Coverdell ESA

Lord Abbett makes it easy to open a Coverdell ESA. As long as the student for whom you are saving is under age 18 and you income qualify, you can take advantage and begin saving. Find out about a no-cost Lord Abbett Coverdell ESA.

This material is intended as general information only and is not intended as legal or tax advice. Some of this information may be quite complex and we strongly suggest you consult with your advisor or tax professional based on your individual situation.

What is a Coverdell ESA?

The Coverdell Education Savings Account (ESA) was created to help you save for a child's education expenses covering grades K–12 and qualified post-secondary education. An ESA is not a retirement plan; instead, it is an education savings device using the IRA model. Contributions are not tax-deductible, ¹ but when accumulations are used to pay qualified education expenses, the distributions are tax-free.

What You Need
to Know

Understand the key principles of individual retirement accounts.

Eligibility
Contributions
Distributions

How does it work?

Anyone, including the student, may open and contribute up to $2,000 per year, per child, to a Coverdell ESA established on the student’s behalf, as long as the student is less than 18 years of age when the contribution is made or is a Special Needs Student.² The person or entity making the contribution, called the donor, can be anyone, even the student. The donor does not have to be related to the student.

However, the donor must meet certain income requirements in order to make a full or partial contribution to an ESA. Joint filers who make $190,000 or less and single filers who make $95,000 or less may make a full contribution.

Advantages of the Lord Abbett Coverdell ESA

Open and fund accounts electronically
No custodial fees—for life
No hassles

Fund sales charges may apply.

Who should consider an ESA?

If you want to save tax-efficiently for a child's education.
It may be attractive to an individual who believes future tax rates will be higher than today's tax rates.
If you are saving for education and want to control where and how the funds are invested.

Note:

⁴

How does a Coverdell ESA benefit you?

An ESA offers the following benefits:

Tax-efficient savings for a child's education, since all distributions, including earnings, are exempt from federal income tax, provided the funds are used for qualified education expenses.
Qualified education expenses include those incurred in connection with the student’s enrollment or attendance throughout grades K –12, at a public, private, or religious school, or post-secondary education at an eligible educational institution.
Savings for a child can be transferred to another family member ⁵ in the event the child chooses not to attend a post-secondary educational institution or receives scholarships covering tuition and fees.

¹ An item or expense, such as an IRA contribution, which, when subtracted from adjusted gross income, reduces the amount of income subject to tax.

² A Special Needs Student is one who, because of a physical, mental, or emotional condition (including a demonstrable learning disability) requires additional time to complete his or her education. Any requirements for a Special Needs Student specified in IRS regulations or rulings (if any) defining this term also must be satisfied.

³ A Section 529 plan allows individual’s to save for a designated beneficiary’s education in a program maintained by a state or eligible educational institutions.

⁴ An investment glide path predetermines when the portfolio will shift its investment mix to more conservative (not risk free) investments of a prescribed time period.

⁵ Family members include the student's spouse; the student's children and their descendents; step-children and their descendents; the student's sibling or step-siblings; the student's nieces and nephews, children in-law, sisters- and brothers-in-law; and the student's first cousins.

Lord Abbett will waive (or otherwise pay) the yearly $10.00 custodial fee that would be charged each year on an ongoing basis to every new IRA account and, therefore, will not assess a custodial account fee in 2013 or any year afterward. Free also applies to the Federal Express (FedEx) charges currently absorbed by the B/D to submit paperwork to DST to open a Lord Abbett IRA account. Fund level fees and expenses are still applicable. Please see the current prospectus.