Coverdell Education Savings Account (CESA)

 

A tax-deferred savings account for a child’s education. Control of funds stays in the hands of the parent or guardian who established the account. Funds can be used for educational expenses from kindergarten through graduate school. CESA has a minimal impact on financial aid.

Account Details

Features and Benefits

• Your investments grow tax-free.
• Control of the funds stays in the hands of the parent or guardian who established the account.
• The funds can be used for educational expenses from kindergarten through graduate school.
• A CESA has minimal impact on financial aid.

Annual Contribution Limits

• CESAs allow a total contribution of $2,000 a year from all sources for children under age 18.
• Funds must be used by the time your beneficiary reaches age 30.

Eligibility

• Any parent or guardian can establish a CESA on behalf of a child.
• The child must be younger than 18 when the account is established.

Tax Considerations on Contributions

• Contributions aren’t tax-deductible.
• For federal estate tax purposes, contributions are excluded from your estate.

Control Over Account

• The parent (or guardian) account owner controls the assets until the beneficiary reaches age 30.
• CESA assets can be rolled over to a CESA or 529 college savings plan for an eligible family member of the original beneficiary.

Withdrawals

• You pay no federal income taxes when funds are withdrawn for qualified education expenses, (such as tuition, supplies, and room and board).
• Withdrawals taken for non-qualified expenses are considered taxable income and may also incur a 10% penalty.