1. Education Savings Account: Introduction
  2. Education Savings Account: Qualifying To Contribute
  3. Education Savings Account: Opening An ESA
  4. Education Savings Account: Avoiding Taxes On Distributions
  5. Education Savings Account: Conclusion

By Reyna Gobel

Many people start a college savings fund for their newborn children. However, you may also decide you want to send your son or daughter to private school at some point during his or her elementary or high school years. Luckily there is a tax-advantaged fund that covers both, the Coverdell Education Savings Account (ESA).

The Coverdell Education Savings Account allows individuals to deposit up to $2,000 per year in an educational savings account for an eligible beneficiary (child) without being taxed on earnings from interest, dividends, appreciation, etc. – as long as the child uses the funds before the age of 30 for qualified educational expenses. The account must be started and all contributions made before the child is 18.

Note: The age 18 and age 30 limitations are waived if the beneficiary has special needs. This waiver allows the ESA to be funded after age 18 and allows the assets to remain in the account after age 30.


For example, suppose you deposit $2,000 at the beginning of the year into an ESA. Your account earns 4%, or $80. You paid taxes on the $2,000 via your paycheck. The child will not have to pay taxes on the $80 earned, unlike a regular savings or investment account.

In this tutorial, you'll learn how to open and contribute to an ESA and how to avoid tax penalties.

Education Savings Account: Qualifying To Contribute

Related Articles
  1. Financial Advisor

    Why Coverdell ESAs May Trump 529 Plans

    Coverdell ESAs still trail 529 plans in popularity by a wide margin due to their low contribution limits. But these accounts can be a viable alternative.
  2. Personal Finance

    529 Plan or Coverdell? How to Choose College Savings Plans

    There are two options when it comes to tax-free college savings plans: a 529 plan or a Coverdell ESA. Here's how they compare.
  3. Personal Finance

    Saving for College: 7 Options to Consider

    There are many options choose from when you're looking for the right educational savings plan for your child.
  4. Personal Finance

    Opening Your Child's First Bank Account

    Teach your children to save up to meet their spending - and saving - goals.
  5. Retirement

    Retirement Savings Plans For Kids

    It's never too early to save for the future - learn how your children can get started.
  6. Personal Finance

    College Savings Accounts: U.S. Vs. Canada

    Saving for your child's education is an important commitment. Find out what help is available to you in the U.S. and Canada.
  7. Retirement

    4 Smart 529 Plan Alternatives to Consider

    Learn about some alternatives to the popular college-saving 529 plan that may also make sense, such as prepaid tuition plans and Coverdell accounts.
  8. Investing

    Top 7 Mistakes To Avoid On Your 529 Plan

    A 529 can go a long way to easing the burden of college education, as long as you start saving as soon as possible after your child is born.
  9. Financial Advisor

    Advising FAs: Explaining College Savings Accounts to Clients

    There are several types of savings accounts designed for higher education available today. The right one for you will depend upon factors such as your tax bracket, time horizon, investment objectives ...
  10. Financial Advisor

    Why Ignoring Your 529 Plan Could Cost You Big

    Saving for your kids' college tuition can be difficult. Here's how a 529 plan can help and how you, too, can help your 529 plan.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center