Coverdell Education Savings Account
The right investment strategy could help you keep up with the costs of higher education.
A Coverdell Education Savings Account (CESA) is an account in which the child owns the money, but a parent or legal guardian manages the account.
Consider this type of account if:
- You plan on saving up to $2,000 per child, per year, specifically for elementary, secondary, and/or college expenses.
- You have started saving for college early in your child's life.
- As a donor, you are under the income limits to make contributions ($110,000 for single filers, $220,000 for married couples).
- You are a parent or legal guardian who wants to open the account on behalf of your minor child who has a Social Security number.
Is a Coverdell ESA right for you?
This account is intended for the purpose of paying for your child’s education, and withdrawals are tax-free when used to pay for qualified education expenses.
Tax features and investments
What are the tax features?
When you save with a CESA, your earnings grow tax-deferred.
Contributions are not tax-deductible, but as long as you spend the money on tuition, fees, books or other federally-approved education-related expenses, withdrawals may be tax free.
Any taxable distributions (amounts not used for qualified educational expenses) may result in a 10% penalty and tax on the earnings.
How much can I invest?
The maximum annual contribution is $2,000 per student, per year until the child's 18th birthday.
Your adjusted gross income may limit your contribution amount as detailed in the contribution limit chart.
Contribution Limits for Coverdell Education Savings Accounts
| Adjusted Gross Income of the Donor | You can make... | |
|---|---|---|
| Single Filers | Married Filing Jointly | |
| under $95,000 | under $190,000 | the maximum contribution |
| $95,000 - $109,999 | $190,000 - $219,999 | a partial contribution, refer to IRS Publication 970 for calculation |
| $110,000 and over | $220,000 and over | no contribution |
What happens if I invest too much?
There may be several methods to remedying an excess contribution, but it’s always best to consult a certified tax advisor to find which solution works best for your situation. Contact us to learn about your excess contribution options with Janus Henderson.
What are the investment minimums?
The minimum initial investment to open an CESA at Janus Henderson is $100 with an automatic investment of at least $50. Without an automatic investment, the minimum initial investment is $1,000. Subsequent one-time purchases must be at least $50.
Are there any investment deadlines?
Yes, you can contribute to a Coverdell Education Savings Account (CESA) for a specific tax year starting January 1 of that year and you must make all contributions for the tax year by the tax filing deadline, which is typically April 15 of the following year.
Generally, you cannot make contributions after that date even if you file an income tax extension.
Contributions cannot be made after the child reaches age 18, unless the child is a special needs student. Funds must be disbursed or rolled over by the child's 30th birthday. Accounts can potentially be rolled over to another immediate family member under the age of 30, if needed.
What are the fees for a Coverdell Education Savings account?
There is no cost to open an account and no annual maintenance fees when account minimum thresholds are met.
Withdrawals and helpful information
How do I request an account withdrawal?
Depending on the account options you have selected, the responsible individual may redeem shares by telephone, online or in writing.
Only the responsible individual can request withdrawals until the child takes ownership of the account.
Withdrawals and exchanges will be reported to the IRS on form 1099-Q and it is up to you to report qualified educational spending.
Am I required to take money out of the account?
Yes. Assets must be used by age 30. If the funds are not used and aren't rolled over to another family member under age 30, the distributions may be taxable and subject to IRS penalty.
What other information might be helpful to know?
Almost anyone is eligible to fund a CESA for a child, including a corporation or entity.
It is possible to contribute to a CESA while contributing to other types of accounts such as a Custodial Account or a 529 College Savings Plan. This might be an option if you contribute to an CESA, but would like to contribute more than the $2,000 maximum contribution per year.
The Janus  Henderson Coverdell Education Savings Account Disclosure Statement and Custodial Agreement provides complete details about a CESA at Janus Henderson.
Related Content
Open a Coverdell Education Savings Account
Saving for your child's education may be one of the most important investments you'll ever make. Taking action now can help ensure there's plenty of time to save for schooling. Download an application or contact Janus Henderson for more information.