A Coverdell education savings account is a small, flexible education account: $2,000 a year per child, with tax-free withdrawals for school costs from kindergarten through college. Its limits are tighter than a 529 plan's, and the rules on income, age and excess contributions catch people out.
This guide covers the contribution limit and income phase-out, qualified expenses, the 6% excess contribution tax, the age 30 deadline and a comparison with 529 plans. It follows IRS Publication 970 and IRS Topic 310.
A Coverdell education savings account is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the designated beneficiary. When the account is established the beneficiary must be under age 18 or a special needs beneficiary, and the account must be designated as a Coverdell ESA when it is created. The trustee or custodian must be a bank or an entity approved by the IRS, and the money cannot be invested in life insurance contracts. A Coverdell ESA can pay elementary and secondary school costs as well as higher education costs.
| Filing status | Full $2,000 limit if MAGI is under | Limit gradually reduced between | No contribution at or above |
|---|---|---|---|
| Single, head of household and others | $95,000 | $95,000 and $110,000 | $110,000 |
| Married filing jointly | $190,000 | $190,000 and $220,000 | $220,000 |
The limit is $2,000 for each beneficiary no matter how many Coverdell accounts are opened for that beneficiary or how many people contribute. Any individual (including the beneficiary) can contribute if their MAGI is under $110,000 ($220,000 joint), and organizations such as corporations and trusts can contribute regardless of income. Contributions must be in cash, are not deductible, cannot be made after the beneficiary reaches 18 unless the beneficiary has special needs, and must be made by the due date of the contributor's return (not including extensions). Contributions to both a Coverdell ESA and a 529 plan in the same year for the same beneficiary are allowed without penalty.
To find your reduced limit, multiply $2,000 by (MAGI minus $95,000) divided by $15,000 ($190,000 and $30,000 if filing jointly), and subtract the result from $2,000. Publication 970's example: a single filer with MAGI of $96,500 can contribute $1,800 ($2,000 minus $2,000 x $1,500/$15,000, which is $200).
The beneficiary can receive tax-free distributions to pay qualified education expenses, to the extent the distributions do not exceed the beneficiary's qualified expenses. If a distribution exceeds them, a portion of the earnings is taxable to the beneficiary, and generally a 10% additional tax applies to the taxable amount (exceptions include distributions after the beneficiary's death or disability, and amounts taxable only because of tax-free scholarships or education-credit claims). You should receive Form 1099-Q for distributions.
Higher education: tuition and fees, books, supplies and equipment required for enrollment or attendance, and room and board for students enrolled at least half-time (up to a limit), plus certain computer costs.
Elementary and secondary: tuition and fees, books, supplies and equipment, academic tutoring and special needs services, plus room and board, uniforms, transportation and supplementary items when required or provided by the school, and certain computer costs.
You generally cannot claim more than one education benefit for the same qualifying expense, so coordinate with the American opportunity and lifetime learning credits; see our American Opportunity Tax Credit guide and Lifetime Learning Credit guide.
The beneficiary may owe a 6% excise tax each year on excess contributions that remain in the account at the end of the year. The tax does not apply to rollover contributions, and The tax does not apply if the excess and its earnings are withdrawn before the first day of the sixth month of the following year (June 1 for a calendar-year taxpayer); the withdrawn earnings are taxable income for the year of the excess contribution.
| Step | Amount |
|---|---|
| Contributions for the year (parents and grandparents together) | $2,300 |
| Limit per beneficiary | $2,000 |
| Excess contribution | $300 |
| 6% tax if left in the account | $18.00 |
This follows the example in Publication 970. Because the limit is per beneficiary, relatives who each contribute need to coordinate.
Amounts remaining in the account must be distributed within 30 days after the designated beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. If the beneficiary dies before 30, the balance must be distributed within 30 days after the date of death.
To keep the money in the system, you can roll a distribution into another Coverdell ESA for the same beneficiary or a family member who is under 30 (the age limit does not apply to a special needs beneficiary) within 60 days; only one such rollover is allowed in any 12-month period, though direct trustee-to-trustee transfers are not limited. You can also change the designated beneficiary to a family member under 30 with no tax consequence.
Contributions can be made, without penalty, to both a Coverdell ESA and a qualified tuition program (529 plan) in the same year for the same beneficiary. A contribution to a qualified tuition program on behalf of the Coverdell beneficiary is itself a qualified education expense. The Coverdell limits above ($2,000 a year, an income test and the age 30 deadline) are specific to the Coverdell account; the 529 rules are in chapter 7 of Publication 970. See our 529 college savings tax guide by state for state treatment.
IRS Publication 970 (2025), IRS Topic no. 310: Coverdell education savings accounts.