Education Savings Account (ESA)

With an Education Savings Account (ESA), you can invest in the future of a child — tax-deferred and federal tax-free for qualified distributions for elementary, secondary and higher education expenses.

Coverdell ESA

Account description

• Tax-deferred account with the potential for federal income tax-free distributions if used for qualified education expenses. Contribution limits apply.

Eligibility restrictions

• Single filer with modified adjusted gross income (MAGI) less than $95,000 (partial contribution between $95,000 and $110,000); if MAGI exceeds $110,000, you may not contribute 
• Married filing jointly with modified adjusted gross income (MAGI) less than $190,000 (partial contribution between $190,000 and $220,000); if MAGI exceeds $220,000, you may not contribute
• Note: Organizations, such as corporations and trusts, can also contribute to a Coverdell ESA. There is no requirement that an organization's income be below a certain level.

Contribution age limits

• Beneficiary must be under age 18; must be used by beneficiary by age 30

Maximum yearly contribution per student

• $2,000 a year per student until age 18
• Exception applies to the age 18 limitation for children with special needs

Minimum initial investment

• Varies by account

Taxation of distributions

• Distributions may be free from federal income tax if they are not more than the adjusted qualified education expenses (AQEE) before the student turns age 30 (exception applies to the age 30 restriction for children with special needs)

Qualified expenses

• Qualified education expenses include tuition, room and board, fees, books, equipment, and supplies at an eligible elementary, secondary, and post-secondary school, as well as computer equipment for elementary. secondary and post-secondary school (restrictions apply)
• Academic tutoring, uniforms, transportation, and supplementary items and services (including extended day programs) may also be qualified if incurred or required by an eligible elementary or secondary school

Taxes for non-qualified withdrawals

• Earnings subject to ordinary income tax
• 10% additional tax on earnings unless an exception applies

Ownership of assets

• Transactions reported to IRS with student’s tax identification number; the "Responsible party" (parent or legal guardian) controls the account and has transaction authority
• The Education Savings Account can remain for the beneficiary until the beneficiary turns 30.  Any balance remaining in the Education Savings Account at the time the beneficiary becomes 30 years old must be distributed within 30 days

Commissions and fees

• Annual Custodial Fees vary by account

Investment products and services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC (WFCS) and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.