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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 elementary, secondary and higher education expenses.

Coverdell ESA

Account description

  • Tax-deferred account with earnings and withdrawals which may be free from federal income tax if used for qualified education expenses. Contribution limits apply.

Eligibility restrictions

  • Single filer with modified adjusted gross income less than $95,000 (partial contribution between $95,000 and $110,000) 
  • Married filing jointly with modified adjusted gross income less than $190,000 (partial contribution between $190,000 and $220,000)

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 for children with special needs

Minimum initial investment

  • Varies by account

Taxation of earnings and withdrawals

  • Earnings may be free from federal income tax if used for qualified expenses before the student turns age 30 (exception for children with special needs)
  • Withdrawals may be free from federal income tax if used for qualified expenses

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 and high 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

Penalties for non-qualified withdrawals

  • Earnings subject to ordinary income tax
  • 10% IRS penalty on earnings, limited exceptions may apply

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 and waivers vary by account
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