You can save for a child’s educational expenses in several ways, including traditional savings accounts and more advanced, tax-advantaged accounts like a Coverdell education savings account. This type of account is similar to other educational savings accounts, such as 529s, but it offers more flexibility of use and investment control.

If you’re considering a Coverdell education savings account, you must understand key features and characteristics, such as income and contribution limits, age restrictions, and what expenses qualify.

What Is a Coverdell ESA?

A Coverdell education savings account (ESA) is a tax-advantaged investment account designed to help a child cover educational expenses. The account is opened in the name of a minor, and the beneficiary can use account funds to cover qualifying educational expenses, such as:

  • Elementary or high school expenses include tuition, books, and uniforms.
  • Higher education tuition.
  • Room and board.
  • Books, computers, and other academic resources or equipment.
  • Tutoring or academic special needs services.

In addition to covering multiple educational expenses throughout a child’s life, this type of account also gives the custodian more control over how funds are invested. Investment options range from stocks and bonds to mutual funds, exchange-traded funds (ETFs), and even real estate investments.

Benefits of a Coverdell ESA

If you’re looking for an investment vehicle that will allow you to save for a child’s education, there are several reasons to consider a Coverdell ESA.

  • Funds can cover a wide range of qualifying educational expenses for primary and secondary school as well as higher education.
  • Coverdell ESAs offer far more investment opportunities when compared to a 529 savings account.

How Do Coverdell ESAs Work?

In general, anyone wanting to support a child’s academic growth financially can open a Coverdell ESA. This includes parents, grandparents, aunts and uncles, and non-relatives. However, there are additional IRS-set rules that govern eligibility and contributions.


To be eligible, the account beneficiary must be under 18. Individuals with special needs due to a mental, physical, or emotional condition are not subject to the 18-year-old cut-off. Income limits (discussed below) also impact eligibility.

Income Limits

If you’re filing a joint return, your combined income must be below $220,000 per year to be eligible to contribute to a Coverdell ESA. Single filers become ineligible once their income reaches $110,000 per year or more.

Contribution Limits

The base Coverdell ESA contribution limit is $2,000 per year, though the plan also has income-driven limits that can reduce (or eliminate) your annual contribution limit.

If you file taxes jointly and your modified adjusted gross income (MAGI) is between $190,000 and $220,000, your contribution limit will be reduced. Single filers can expect a reduced contribution limit if their income falls between $95,000 and $110,000. If your income exceeds those limits, you cannot contribute to the Coverdell ESA in that tax year.

Note that the Coverdell ESA contribution is applied across all accounts, not to a single account. If you have two or more Coverdell ESAs, the combined contribution limit is $2,000 or the reduced contribution level if your income exceeds the above mentioned limits.


You can take a tax-free withdrawal from a Coverdell ESA at any time to cover qualifying educational expenses, whether in elementary school or while a child is enrolled in a higher educational program, such as at a college or university. If the amount withdrawn exceeds the educational expense, the excess becomes taxable.

Unless the account’s beneficiary is considered special needs, all funds must be withdrawn from the account within 30 days of the beneficiary’s 30th birthday.

What’s the Difference Between a Coverdell ESA and a 529

Coverdell ESAs and 529 accounts can help pay for a child’s educational expenses, but several differences may make one type of account better suited for your needs.

Coverdell ESA529
EligibilityAnyone can open an account as long as the beneficiary is under the age of 18.Anyone can open an account. There are no beneficiary age restrictions.
Income limitsLess than $220,000 per year if the account holder is married filing jointly.

Less than $110,000 per year if the account holder is a single filer.

Contribution limits$2,000 per year, with additional limits based on your income and tax-filing status.No annual contribution limit, though each state sets a lifetime contribution limit, such as $300,000 or $500,000 or more.
Age limitThe entire account balance must be withdrawn within 30 days of the beneficiary’s 30th birthday.No age limit.
Qualifying expensesQualified expenses incurred while the beneficiary is in K-12 as well as during enrollment in a higher education program.Primarily higher education expenses, but some states allow account holders to use funds to pay up to $10,000 in tuition at a private elementary school or high school, primarily higher education expenses.
Investment optionsOption to customize with various assets, including stocks, bonds, mutual funds, ETFs, etc.Limited control. Generally, you’ll select between one or more portfolios offered by the financial institution holding the account.

Coverdell ESAs are one of the best ways to invest in your child’s future. Contact Horizon Trust if you are interested in opening a Coverdell ESA or any other tax-advantaged account for your child, such as a Custodial Roth IRA.


Who can contribute to a Coverdell ESA?

Anyone can contribute to a Coverdell ESA, including parents, grandparents, aunts and uncles, and non-relatives, such as family and friends. However, income restriction may reduce the allowed contribution or eliminate it altogether.

Tax filing status and incomeCoverdell ESA contribution limit
Married filing jointly with income less than $190,000 per year.Up to $2,000 per year.
Married filing jointly with income from $190,000 but less than $220,000 annually.Reduced amount.
Married filing jointly earning $220,000 or more per year$0.
Filing single with income below $95,000 per year.Up to  $2,000 per year.
Filing single with income from $95,000 but less than $110,000 annually.Reduced amount
Filing single with an income of $110,000 or more per year.$0.

Can Coverdell ESA funds be used for non-education expenses?

No, Coverdell ESA funds should not be used for non-education expenses. Qualifying expenses are limited to K-12 expenses, such as tuition and books, as well as higher educational expenses, such as tuition, books, room and board, educational equipment, etc.

What happens if funds are not used for educational purposes?

If funds in a Coverdell ESA are used for non-educational expenses, they will be considered income and taxed at the beneficiary’s current tax rate. An additional 10% penalty may also be applied.

Can multiple Coverdell ESAs be opened for one beneficiary?

Yes, multiple Coverdell ESAs can be opened for one beneficiary. However, the total contribution among all Coverdell ESAs must not exceed $2,000. 

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