute to a Coverdell Education Savings Account?
6. Am I allowed to change the beneficiary?
7. Do I have to pay taxes on the account earnings?
8. Who is a member of the family?
9. Can fund be rolled over from one CESA to another CESA established for another family member?
10. Can a CESA be rolled over to a 529 College Savings Plan?
11. Can funds from a Qualified Tuition Plan (529 Plan) be rolled over to a CESA?
12. How long can you make CESA contributions for the Designated Beneficiary?
13. What is the deadline for CESA contributions?
14. Why is the age 30 important?
15. Does the Designated Beneficiary get control of the money when he or she reaches the age of majority?
16. Do CESA’s mirror IRA’s in that the Contributor needs to have earned income?
17. What happens if the funds are not used for education purposes?
18. What happens if the annual contributions for a child exceed the $2,000 limit?
19. Are transfers between CESA’s non-reportable as they are with IRA’s?
20. What reporting is required to the financial organization in the case of a trustee-to-trustee transfer?
21. Will the CESA prevent me from taking advantage of other education savings options?
22. What are the tax consequences if the Designated Beneficiary doesn’t need the money because they have received a scholarship?
23. Are contributions to a CESA tax deductible?
24. What does the age waiver for a special needs beneficiary entail?
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