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Coverdell Education Savings Accounts

What is a Coverdell Savings Account?

Coverdell Education Savings Accounts, commonly referred to as CESAs, are an option to be considered as you start your college savings. As with any savings plan, knowing what your goals and timeline are can be the first steps in reaching your goals. By meeting with a Financial Advisor, you’ll have years of experience at your disposal and access to resources to help guide your decision.

Understanding Coverdell Education Savings Accounts

  • CESAs are similar to 529 plans in that they are tax-free as long as qualified distributions are made but only $2,000 a year can be added. You can also use the funds in a CESA for some K-12 education expenses
  • CESAs can be opened on behalf of someone - perhaps your child, grandchild, or niece. Anyone can make a contribution to the account up to the yearly maximum that is $2,000 a year
  • The account balance grows through deposits and interest. Your principal and interest earned will never diminish, just like any other savings account.
  • Only cash contributions are allowed

Funds must be withdrawn from the CESA account by the time the beneficiary has reached the age of 30, except for special needs individuals in which case the beneficiary can receive benefits past the age of 30.

If the beneficiary has a means for income, they can make contributions to the account as well, which can help them to develop good savings habits. Also note that the account is considered an asset of the parent when applying for financial aid.

CESA Tax Information

The distributions you make on your CESA are tax-free as long as the money is used for education and you can use the funds at all accredited schools.

The American Opportunity Tax Credit or the Lifetime Learning Credit can be claimed for the eligible student in the same year as an Education Savings Account distribution, as long as the distribution is not used to pay for the same costs used to claim the education credit. If withdrawals are not used for qualified education expenses, withdrawn earnings are included in the beneficiary's taxable income and are subject to an additional tax of 10%.

How and Where Can I Open a Coverdell Savings Account?

Coverdell Savings Accounts can be opened by contacting any of our local offices.  

Get More Information

Download our College Funding Quick Guide. The Quick Guide will also include information about a Financial Advisor near you.


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