Coverdell Education Savings Account (Formally Coverdell Education IRA)
A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses.
The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary.
Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.
- Use Payroll Deduction to have contributions made to your ESA directly from your paycheck
- Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.
- There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution
- If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax
For more information and to find out how a scholarship affects the funds you may withdraw, contact your Financial Services Representative at the credit union at 419.479.4040.