My son is, naturally, claimed as a dependent on my tax returns. My question is:

Can my sister open a Coverdell Education Savings Account (an education IRA) for my son (her nephew)?

I am aware that this presents no tax benefit at the time of contribution, but given that the growth and distribution will be tax-free, it may prove to be a viable option. I'm just not sure if a non-legal guardian can open an account and contribute to it periodically...

  • 1
    She can open a 529 though? Is there a specific reason for a coverdell? Coverdells are much more limited compared to a 529
    – MrChrister
    Commented Nov 28, 2012 at 16:43
  • I have already max'ed out the 529 contribution...
    – rs79
    Commented Nov 29, 2012 at 13:35
  • The maximum 529 deposit this year is $65000. You can gift $13,000 to child in any year, but for a 529, may gift up to five years at once. A form 709, I believe, is required, but no tax due. Your spouse can do the same. The $2000 Coverdell offers no such flexibility, and is a tiny fraction of the deposits the 529 permits. Note - the $65000 lump sum means no further deposits from you for the next 4 years. Commented Nov 29, 2012 at 17:02
  • Not sure if this is a separate question - but can a 529 be used for a private school? Or can it only be earmarked for higher education?
    – rs79
    Commented Nov 29, 2012 at 18:44
  • 529 is higher education only. Coverdell can be used for private lower education. From your tax-deduction question, you seemed to believe the 529 limit was far lower than it is. What, exactly, is your goal? We seem to be dancing around the issue. Commented Nov 29, 2012 at 20:16

1 Answer 1


Yes, in fact, if your MAGI is $220K or over as a couple, you are not able to open the account. Having a relative with lower income is a good way to set one up.

As MrChrister commented, the Coverdell is more limited, only $2000/yr, dropping to $500 if congress doesn't act. (limit was $2000 in 2012, to clarify) Funds must be disbursed by age 30 to the beneficiary. But - the investment options are as varied as any other investment accounts, with a 529, the choices for investment are quite limited. In a 529, unused funds can be used for a changed beneficiary within the same extended family, not so with Coverdell.

  • IRS Pub 970 confirms this. Any person including the beneficiary with AGI less than $110K ($220K for joint) can contribute.
    – amit_g
    Commented Nov 28, 2012 at 18:13
  • @amit_g - Thanks for the support! IRS pubs are the best references to these factual questions. Commented Nov 28, 2012 at 21:07

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