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Coverdell Education Savings Account

Take advantage of potential tax-exempt withdrawals used for education expenses.

Recommended if:

  • You want to help pay for a child's education and you want earnings to grow tax-exempt
  • You can make contributions to a CESA up to $2,000 each year per student
  • You have a modified adjusted gross income less than $220,000 for married taxpayers filing jointly and less than $110,000 for single taxpayers
  • You, your employer, a non-profit corporation and even the student can make contributions to a designated student's CESA

Contributions to a CESA

  • Nondeductible contributions may be made to each child's account annually.
  • Contribution deadline is the same as the contributor's tax filing deadline, not including extensions.
  • The designated student must be 18 years of age or younger (or older than 18 if the student is a special needs beneficiary).

Withdrawals and penalties

CESA withdrawals used to pay for qualified education expenses are generally tax-free and not subject to a 10% federal additional tax for early withdrawal. Bank penalties may apply for withdrawals from time deposits before maturity.

Funds in a CESA must be distributed to the designated student by the time the student reaches age 30, or funds rolled over to another eligible family member's CESA.

Common Questions in Regards to Coverdell Education Savings Accounts

What is a Coverdell Education Savings Account (CESA)?

The Coverdell Education Savings Account is a nondeductible account that features tax-free withdrawals for a very specific purpose -- a child's education expenses.

These accounts were formerly known as Education Individual Retirement Accounts (IRAs), and at first glance, a CESA may look similar to traditional or Roth IRAs. Higher education distributions are also permitted from these accounts, but while qualified higher education distributions from a traditional or Roth IRA are only penalty tax free, the same distributions from a CESA are penalty free and federal income tax free. Consult your tax or legal professional for further information regarding state or local income taxes.

What are the Current Interest Rates?

View current interest rates

Who Can Contribute to a CESA?

You are eligible to contribute if your modified adjusted gross income (MAGI) does not exceed certain limits (see tables below). There are no compensation requirements or age restrictions for contributors. They do not even need to be related to the child they are contributing for. Contributors can even be non individuals like corporations or tax-exempt organizations. These entities have no MAGI restrictions.

How Much Can I Contribute?

Contribution Limits

Where can I learn more?

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