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Are you eligible for a Coverdell ESA? Find the right answer in 2 easy steps.
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Interested in opening a Coverdell Education Savings Account? This post walks you through where to look + how to figure out if you are eligible (Coverdell ESAs, like Roth IRAs, are restricted based on income.)

If you're not sure a Coverdell is right for you, check out our interactive AboveBoard College Savings Guide to learn about the options for people like you. 

Coverdell ESAs have some meaningful limitations, so if you're not totally familiar with those, check out the interactive AboveBoard College Savings Guide.

How to find out if you are income-eligible to contribute to a Coverdell ESA

The Coverdell income test & phase-out works similar to Roth IRAs, but don't worry if you're not familiar with that, we'll walk you through it.

1) Get your Coverdell Modified Adjusted Gross Income ("MAGI")

The IRS bases income-eligibility tests on Modified Adjusted Gross Income "MAGI", which is different from the income you likely think of as your household income (pre-tax annual income from employment, for most people).

MAGI can be bigger if you have a lot of investment income, or it can be smaller if you have a ton of deductions. MAGI can be calculated differently depending on the income test.

Here's how to get your MAGI, depending on the type of tax return you file (you can also just open your tax return and search for "Adjusted Gross Income". A small number of people will have some additional modifications, described below, hence the "Modified" part of the name!

If you file: Look at line:
Form 1040

Line 38.

Some people will need to modify by adding back these very uncommon items: foreign earned income exclusion, foreign housing exclusion, exclusion of income by bona fide residents of American Samoa, exclusion of income by bona residents of Puerto Rico.*

Form 1040A Line 22.
Form 1040NR Line 36
Form 1040NR-EZ

Line 10.

If you have any of the very uncommon items noted above, you'll need to make the same add backs as people filing Form 1040.*

*If you think you might have any of these add-backs but aren't sure where to find them or how to add them back, then IRS Worksheet 7-1 is your friend - check out page 49 of IRS Publication 970.

2) Determine how much you can contribute to a Coverdell ESA

Now you've got your Coverdell MAGI, it's time to figure out what that means.

If you file separately (any of Married Filing Separately, Single, Head of Household or Qualifying Widow(er)):

If your Coverdell MAGI is: You can contribute to a Coverdell:
$95,000 or less You can contribute up to the annual maximum of $2,000 (per beneficiary)
$95,000 - $110,000

You can make a partial contribution. The partial contribution will be somewhere between $0 - $2,000. The idea here is that individuals with MAGI of $95,000 can contribute $2,000 but individuals with MAGI of $110,000 can contribute nothing, so you have to find where you are in that range. 

Example: a person with MAGI of $102,500 may contribute up to $1,000 (per beneficiary).

If you need help calculating your partial contribution, IRS Worksheet 7-2 is your friend - check out page 50 of IRS Publication 970

$110,000 or more You cannot contribute. Consider a 529 plan (no income restrictions) - check out the interactive AboveBoard College Savings Guide for ideas

If you file jointly:

If your Coverdell MAGI is: You can contribute to a Coverdell:
$190,000 or less You can contribute up to the annual maximum of $2,000 (per beneficiary)
$190,000 - $220,000

You can make a partial contribution. The partial contribution will be somewhere between $0 - $2,000. The idea here is that couples with MAGI of $190,000 can contribute $2,000 but couples with MAGI of $220,000 can contribute nothing, so you have to find where you are in that range. 

Example: a couple with MAGI of $205,000 may contribute up to $1,000 (per beneficiary).

If you need help calculating your partial contribution, IRS Worksheet 7-2 is your friend - check out page 50 of IRS Publication 970

$220,000 or more You cannot contribute. Consider a 529 plan (no income restrictions) - check out the interactive AboveBoard College Savings Guide for ideas

Notice that the $2,000 annual maximum is per beneficiary - how many accounts or contributors the beneficiary has doesn't matter. 

Example: Two sets of grandparents, each with a Coverdell ESA set up for the same grandchild, would need to coordinate efforts to make sure that together their total contributions don't exceed $2,000.

Look at you, reading all the way to the bottom of  a post about income eligibility! You rock!

Now check out the interactive AboveBoard College Savings Guide!

Want clear, honest info about saving for college?
Check out our interactive guide tailored to your situation and goals.
Go to our College Savings Guide
Wallis is the Founder & CEO of AboveBoard Financial, a company reinventing investment advice and insurance with revolutionary transparency and honesty. Wallis spent over 10 years at Goldman Sachs as an investment banker and hedge fund investor in financial institutions. She founded AboveBoard to cut through the BS and present important choices with clarity and compassion. Wallis lives in New York City with her husband and two young children.

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