Coverdell Education
Savings Account (CESA)

Overview of a Coverdell IRA

A Coverdell Education Savings Account is a type of account that you can establish to save for higher education expenses in a tax favorable manner.

A Coverdell account is typically set up for the higher education expenses of a child. The contributed funds grow in the account tax deferred and the money comes out for education expenses tax free. There is no tax deduction for amounts contributed to a Coverdell but you do have significant investment options including self-directed investment options (similar to IRA rules). A Coverdell has the following rules and benefits.

Coverdell Education Savings Account





No Deduction

2020 Contribution Limit



($7,000.00 age 50 and over)

Single Filer: MAGI
under $124,000.00
Married Filing Jointly: MAGI
under $196,000.00 If client does not qualify due to income

Withdrawals are tax and
after age 59 1/2 and once the account has been open for 5 years

Coverdell Rules

  • $2,000 annual contribution limit per beneficiary (e.g. child or grandchild).
  • Parents (or grandparents) can contribute without limitations to a Coverdell until a beneficiary reaches age 18 if the contributor has income of less than $190k (married joint) or $110,000 (single). For high-income earners, keep in mind that the child can always contribute to their own account with gifted funds (no need to have earned income) so you can always get around the income limitation by having the child contribute themselves.
  • Funds can be used for tuition, fees, books, and equipment for college as well as certain K-12 expenses too.
  • There are zero federal or state income tax deductions on Coverdell accounts.

Coverdell Benefits

  • Accounts can be invested into stocks, mutual funds, and can even be self-directed. They operate similar to an IRA. Self-directed Coverdell accounts can be opened at Directed IRA.
  • Contributions grow tax-free and can be withdrawn for education expenses until the account beneficiary reaches age 30. Unused amounts can be transferred to another family member beneficiary

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