Coverdell Education Savings Accounts

Find the answers to your questions about education savings accounts.

Are you interested in opening a Coverdell education savings account (ESA) for a child but have questions? The commonly-asked questions and answers below, may provide the facts you need to make an informed decision of whether an ESA is the right option for you.

Q. What is a Coverdell education savings account (ESA)?

A. Coverdell ESAs help people save for a child’s education expenses, such as tuition, fees, books, supplies, equipment, and, in some cases, room and board.

Q. How does an ESA work?

A. With an ESA, you make nondeductible contributions that provide the potential for tax-free withdrawals – including earnings down the road. Here’s a look at how your money can grow in a Coverdell ESA.

Q. Who can contribute to an ESA?

A. Anyone – family member or nonfamily member – can contribute to a child’s ESA, as long as the contributor’s modified adjusted gross income (MAGI) falls below or within the income limits for the year. (See below for the current income eligibility limits.) If your MAGI falls below the lower limit, you may contribute up to the $2,000 maximum per child. If it falls within the limits, you may contribute a portion of the maximum annual contribution (use IRS formula to calculate). If your income exceeds the limits, you cannot contribute to an ESA for that year.

Businesses may also contribute and are not subject to the MAGI limits.

Q. How much can I contribute to an ESA?

A. Depending on your MAGI, you may be able to contribute up to $2,000 per child. For example, if you choose to contribute to the ESAs of three children and you are eligible to give the full contribution amount, you could contribute $6,000 total ($2,000 to each child). Each child may receive no more than $2,000 total per year in ESA contributions. Thus, if several individuals are making ESA contributions for the same child, a coordinated effort will ensure that the total contributions a child receives in one year do not result in an excess.

Q. What is the deadline for making ESA contributions each year?

A. You have until the due date for filing your federal income tax return for the year to contribute to an ESA. For most individuals, this is April 15th.

Q. How long can I contribute to a child’s ESA?

A. You can make contributions to a child’s ESA until he/she reaches age 18.*

Q. If I contribute to an ESA, can I still contribute to a Traditional or Roth IRA?

A. ESA contributions do not affect the contributions you can make to Traditional or Roth IRAs.

Q. Who controls the ESA?

A. Every ESA must have a “responsible individual” assigned to oversee the account. This person directs the investments within the account, decides when to withdraw money, and decides if and when to transfer or roll over the assets to another eligible family member’s ESA. Generally, the “responsible individual” is a parent or legal guardian of the child. The child may serve as the responsible individual after becoming an adult.

Q. Can ESA assets be moved to another ESA?

A. Yes. Assets can be transferred or rolled over from one ESA to another ESA for the same child or an eligible family member of the child. There is no time limit for executing a transfer, but rollovers between ESAs must be completed within 60 days. Keep in mind that only one rollover is permitted per ESA every 12 months.

Q. Who is considered an eligible family member for purposes of a rollover?

A. Family members of the child who are eligible to receive unused funds into an ESA include spouses, siblings, nieces, nephews, first cousins, parents, aunts, uncles, children, and grandchildren under the age of 30.*

Q. Can retirement plan assets be rolled over to an ESA?

A. No. Assets from IRAs, employer-sponsored retirement plans, and even qualified tuition programs (QTPs or state 529 plans) cannot be rolled over to ESAs.

Q. Can ESA assets be moved to a QTP (state 529 plan)?

A. Yes. ESA distributions are tax-free if contributed to a QTP for the same child.

Q. When can ESA money be accessed?

A. The responsible individual can withdraw money from the child’s ESA at any time. But the amount withdrawn may be subject to tax and penalty if it is not used to pay for the child’s qualified education expenses.

Q. What education expenses are considered to be “qualified”?

A. Qualified expenses are outlined in the chart below.


* The age 18 and age 30 limits do not apply to special needs individuals.