Coverdell ESA (Education Savings Account)

Named after late Senator Paul Coverdell (R-GA), a Coverdell ESA, formally known as an Education IRA, is an account solely used for education-related expenses. If used for qualified educational expenses the growth of the funds will be tax-deferred and all withdrawals from the funds will be tax free to the beneficiary. These funds can be used for elementary and secondary education (K-12), in addition to college and graduate school. Qualified expenses include tuition, room and board, books and supplies, tutoring, transportation and computers (even if not required by the school).

Currently the maximum amount that can be contributed into a Coverdell is $2,000 per year per beneficiary. If the amount contributed exceeds $2,000 the excess is subject to a 10% federal penalty and taxation. The maximum age limit for the beneficiary of the account is 18 years old. The accounts must be used by the time the beneficiary reaches age 30. However, if the initial beneficiary does not use the funds for education the funds can be donated to a sibling for the use to their education. At which point no additional assets can be added to the account. This donation does not count as a contribution towards the sibling.

You may not be eligible to contribute to a Coverdell Account if you earn over a certain amount for the year


  • Tax-deferred growth
  • Tax-free distribution for qualified educational purposes
  • Funds are not counted as the child’s assets towards financial aid


  • The use of the funds are limited to qualified education expenses.
  • Lower contribution limits make it difficult to save enough to cover college expenses
  • Contributions are made with after-tax dollars and will not lower your tax bill
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