Which is a tax-free savings account that can only be used for educational expenses?

Types of Savings Accounts for Educational Expenses

The type of savings account that offers tax-free benefits specifically for educational expenses is the Coverdell Education Savings Account (Coverdell ESA).

Coverdell Education Savings Account (Coverdell ESA)

- Establishment Requirements:

 - The designated beneficiary must be under the age of 18 or be a special needs beneficiary when the account is established.

 - The account must be designated as a Coverdell ESA upon creation.

 - The governing document must be in writing and meet certain requirements.

- Contribution Details:

 - Contributions must be made in cash and are not deductible.

 - Individuals with a modified adjusted gross income under a certain limit can contribute, as can organizations regardless of income.

 - Contributions must be made by the due date of the contributor's tax return (not including extensions).

 - The total contributions for a beneficiary cannot exceed $2,000 in any year.

- Tax Advantages:

 - Distributions used to pay for the beneficiary's qualified education expenses are tax-free.

 - Tax-free distributions apply to both qualified higher education expenses and qualified elementary and secondary education expenses.

- Qualified Education Expenses:

 - Include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.

- Additional Rules:

 - Amounts must be distributed when the beneficiary reaches age 30, unless they are a special needs beneficiary.

 - Certain transfers to family members of the beneficiary are permitted.

- Reporting:

 - Form 1099-Q is provided for distributions from Coverdell ESAs.

Please note that the information provided here is based on the current tax laws and regulations, and it is important to review the most recent guidelines from the IRS or official tax publications for any updates or changes.

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Sources:

Tax benefits for education: Information center - Internal Revenue Service 2024-08-02

Publication 970 (2023), Tax Benefits for Education | Internal Revenue ... 2024-08-03

Fringe Benefit Guide - Internal Revenue Service 2024-08-03

for Education Benefits - Internal Revenue Service 2024-08-02

Publication 525 (2023), Taxable and Nontaxable Income 2024-08-03

Publication 15-B (2024), Employer's Tax Guide to Fringe Benefits 2024-08-02

Taxable Fringe Benefit Guide - Internal Revenue Service 2024-08-02

Qualified Ed Expenses | Internal Revenue Service 2024-08-02

Topic no. 310, Coverdell education savings accounts 2024-08-03

Am I eligible to claim an education credit? - Internal Revenue Service 2024-08-02