Coverdell Education Savings Account (ESA)
A tax-advantage way to save for education.
Start Saving for Your Child’s Education
Coverdell ESAs are designed specifically to help families benefit from saving for a child’s higher education expenses.
Tax-Free Growth & Withdrawals
Your earnings grow tax-free and you can make tax-free withdrawals as long as the funds are used for qualified education expenses.
NCUA-Insured
The Coverdell ESA is insured separated from your other deposit accounts up to $250,000.
Annual Contribution Amount
You can contribute $2,000 per year per child.
Transferrable
If a beneficiary does not use the funds for education, the account can be transferred to another eligible family member.
Coverdell ESA Details
Age Limit
Contributions can only be made until the designated beneficiary turns 18 years old. This limit does not apply to a beneficiary with special needs.
Income Limits
Eligibility to contribute is based on the contributor’s Modified Adjusted Gross Income (MAGI).
- Single Filers: You can make a full contribution if your MAGI is less than $95,000. A partial contribution is allowed if your MAGI is between $95,000 and $110,000. If your MAGI is $110,000 or more, you are not eligible to contribute.
- Married Filing Jointly: You can make a full contribution if your MAGI is less than $190,000. A partial contribution is allowed if your MAGI is between $190,000 and $220,000. If your MAGI is $220,000 or more, you are not eligible to contribute.
Coverdell ESA vs. 529 College Savings Plan
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Tax advantages (any qualifying withdrawals will be 100% tax free, and your investments will grow and compound tax free while in the account)
Tax advantages (any qualifying withdrawals will be 100% tax free, and your investments will grow and compound tax free while in the account)
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Qualified withdrawals can be used for K-12 expenses
Qualified withdrawals can be used for K-12 expenses
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Qualified withdrawals can be used for post-secondary expenses
Qualified withdrawals can be used for post-secondary expenses
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Wide variety of investment options
Wide variety of investment options
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High contribution limit (more than $250,000)
High contribution limit (more than $250,000)
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No income limits for contributors
No income limits for contributors
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No withdrawal age limit
No withdrawal age limit
Coverdell ESA
-
Tax advantages (any qualifying withdrawals will be 100% tax free, and your investments will grow and compound tax free while in the account)
-
Qualified withdrawals can be used for K-12 expenses
-
Qualified withdrawals can be used for post-secondary expenses
-
Wide variety of investment options
-
High contribution limit (more than $250,000)
-
No income limits for contributors
-
No withdrawal age limit
529 College Savings Plan
-
Tax advantages (any qualifying withdrawals will be 100% tax free, and your investments will grow and compound tax free while in the account)
-
Qualified withdrawals can be used for K-12 expenses
-
Qualified withdrawals can be used for post-secondary expenses
-
Wide variety of investment options
-
High contribution limit (more than $250,000)
-
No income limits for contributors
-
No withdrawal age limit
Coverdell ESA FAQs
See all FAQs.
ESAs are often compared to 529 plans, which are also popular for education savings. While both accounts offer tax advantages, 529 plans typically allow for higher contribution limits and are more focused on college savings, whereas ESAs can be used for K-12 expenses as well. Education Savings Accounts (ESAs) provide a valuable tool for families looking to save for educational expenses, offering flexibility and tax benefits that can help ease the financial burden of education.Funds in these accounts grow tax-deferred and are tax free when withdrawn for K-12 or college education expenses before age 30.
Qualified K-12 education expenses include books, supplies, equipment, academic tutoring, and special needs services connected to attendance at an eligible school.
A qualified education expense is one that is required for enrollment or attendance at an eligible educational institution, including:
- K-12 Expenses: Tuition, fees, academic tutoring, books, supplies, equipment (including computer technology), and special needs services.
- Higher Education Expenses: Tuition, fees, books, supplies, equipment, and room and board (if the student is enrolled at least half-time).
If your modified adjusted gross income is less than $110,000 ($220,000 for joint returns), you may be able to establish a Coverdell ESA to finance qualified education expenses for a designated beneficiary. When you establish the account, the beneficiary must be under age 18 or be a special needs beneficiary.
Any number of accounts can be opened for one beneficiary, but if the annual deposits across those accounts exceed $2000, a penalty will be owed.
For financial aid purposes, the beneficiary is considered the account owner, so the impact on financial aid is minimized. The beneficiary becomes the owner once they reach legal age. You may change the beneficiary of the account to pay for education expenses or another child. You can contribute to both a 529 plan and an ESA for the same beneficiary.