Coverdell Education
Savings Account
If you are wondering how you will pay for your child's education, a Coverdell Education Savings Account (ESA) may be part of your solution.
To participate in a Coverdell ESA, you must meet the following annual income criteria:
- Up to $95,000 if filing as single taxpayer
- Up to $190,000 if married filing jointly
- Partial contributions are allowed for single taxpayers earning up to $110,000 and married couples making up to $220,000
Benefits & Highlights
- $2,000 maximum per year, per child
- Earnings grow tax-free if distributions are used for qualified education expenses
- Any adult meeting the income criteria – parents, grandparents, aunts, uncles, godparents, family or friends – can open and contribute to a Coverdell ESA
- A parent or legal guardian must oversee the account and serve as the person responsible for making fund withdrawal allocation decisions
- Dividends are compounded daily and posted monthly
- IRAs are federally insured to at least $250,000 by the National Credit Union Share Insurance Fund
What happens if my child decides not to go to college?
If your child decides not to go to college, there are two options available to Coverdell beneficiaries when they reach age 30:
- They may close the account, keep the balance and pay tax on the earnings plus a 10% penalty
- The funds can be transferred to another family member under the age of 30, thus establishing a new Coverdell plan for a younger sibling, niece, nephew or even the beneficiary's own son or daughter
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