Coverdell Education Savings Account

The Taxpayer Relief Act of 1997 (TRA ’97) created a tax- favored education individual retirement account designed to help certain taxpayers save for a child’s education. These plans have been renamed as Coverdell Education Savings Accounts. Money contributed to a Coverdell ESA is nondeductible, but earnings accumulate tax-deferred.

Contributions to a Coverdell ESA are treated as nontaxable
gifts to the beneficiary. In general, to the extent that earnings are distributed to pay qualified educational expenses, the earnings are excluded from the beneficiary’s income and are received free of federal income tax.1

The contributor need not be related to the beneficiary and there is no limit on the number of individual beneficiaries for whom one contributor may set up a Coverdell ESA.


Federal income tax law currently limits contributions to a Coverdell ESA to $2,000 per beneficiary per year. Contributions must be in cash and must generally be made before the beneficiary reaches age 18. Other considerations include:

  • Due date for contributions: Contributions must be made by the due date (not including extensions) of the contributor’s return for the tax year of the contribution, generally April 15 of the following year.
  • Special needs beneficiaries: Contributions to accounts for special needs beneficiaries may be made past the age of 18.2
  • Multiple accounts: May not be used to exceed the $2,000 limit for any one beneficiary.
  • Excess contributions: Excess contributions are subject to a 6% excise tax paid by the beneficiary for each year that any excess remains in the account.


If you have any questions about Coverdell Educational Savings accounts, please feel free to call us!