A Coverdell Education Savings Account (ESA) is a tax-advantaged account designed to help save for educational expenses.
Coverdell ESA offers tax-free earnings growth and tax-free withdrawals when the funds are spent on qualified expenses. Coverdell ESAs aren't just for college – you can also use your savings to pay for K-12 expenses tax-free, and they can offer more investment options and lower fees than 529 plans.
A Coverdell Education Savings Account (ESA) can play an important role in helping pay for qualified education expenses.
Who’s Eligible to Contribute
Anyone can set up a Coverdell Education Savings Account. The account is opened in the child's name. The designated beneficiary must be an individual under the age of 18. The age 18 limitation does not apply to any designated beneficiary with special needs.
Maximum Annual Contributions
$2,000 per beneficiary.
Contribution may be limited depending on your modified adjusted gross income (MAGI).
Catch-up Contribution Limits
No “catch-up” contributions.
Coverdell ESAs for the taxable year can be opened and funded anytime between the first day of the contributor’s tax year and the date of the contributor’s tax return is due for the year, excluding extensions. This due date is normally April 15 of the following year.
Contributions after age 701/2
Earnings grow tax-free for children under the age of 30. Withdrawals are tax-free for qualified education expenses.
No deduction for contributions. Tax-free growth replaces this benefit.
None if: For payment of qualified education expenses.
Bank Penalty for Early Withdrawal
Standard Bank Early Withdrawal Penalties Apply.
Must be completed 30 days after reaching age 30 or upon death. The age 30 limit does not apply to any beneficiary with special needs.
Coverdell Education Savings Account
A special account designed to help pay for your child's education.