Education Savings Account

A Coverdell ESA is a savings account set up to pay the qualified education expenses of the designated beneficiary of the account. It can be opened in the United States at any bank or other IRS approved entity that offers Coverdell ESAs.

Who Can Have a Coverdell Education Savings Account (ESA)?

Generally any beneficiary who is under age 18 or a special needs beneficiary.

Are Distributions Tax Free?

Yes, if the distributions are not more than the beneficiary's adjusted qualified education expenses for the year.

What Are Qualified Education Expenses?

Generally, these are expenses required for enrollment or attendance of the designated beneficiary at an eligible educational institution. For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses.

The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school:

• Tuition and fees
• Books, supplies and equipment
• Expenses for special needs services needed by a special need beneficiary
• Room and board for students enrolled at least half-time*

*The expenses for room and board qualifies only to the extent that it is not more than the greater of the following two amounts:

What Are Eligible Educational Institutions?

Eligible educational institutions can be either an eligible postsecondary school or an eligible elementary or secondary school.

Eligible postsecondary school is any college, university, vocational school or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

For additional information on the ESA, click here.

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