Charlie is a single taxpayer with income of $107,000 which includes $22,500 of interest income. Contributions to Coverdell educational savings accounts are phased out between $95,000 and $110,000. What is the maximum contribution Charlie can make to an educational savings account?

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Quizplus · Accepted Answer

Charlie's income is within the phase-out range for contributions to a Coverdell ESA, which is between $95,000 and $110,000 for single taxpayers. The maximum contribution is reduced as the taxpayer's income increases within this range. The full contribution limit for a Coverdell ESA is $2,000. Charlie's income is $12,000 into the phase-out range ($107,000 - $95,000), which spans $15,000 ($110,000 - $95,000). This means 80% of the phase-out range has been used ($12,000 / $15,000 = 0.8 or 80%), leaving 20% of the maximum contribution available. 20% of $2,000 is $400, which is the maximum contribution Charlie can make.

Charlie Is a Single Taxpayer with Income of $107,000 Which