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Coverdell Education Savings
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Invest in your child’s education

A Coverdell ESA is the perfect tool for saving money to pay for a child’s educational expenses from kindergarten through college. An added benefit is that a Coverdell Account lets you grow your savings free from federal taxes. You take money out of the account tax-free, as long as you are spending the money on your child’s educational expenses.

Benefits


Contributions and earnings are tax free

Contribute up to $2,000 a year

Earn with a great rate

Perfect account when saving for a child's education

Deposit is insured up to $250,000 by NCUA

Children with special needs may receive funding contributions after age 18

“My husband and I have contributed . . .

and used funds from the Coverdell ESA for both our daughters for educational purposes. It has worked really well for us!”

Ellen and Robert C.

Member since 1993

FAQs

Who's eligible for a Coverdell ESA?

Any child under 18 is eligible. Your Coverdell ESA account can be established and funded right up until their 18th birthday. Students with special needs may be eligible for contributions beyond their 18th birthday.


How much can you save?

You can save up to $2,00 per child, per year in your Coverdell Education Savings Account. You’re allowed to save for your child until they reach age 18.


What can I pay for?

To spend money from your Coverdell ESA tax-free, make sure you use it for qualifying education expenses such as:

  • Tuition and fees
  • Books and supplies
  • Computer equipment that will be used for school
  • Transportation

Room and board may also be covered in some cases. For more details about what qualifies as an education expense, check out the Coverdell Education Savings Account Rules from the IRS.


How is an ESA different than a 529 plan?

There are many differences, but one big one is how the funds can be used. Unlike many state-sponsored Section 529 plans, an ESA can be used to pay for qualified elementary and secondary education expenses at most public, private and parochial schools.


Are ESA funds transferable if my child does not attend college?

ESAs are flexible and can be transferred from the child into another eligible family member’s ESA.


What are the tax implications if the ESA is not used for qualified education expenses?

The earnings portion of the amount in excess of the qualified education expense is taxable income to the child. That amount would also be subject to a 10 percent excess ESA distributions tax.


Who can be the responsible individual of the ESA?

A parent or legal guardian must be the responsible individual (RI) and must be named at the time the ESA is opened. The RI may elect to remain RI after the child attains majority. In most states, that would be age 18.


Who are the individuals involved in the ESA?

  • Grantor/depositor is the person who establishes the ESA.
  • Designated beneficiary is the child for whom the ESA is established.
  • Responsible individual is the person who has control of the ESA and makes withdrawal decisions on the account. This must be a parent or legal guardian of the child.
  • Contributor is any person who contributes to the account. A contributor does not need earned compensation but hey must meet income requirements. An ESA may have several contributors.


What are the income requirements for ESA contributors?

Contribution limits are reduced for people with modified adjusted gross income (MAGI) between $95K – $110K for single filing status, or $190K – $220K for joint filing status.

Single filers with MAGI over $110K or joint filers over $220K are not eligible to contribute to ESAs.


Can a child have multiple ESA accounts?

While a child may have multiple ESA accounts, the annual contribution limit of $2,000 may not be exceeded.


When must the ESA funds be depleted?

Tax laws state that ESA funds must be used by age 30. Exceptions apply when special needs apply.

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