Important Changes for 2002

Maximum contribution. The most you can contribute each year to a Coverdell ESA is increased from $500 to $2,000.

Income limitations. If you are married and filing a joint return, your contribution limit is not reduced if your modified adjusted gross income (MAGI) is $190,000 or less. Your contribution limit is gradually reduced (phased out) if your MAGI is more than $190,000 but less than $220,000. If your MAGI is $220,000 or more, you cannot contribute to a Coverdell ESA. For more information, see Contributions in this chapter.

Contribution due dates. The final date on which you can make contributions to a Coverdell ESA for any year has been extended to the due date of your return for that year (not including extensions). If you are a calendar year taxpayer, you generally will have until April 15, 2003, to make your contribution for the 2002 tax year.

Qualified expenses. Qualified education expenses have been expanded to include certain elementary and secondary education expenses. For more information, see Publication 553.

Special needs beneficiaries. You can continue to make contributions to a Coverdell ESA for a special needs beneficiary after his or her 18th birthday. For more information about contributions, see Contributions in this chapter.

You can leave assets in a Coverdell ESA set up for a special needs beneficiary after the beneficiary reaches age 30.

Coordination with Hope and lifetime learning credits. You can claim the Hope or lifetime learning credit in the same year you take a tax-free distribution from a Coverdell ESA, provided that the distribution from the Coverdell ESA is not used for the same expenses for which the credit is claimed.

Coordination with qualified tuition programs (QTPs). You can make contributions to Coverdell ESAs and qualified tuition programs in the same year for the same beneficiary.

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