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What Is a Coverdell Education Savings Account?
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Coverdell Education Savings Accounts: Rules and Benefits
Coverdell ESAs can be a tax-efficient way to save for educational expenses.
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Expertise Personal Finance investing retirementConnor Emmert is a former NerdWallet writer and an authority on investing. Prior to joining NerdWallet, he spent several years as a licensed financial advisor with Bank of America/Merrill Lynch and Fisher Investments. He earned his bachelor's degree in English at Colby College.
Connor Emmert is a former NerdWallet writer and an authority on investing. Prior to joining NerdWallet, he spent several years as a licensed financial advisor with Bank of America/Merrill Lynch and Fisher Investments. He earned his bachelor's degree in English at Colby College. Writer + more + more
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11 years of experienceChris Hutchison helped build NerdWallet's editorial operation and has directed coverage across banking, investing, taxes and insurance. He now leads a team exploring new verticals. Before joining NerdWallet, he was an editor and programmer at ESPN and an editor at the San Jose Mercury News.
Chris Hutchison helped build NerdWallet's editorial operation and has directed coverage across banking, investing, taxes and insurance. He now leads a team exploring new verticals. Before joining NerdWallet, he was an editor and programmer at ESPN and an editor at the San Jose Mercury News. Head of Content, New Verticals + more + moreWhat is a Coverdell ESA?
What is a Coverdell ESA?A Coverdell education savings account is a special investment account used to save for educational expenses. You can contribute up to $2,000 a year to a Coverdell account, and any investment growth in the account is not taxable if the beneficiary uses the money for qualified educational expenses. The account can also be used to pay for eligible K-12 expenses.
A Coverdell education savings account is a special investment account used to save for educational expenses. You can contribute up to $2,000 a year to a Coverdell account, and any investment growth in the account is not taxable if the beneficiary uses the money for qualified educational expenses. The account can also be used to pay for eligible K-12 expenses.How a Coverdell ESA works
How a Coverdell ESA worksHere are some of the most important things to know about Coverdell accounts.
Here are some of the most important things to know about Coverdell accounts.Eligibility
EligibilityTo open a Coverdell education savings account:
To open a Coverdell education savings account:The beneficiary for the Coverdell must be under 18. There are exceptions if the beneficiary has functional needs.
The beneficiary for the Coverdell must be under 18. There are exceptions if the beneficiary has functional needs.The account has to be defined as a Coverdell ESA on the day it is opened.
The account has to be defined as a Coverdell ESA on the day it is opened.The documents to open and establish the account have to be in writing
The documents to open and establish the account have to be in writing IRS.gov. Topic no. 310, Coverdell education savings accounts. Accessed Oct 31, 2025. .Contribution limits
Contribution limitsYou can have more than one Coverdell account for a beneficiary, but the total contribution to all accounts cannot exceed $2,000 per year.
You can have more than one Coverdell account for a beneficiary, but the total contribution to all accounts cannot exceed $2,000 per year.Income limits
Income limitsYou can only open a Coverdell account if your income is below certain limits.
You can only open a Coverdell account if your income is below certain limits.If you file your taxes jointly and your modified adjusted gross income (MAGI) is over $220,000 per year ($110,000 for single filers), you aren't eligible to contribute to a Coverdell ESA.
If you file your taxes jointly and your modified adjusted gross income (MAGI) is over $220,000 per year ($110,000 for single filers), you aren't eligible to contribute to a Coverdell ESA.If your MAGI is between $190,000 and $220,000 (joint filers) or between $95,000 and $110,000 (single filers), you can contribute a partial amount (a financial advisor can walk you through the calculation).
If your MAGI is between $190,000 and $220,000 (joint filers) or between $95,000 and $110,000 (single filers), you can contribute a partial amount (a financial advisor can walk you through the calculation).If your MAGI is under $190,000 per year ($95,000 for single filers), you’re eligible to contribute the full amount
If your MAGI is under $190,000 per year ($95,000 for single filers), you’re eligible to contribute the full amount IRS.gov. Modified adjusted gross income. Accessed Oct 31, 2025. .Distributions
DistributionsGenerally speaking, the beneficiary of a Coverdell ESA can withdraw money from the account tax-free, as long as the money is put toward qualified educational expenses. The definition of what qualifies is fairly broad: Funds can be used for tuition, books and supplies, tutoring, and in some cases transportation or room and board
Generally speaking, the beneficiary of a Coverdell ESA can withdraw money from the account tax-free, as long as the money is put toward qualified educational expenses. The definition of what qualifies is fairly broad: Funds can be used for tuition, books and supplies, tutoring, and in some cases transportation or room and board IRS.gov. About Publication 970, Tax Benefits for Education. Accessed Oct 31, 2025. .Nonqualified distributions are taxable, and they also trigger a 10% penalty, so it’s important to understand whether an expense is qualified before taking a distribution. If you’re unsure about whether a distribution meets the criteria, consult with a qualified financial advisor to avoid making a costly error.
