A Coverdell Education Savings Account (Coverdell ESA) is a savings account established to pay the qualified education expenses of a designated beneficiary. A Coverdell ESA can be established only for a beneficiary who is under 18 years of age or who has special needs.
A Coverdell ESA works much like an IRA account. Here are some details:
Higher Education: Qualified expenses may include tuition, fees, books, supplies, and equipment (computers, software, and Internet access may qualify if used primarily by the beneficiary during enrollment). Room and board may also qualify if included in the cost of attendance or if the student lives in housing owned or operated by the school.
Elementary or Secondary Education: Qualified expenses may include tuition and fees; books, supplies, and equipment (computers, software, and Internet access may qualify if used primarily by the beneficiary and the beneficiary's family during enrollment); academic tutoring; and special needs services for a special needs beneficiary. Other qualified expenses, if required or provided by an eligible elementary or secondary school, may include room and board, uniforms, transportation, supplementary items, and services including extended-day programs.
Who can contribute to a Coverdell ESA?
Generally, anyone (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 for joint returns) may contribute to a Coverdell ESA.
The main differences between Coverdell ESAs and 529 Plans are:
Qualified expenses: A 529 Plan only covers qualified college expenses, while a Coverdell ESA can be used for qualified elementary, secondary, and college expenses.
Contribution limits: There is no annual contribution limit for 529 Plans; however, the total limit is the anticipated cost of a beneficiary’s qualified education expenses. With a Coverdell ESA, total contributions may not exceed $2,000 per year for each child.
Eligibility: There is no income cap for 529 Plan. To be eligible for a Coverdell ESA, your modified gross adjusted income for the year must be less than $110,000 for an individual ($220,000 for joint returns).
Investments: With a 529 Plan, your investment selection is limited to the state-specific plan, and you may modify your selection twice a year. A Coverdell ESA allows you to invest in any bank deposits, mutual funds, stocks, and bonds — and you are free to buy and sell whenever you want.
This content is provided for general informational purposes only. Neither BBVA nor any of its affiliates, is providing legal, tax or investment advice. Please consult with your legal, tax or investment professional for advice regarding your personal situation.
|Securities and Insurance Products:|
|ARE NOT DEPOSITS||ARE NOT FDIC INSURED|
|ARE NOT BANK GUARANTEED||MAY LOSE VALUE|
|ARE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY|