1. Coverdell Education Savings Account: Introduction
  2. Coverdell Education Savings Account: Who’s Eligible to Contribute?
  3. Coverdell Education Savings Account: Opening an ESA
  4. Coverdell Education Savings Account: Avoiding Taxes on Distributions
  5. Coverdell Education Savings Account vs. 529 Plan
  6. Coverdell Education Savings Account: Conclusion

Saving for education is a key concern of most parents. Tax-advantaged savings programs like a 529 plan can help with that job. But if your plans include K-12 private-school tuition as well as college, a 529 account won't fund that part of your child's education. That's when you need to learn about the Coverdell Education Savings Account (ESA). 

The Coverdell is a tax-advantaged fund that allows you to save for these expenses. It allows parents, grandparents and other individuals to contribute up to $2,000 per year total on behalf of an eligible student under the age of 18. Those funds can be withdrawn tax-free when used for qualified education expenses. All funds in an ESA must be distributed within 30 days of the beneficiary’s 30th birthday.

Note: A student may have multiple ESAs but total contributions for the year cannot exceed $2,000. The age restrictions on contributions and tax-free withdrawals are waived for beneficiaries with special needs. The waiver allows ESA contributions to be made after age 18 and assets can remain in the account past age 30.

Contributions aren’t tax-deductible for savers, but a Coverdell ESA can yield important tax advantages. If you were to deposit $2,000 into an ESA earning a 4% return, the taxes on the original contribution would already have been deducted from your paycheck. When those funds are withdrawn for qualified education expenses, no taxes would be due on the earnings, unlike a regular savings or investment account.

If you’re looking for a tax-advantaged way to save for K-12 schooling and higher education expenses, this tutorial explains how to open and contribute to a Coverdell ESA and avoid tax penalties. 


Coverdell Education Savings Account: Who’s Eligible to Contribute?
Related Articles
  1. Personal Finance

    Types of College Savings Plans and How They Work

    There are several types of college savings plans available. Here's how each works.
  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. Taxes

    Clearing Up Tax Confusion For College Savings Accounts

    Put your kids through school without being hounded by the tax man.
  4. Taxes

    Tax-Smart Ways To Help Your Kids/Grandkids Pay For College

    Learn about plans and accounts that allow you to efficiently save for your child or grandchild’s education while shielding the savings from the IRS as much as possible.
  5. Retirement

    Analyzing IRA And ESA Statements

    Learn how to read and verify 5498 and 5498-ESA reporting your retirement-account contributions.
  6. Investing

    Spoil Your Grandkids, Cut Your Tax Bill

    Helping your grandchildren save for college is a way to spoil them and reap some benefits yourself.
Frequently Asked Questions
  1. Is it possible for a country to have a comparative advantage in everything?

    Learn whether one country can have a comparative advantage in everything and what the difference between comparative advantage ...
  2. What's the difference between publicly- and privately-held companies?

    Privately-held companies are owned by the company's founders, management, or private investors. Public companies are owned ...
  3. What Are Short-Term Investment Options?

    If you only have a short period of time in which to invest your money, there are several short-term investment options you ...
  4. What are leading, lagging and coincident indicators?

    Leading indicators move ahead of the economic cycle, coincident indicators move with the economy, and lagging indicators ...
Trading Center