Coverdell ESA

Coverdell Education Savings Accounts are generally the most attractive savings vehicles for K-12 educational expenses, more so than UGMA/UTMAs and mutual funds.  Funds from Coverdells may also be used for higher education expenses.  However, there are income requirements that preclude upper income families from participating.

Coverdell ESA Primary Benefits for Families
Coverdell ESA, in addition to tuition, covers transportation costs and uniform expenses. Additionally, Coverdell funds may be used for items such as computers and academic tutoring for children in grades K-12 at both public and private schools. Another benefit of Coverdell is the added discretion that the account holder has over the investment direction of the funds in the account, which can be more freely allocated among stocks, bonds and mutual funds.

Restrictions on Participation in ESAs
Coverdells have certain provisions that prevent some from participating. Among them is the fact that the $2,000 maximum contribution applies to both the account holder and the beneficiary. In practice, the beneficiary can only have a total of $2,000 contributed to his or her account in any given year, regardless of the number of contributors to that account. Furthermore, the account holder can make a maximum contribution of $2,000 per beneficiary.

There are also age restrictions – ESAs can be established only for individuals who are under the age of 18.
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