Congress created the Coverdell Education Savings Account (ESA) as a tax-deferred way to help parents save for their children's qualified higher education expenses, including tuition, fees, books, supplies, equipment, and room and board. This type of account was formerly called an Education IRA.
With a Coverdell ESA, any earnings in the account grow tax-deferred and can be withdrawn tax-free. If the funds are withdrawn for any purpose other than qualified higher education expenses, taxes will be due upon withdrawal in addition to a 10% penalty tax.
Coverdell ESA Features
- Coverdell ESA contributions can only be made on behalf of a child under the age of 18 and must be withdrawn by the time the student is 30 years old (or transferred to a younger sibling).
- The annual contribution limit is $2,000 per year per child and must be postmarked by April 15 of each year.
- A Coverdell ESA may be set up on behalf of any child (or several children), not just a son or daughter.
- If you have contributed the maximum amount allowable to a traditional or Roth IRA, you can still contribute to a Coverdell ESA.
Use our
Coverdell ESA calculator to see how much money you might need to pay for your child's education.
NOTE: Please consult your tax professional regarding your specific needs.