MAGI is Modified Adjusted Gross Income, CESA is Coverdell Education Savings Account
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Traditional IRA |
Roth IRA |
Coverdell Education Savings Account (CESA) |
| Eligibility |
Anyone under age 70 ½ with earned income (or files jointly with a spouse who earns compensation). |
Anyone at any age with earned income subject to income limits (or files jointly with a spouse who earns compensation).
For 2011 tax year, maximum yearly contribution phased out between MAGI of $107,000 and $122,000 (single), $169,000 and $179,000 (married individual filing a joint income tax return) and $0-$10,000 (married individual filing a separate income tax return).
For 2012 tax year, maximum yearly contribution phased out between MAGI of $110,000 and $125,000 (single), $173,000 and $183,000 (married individual filing a joint income tax return) and $0-$10,000 (married individual filing a separate income tax return). |
Anyone, of any age, subject to certain income limits, as long as the designated beneficiary (the child for whom a contribution is made) is younger than 18.
Maximum yearly contribution phased out between MAGI of $110,000 (single) and $220,000 (joint). |
| Contribution Limits |
2011 and 2012 tax years: $5,000 per individual ($6,000 if age 50 or over) or 100 percent of your earned income, whichever is less.
Spousal Contributions: The maximum contribution amount can also be made to a nonworking spouse's IRA—subject to certain requirements.
Note: The maximum contribution amount can be deposited into a Traditional IRA, a Roth IRA or split between the two. |
$2000 per child per year under age 18 if contributor's MAGI is less than $110,000 (single) or $220,000 (joint). Eligibility to contribute is phased out for single filers with MAGI between $95,000 and $110,000 and for joint filers with MAGI between $190,000 and $220,000.
Contributions to CESAs are allowed regardless of Traditional or Roth IRA participation. |
| Deductibility |
The deductibility of your contribution varies depending on your Modified Adjusted Gross Income (MAGI) and whether you have a retirement plan at work.
If you are covered by a retirement plan at work:
2011 tax year: Fully deductible if MAGI is less than $56,000 (single) or $90,000 (married active participant filing a joint income tax return); partially deductible if MAGI is between $56,000 and $66,000 (single) or $90,000 and $110,000 (married active participant filing a joint income tax return); $0-$10,000 (married individual filing a separate income tax return). No deduction if MAGI is over $66,000 (single) or $110,000 (married active participant filing a joint income tax return).
2012 tax year: Fully deductible if MAGI is less than $58,000 (single) or $92,000 (married active participant filing a joint income tax return); partially deductible if MAGI is between $58,000 and $68,000 (single) or $92,000 and $112,000 (married active participant filing a joint income tax return); $0-$10,000 (married individual filing a separate income tax return). No deduction if MAGI is over $68,000 (single) or $112,000 (married active participant filing a joint income tax return).
If either you or your spouse is covered by a retirement plan at work (but not both):
2011 tax year: Fully deductible if your MAGI is less than $169,000; partially deductible if MAGI is between $169,000 and $179,000; not deductible if MAGI is over $179,000.
2012 tax year: Fully deductible if your MAGI is less than $173,000; partially deductible if MAGI is between $173,000 and $183,000; not deductible if MAGI is over $183,000.
Neither spouse participates in a qualified plan: Contributions are deductible.
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Not Deductible |
Not Deductible |
| Tax Advantages |
Taxes on gains, dividends and interest are deferred until money is withdrawn. No penalties on withdrawals if taxpayer is: 1) Age 59 1/2, 2) Buying a first home ($10,000 lifetime maximum), 3) Paying for college expenses or 4) Disabled or deceased. |
Contributions may be withdrawn tax-free at any time. Earnings may be withdrawn tax-free if account has been open 5 years and taxpayer is: 1) Age 59 1/2, 2) Buying a first home ($10,000 lifetime maximum) or 3) Disabled or deceased. Contributions from conversion IRAs must remain on deposit for 5 years to avoid withdrawal penalty. |
All withdrawals, including earnings, are tax-free for qualified education expenses. |
| Withdrawal Penalties |
Withdrawals of contributions and earnings are subject to 10% penalty unless taxpayer is: 1) Age 59 ½, 2) Buying a first home ($10,000 lifetime maximum), 3) Paying for college expenses or 4) Disabled or deceased. |
Withdrawals of earnings are subject to taxes and a 10% penalty unless account has been open 5 years and taxpayer is: 1) Age 59 ½, 2) Buying a first home or 3) Disabled or deceased. Withdrawals of earnings for college expenses will be subject to taxes but not penalties. |
Withdrawals after the beneficiary reaches age 30 are subject to taxes and a 10% penalty, unless rolled over to a family member's Coverdell Education Savings Account. |
| Distribution Rules |
Owner must start withdrawing by age 70½. |
Owner is not required to take distributions at any age. |
Funds must be withdrawn by the time the beneficiary child reaches age 30, or according to special needs exception defined by law. |
| Convert a Traditional IRA to a Roth IRA |
Balance converted is taxable for the tax year in which the transfer occurs. Also, a withdrawal penalty applies if these funds are withdrawn within the first 5 years. |
N/A |
N/A |
