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Coverdell Education Savings Account
As you choose a gift for that special child, consider opening or contributing to a Coverdell Education Savings Account. Earnings grow tax-deferred and distributions are not taxable if used to pay elementary, secondary and/or higher education expenses. If desired, you can transfer the assets to another family member if the funds are not needed.
A Coverdell Education Savings Account (ESA) is an account specifically designed to pay for the educational expenses of a minor at a future date. With an ESA, an adult serves as the “Responsible Individual” (i.e. custodian) for the “Beneficiary” (i.e. minor).
Benefits of a Coverdell ESA
- Account earnings are tax-deferred.
- Withdrawals are tax-free when funds are used to pay certain educational expenses.
- If the minor does not use the funds, the account can be transferred to another family member.
Coverdell ESA Contributions and Deadlines
Up to $2,000 may be contributed to an ESA each year. Contributions can be made up until April 15th for the prior year. When the child turns 18, contributions can no longer be made, unless the child has special needs.
Coverdell ESA Contribution Eligibility
The amount you can contribute to an ESA depends on your tax filing status and annual income.* See the following chart.
| Tax-Filing Status | Full Contribution Permitted When Your Income Is: | Partial Contribution Permitted When Your Income Is: | No Contribution Permitted When Your Income Is: |
| Single or Head of Household | Less than $95,000 | $95,000 – $110,000 | More than $110,000 |
| Married Filing Jointly | Less than $190,000 | $190,000 – $220,000 | More than $220,000 |
*Annual income is your Modified Adjusted Gross Income, which is your Adjusted Gross Income before certain deductions or adjustments are made. For more information, see the ESA section in Chapter 7 of IRS Publication 970 at www.irs.gov.
Coverdell ESA Distributions
Generally, withdrawals from an ESA are tax-free if used for certain educational expenses. Qualified expenses include tuition, fees, books and supplies at certain elementary, secondary and post-secondary schools and colleges. If withdrawals are not used for qualified expenses, ESA earnings are taxable and a 10% penalty tax is assessed on the earnings. If not depleted by the time the student turns 30, the ESA must be redeemed or transferred to another family member.
Coverdell ESA Custodial Fee
The annual Sit custodial fee is waived if your ESA account balance is $10,000 or more. The annual Sit custodial fee is $15 if your account balance is less than $10,000. We will notify you in November and you may pay the fee then or, if unpaid, we will deduct the fee in mid-December for your convenience. If your account balance is less than $10,000 when you close your account, the fee will be deducted from your check.
Coverdell ESA Forms
The following forms are available for use regarding Coverdell ESA’s.
Tax Forms
ESA contributions are reported on IRS Form 5498-ESA (“Coverdell ESA Contribution Information”), which is mailed to you in April. Redemptions are reported on IRS Form 1099-Q (“Payments from Qualified Education Programs”), which is mailed to you in January.