Nonqualified distributions are taxable, and they also trigger a 10% penalty, so it’s important to understand whether an expense is qualified before taking a distribution. If you’re unsure about whether a distribution meets the criteria, consult with a qualified financial advisor to avoid making a costly error.The funds in a Coverdell ESA must be distributed by the time the beneficiary turns 30 (there are exceptions if the beneficiary has special needs).
The funds in a Coverdell ESA must be distributed by the time the beneficiary turns 30 (there are exceptions if the beneficiary has special needs).You are allowed once a year to change the beneficiary of a Coverdell account to another family member.
You are allowed once a year to change the beneficiary of a Coverdell account to another family member.» MORE: Check out our free capital gains tax calculator
» MORE: Check out our free capital gains tax calculator » MORE: Check out our free capital gains tax calculatorCoverdell ESA vs. 529 plans
Coverdell ESA vs. 529 plansESAs and 529 plans are similar in that contributions are considered tax-deferred. However, there are a few key differences between the two.
ESAs and 529 plans 529 plans are similar in that contributions are considered tax-deferred. However, there are a few key differences between the two.Coverdell ESA
Coverdell ESA
Coverdell ESA529 Plan
529 Plan
529 PlanEligibility
EligibilityBeneficiary must be under 18 when account is opened; the funds must be distributed by the time beneficiary is 30.
Beneficiary must be under 18 when account is opened; the funds must be distributed by the time beneficiary is 30.No age restrictions, no time limit on use.
No age restrictions, no time limit on use.Income limits
Income limits$220,000 per year for joint filers ($110,000 for single filers).
$220,000 per year for joint filers ($110,000 for single filers).None.
None.Contribution limits
Contribution limitsTotal cumulative contribution to all Coverdell accounts for a beneficiary cannot exceed $2,000 per year.
Total cumulative contribution to all Coverdell accounts for a beneficiary cannot exceed $2,000 per year.None, although states that offer a tax deduction for contributions may cap the deduction. Contributions may trigger gift tax.
None, although states that offer a tax deduction for contributions may cap the deduction. Contributions may trigger gift tax.Distributions
DistributionsNo limit on withdrawals for qualified college or K-12 expenses.
No limit on withdrawals for qualified college or K-12 expenses.No limit on withdrawals for qualified college expenses; $10,000 cap per year for qualified K-12 expenses.
No limit on withdrawals for qualified college expenses; $10,000 cap per year for qualified K-12 expenses.Tax benefits
Tax benefitsContributions are not deductible. Investment gains aren’t taxable if the money is used for education.
Contributions are not deductible. Investment gains aren’t taxable if the money is used for education.Some states may offer a tax deduction for contributions. Investment gains aren’t taxable if the money is used for education.
Some states may offer a tax deduction for contributions. Investment gains aren’t taxable if the money is used for education.Is a Coverdell ESA right for me?
Is a Coverdell ESA right for me?Depending on your financial situation, opening a Coverdell ESA might be a great fit for you and your family. As always, it's best to consult with your tax professional or financial advisor before making a selection on the best fit for you.
Depending on your financial situation, opening a Coverdell ESA might be a great fit for you and your family. As always, it's best to consult with your tax professional or financial advisor before making a selection on the best fit for you.If you’re looking for tax-deferred savings toward education with more flexibility regarding your investment choices, then a Coverdell might make sense for you.
If you’re looking for tax-deferred savings toward education with more flexibility regarding your investment choices, then a Coverdell might make sense for you.If you’d like to contribute more than $2,000 per year toward educational savings, you might consider opening a 529 plan instead, or in addition to a Coverdell.
If you’d like to contribute more than $2,000 per year toward educational savings, you might consider opening a 529 plan instead, or in addition to a Coverdell.» MORE: This quiz can help you see if it's time to get a financial advisor
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