Coverdell Education Savings Account (CESA)

The Coverdell Education Savings Account (CESA) is an incentive program to assist students and their parents to set aside funds for education. A maximum of $2,000 (U.S.) can be contributed to a child’s (age 18 or younger) CESA each tax year. All earnings on the contributions will be dispersed tax free, contingent they are used to pay the beneficiary’s primary or post-secondary educational expenses. Withdrawals from the Coverdell ESA used to pay for qualified and eligible elementary, secondary and higher education expenses are federally taxed and penalty free. 

Eligibility to contribute to a CESA is determined by adjusted gross income (AGI). The. range for single tax filers is $95,000-$110,000 AGI and $190,000-$220,000 AGI for joint filers. Although a child can be the recipient of several ESA account, the full amount can not exceed $2,000 for the tax year. 

What are some of the qualified expenses? As defined by the U.S. Department of Education they include - tuition, fees, books, supplies, room and board, academic tutoring, uniforms, transportation and the purchase of hardware/software or equipment used while attending an eligible educational institution. 

How about qualified educational institutions? Once again, as defined and administered by the U.S. Department of Education institutions include public, private or religious elementary or secondary schools (grades K-12), as well as colleges, universities, vocational schools or other post-secondary educational institutions eligible to partake in student aid programs. This is what separates CESAs from 529 plans—the latter can only be utilized for post-secondary education expenses, while CESAs can be used for K-12 expenses. Benefits have also been enlarged to include students who require more time to complete secondary school because of a physical, mental, or emotional condition. Up to now, the age limit has been 18 for all secondary school students. The limit has been extended for special-needs students.