Frequently Asked Questions | Coverdell Education Savings Account

What is an Education Savings Account?

An ESA is an investment tool created for the purpose of paying for a child's education. The plan allows total after-tax contributions of $2,000 per year for each child until they reach the age of 18. These contributions and their subsequent earnings are tax-free when withdrawn to pay for qualified education expenses.

What is a Qualified Education Expense?

A qualified education expense is one that is required for the enrollment or attendance by a child at an eligible educational institution, including elementary, secondary, or post-secondary institutions. These expenses include: tuition, fees, books, supplies, and equipment.

Can I Roll Over Assets from another ESA?

You can roll over assets from one ESA to a new or existing ESA. The assets, however, must benefit the same child or an eligible member of the child's family. A rollover contribution does not affect the $2,000 annual contribution limit. Rollovers must be completed within 60 days of the initial distribution and are limited to one per 12-month period.

Am I Allowed to Change the Designated Beneficiary?

You may change the designated beneficiary (child) for whom the account is established through a transfer or rollover. For example, the person responsible for the ESA (e.g., the parent) may wish to change the designated beneficiary because the current designated beneficiary has finished school and there are funds remaining. The only limitation is that the new person must be an eligible member of the family.

Who is an eligible family member?

The definition of an eligible family member of the designated beneficiary is fairly broad. It would include: children, grandchildren, stepchildren, brothers, sisters, stepbrothers, stepsisters, nephews and nieces, parents and stepparents, uncles and aunts, first cousins, and spouses of all the family members listed.

It is important to remember that even with this extended range of family members, contributions can be made only for those under the age of 18, unless the beneficiary is a special needs beneficiary.

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