Amy individual can make contributions to a Coverdell ESA, including the beneficiary for whom the account was set up, provided their modified adjusted gross income for the year is less than $110,000 ($220,000 if married filing jointly). Organizations can also make contributions to a Coverdell ESA and there is no limit on the organization’s level of income.
Rules and Limits
Contributions to a Coverdell ESA are not deductible, but earnings can grow tax-free in the account. Contributions must be made in cash (not property), and there is a $2,000 limit per beneficiary per year. If more than one person (or organization) contributes to the same ESA, the limit is $2,000 per year. Also, if more than one Coverdell ESA has been opened for the same beneficiary, the total of all contributions to all ESAs set up for that person is limited to $2,000 per year. Once the beneficiary reaches age 18, no more contributions can be made to a Coverdell ESA set up for that beneficiary.
Reduced Contribution Limit
Even though any individual whose modified adjusted gross income is less than $110,000 ($220,000 if married filing jointly) can contribute to a Coverdell ESA, the maximum amount that an individual can contribute is gradually reduced if that person’s modified adjusted gross income is between $95,000 and $110,000 ($190,000 and $220,000).
Example
The decrease in the amount that can be contributed is proportional to the amount by which modified adjusted gross income exceeds $95,000 ($190,000). For example if your modified adjusted gross income is $98,000, the excess is $3,000 ($98,000 - $95,000). To determine the amount by which the contribution limit is reduced, you would take $3,000 (the excess) divided by $15,000 (the maximum of $110,000 minus $95,000, the lower limit for reduced contributions) = 0.2. You would then take 0.2 times $2,000 (the maximum contribution) = $400. The maximum contribution you could make would therefore be $1,600 ($2,000 minus $400). This would leave $400 that could be contributed by someone else for that year for that beneficiary.