Account holders at Directed IRA can invest their Coverdell ESA in alternative assets like real estate, crypto, notes, and more. An ESA offers tax-advantaged ways to save and invest for a child’s education.
A Coverdell Education Savings Account (ESA) is a tax-advantaged savings account designed to help families save for education expenses. Contributions are made with after-tax dollars, but earnings grow tax-free, and withdrawals for qualified education expenses—such as tuition, books, and supplies—are also tax-free.
A “Self-Directed ESA” takes this one step further, giving account holders the freedom to invest in non-traditional assets such as real estate, precious metals, or private equity—opportunities that aren’t available in a Brokerage ESA. For example, instead of limiting your investment to mutual funds or stocks, you could use your self-directed Coverdell ESA to invest in cryptocurrencies like Bitcoin, Solana, and XRP.
Eligibility Requirements
• New Coverdell ESAs can be opened in less than 5 minutes using our online portal. Fill out a new account application or book a call to speak to our team, go over questions, and get started.
Fund Your Account
• Fund your new account by initiating an account transfer, rollover, or direct contribution (ACH, Check, Wire).
Start Investing
• Account holders at Directed IRA can invest in any asset allowed by law. This includes alternative assets like real estate, funds, precious metals, private equity, and more.
While both Coverdell ESAs and 529 Plans are designed to help families save for education, they have many differences:
Yes, an existing Coverdell ESA can be transferred or rolled over into a Self-Directed ESA at Directed IRA. This process involves moving funds from the current custodian to the new custodian and can be done without triggering taxes or penalties if completed correctly. Learn more about funding your account.
If funds from a Coverdell ESA are used for non-qualified expenses, the earnings portion of the withdrawal becomes subject to federal income tax and an additional 10% penalty. For example, if an account with $10,000 in contributions and $5,000 in earnings is used for non-qualified expenses, only the $5,000 in earnings is taxed and penalized. However, exceptions to the 10% penalty may apply in certain situations, such as if the beneficiary receives a scholarship, becomes disabled, or passes away, though income taxes would still apply to the earnings.
Coverdell ESAs offer significant tax advantages:
The annual contribution limit for a Coverdell ESA is $2,000 per beneficiary. Contributions must be made in cash and must be completed by the contributor’s tax filing deadline (not including extensions). Unlike 529 Plans, contributions to a Coverdell ESA are not tax-deductible.
Unfortunately, no, you can only transfer existing Coverdell ESA funds to a self-directed Coverdell ESA or you can make new contributions. 529 plan funds can only go to other 529 plan accounts which have investment restrictions and cannot be self-directed.
New to self-directed retirement accounts? These resources are designed to help you understand the fundamentals and get started the right way.
Access curated webinars, guides, and educational content covering investment options, account structures, and the rules that govern self-directed IRAs.
Mat Sorensen, Attorney, CEO, and Founder of Directed IRA, wrote the #1 book on self-directed IRAs – selling over 50,000 copies nationwide. The Self Directed IRA Handbook is a comprehensive guide written for both investors and advisors alike. Get access to your SDIRA Handbook resources today!
Mat Sorensen, Attorney, CEO, and Founder of Directed IRA, wrote the #1 book on self-directed IRAs – selling over 50,000 copies nationwide. The Self Directed IRA Handbook is a comprehensive guide written for both investors and advisors alike. Download your free copy today!
