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Coverdell Education Savings Account

You can contribute up to $2,000 each year per child. All earnings are tax-deferred. The child can use the money, tax-free, to pay for qualified education expenses.

A Coverdell Education Savings Account:

  • Is set up and managed by a parent or guardian for the benefit of a minor
  • Grows tax-free until distributed
  • Allows tax-free withdrawals for qualified expenses

Coverdell Education Savings Account details

Eligibility Anyone can contribute to a child's education savings account, but the designated beneficiary must be a minor when the account is opened
Annual Contributions* $2,000 per year until the child's 18th birthday; can be used for elementary, secondary, and post-secondary school expenses
Tax Advantages* Earnings and withdrawals are tax-free if used for qualified elementary, secondary, and post-secondary school expenses
Deductibility of Contributions None
Income Eligibility Requirements
  • Single: $95,000 - $110,000
  • Married filing jointly: $190,000 - $220,000

* Based on 2011 tax year

What are the advantages of a Coverdell Education Savings Account?

  • Wide choice of investment options
  • Low cost
  • Can be used for primary, secondary and higher education expenses
  • Tax-free withdrawals for qualified expenses
  • Family members and corporations can contribute
  • Investment control
  • Beneficiary can be changed at any time

What are the disadvantages of a Coverdell Education Savings Account?

  • $2,000 annual limit per child
  • 10% penalty and earnings taxed if not used by age 30 or beneficiary isn't changed
  • Contributions restricted or disallowed for high income donors
  • May not fully fund a child's education costs
  • Financial aid impact – treated as an asset of the account owner:
    • If the account owner is the student, this has a high impact on financial aid eligibility. The Higher Education Reconciliation Act of 2005 added special treatment for Coverdell, Prepaid Tuition, and 529 College Savings Plan accounts owned by a dependent student. The impact on need-based aid for dependent students will therefore be minimal.
    • If the account owner is the parent, this has a low impact on financial aid eligibility. Qualified distributions from a Coverdell account are not counted as income on the FAFSA and thus do not reduce financial aid eligibility.


If you have questions, please contact us at 1.800.247.8000 ext. 472.

Investment and insurance products are: not a deposit · not FDIC Insured ·
not insured by any federal government agency · not a bank guarantee · and may lose value.

Have a question? Call us at 1.800.986.3343

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