Open a Coverdell Education Savings Account (ESA)

Check out this video on how you can pay your child’s education expenses today tax-free:

Open your Coverdell ESA account today!

- ESA Account Application (AdobeSign)
- IRS Form 5305 ESA (PDF)
  
  Have Questions? Contact a Certified IRA Specialist at IRASpecialists@QuestTrust.com. Forms and Requests Received Will be Processed in 24-48 hours of Quest Receiving the Form.

The Coverdell Education Savings Account was created to encourage savings to cover future education expenses. An ESA can be used for all qualified educational expenses until the beneficiary reaches the age of 18. Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual’s MAGI for that year is less than $110,000. For individuals filing joint returns, that amount is $220,000. Organizations, such as corporations and trusts, can also contribute to Coverdell ESAs. There is no requirement that an organization’s income be below a certain level.

Contributions must meet all of the following requirements:

They must be in cash
They can’t be made after the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary
They must be made by the due date of the contributor’s tax return (not including extensions)

Apart from the qualified education expenses, any assets or cash remaining in an ESA must be distributed when either one of the following two events occurs:

The designated beneficiary reaches age 30. In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. However, this rule does not apply if the beneficiary is a special needs beneficiary.
The designated beneficiary dies before reaching age 30. In this case, the remaining assets must generally be distributed within 30 days after the date of death.

2023 Contribution Limit:

$2,000 per child per year

Qualified Distributions

Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution.

Eligible Elementary or Secondary School

This is any public, private, or religious school that provides elementary education as determined under state law.

Qualified expenses
Tuition and fees
Books, supplies, and equipment
Room and board
Uniforms
Etc.

Eligible Postsecondary school

This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education.

Qualified expenses
Tuition and fees
Books, supplies, and equipment
Room and board (must be incurred by students who are enrolled at least half-time)

Answers to some of the most frequently asked investing questions (FAQs) about ESA IRAs

What is a Coverdell ESA?

“A Coverdell Education Savings Account is a tax-deferred trust or custodial account set up in the United States to help families in funding qualified education expenses for the designated beneficiary of the account, who must be 18 years old or younger when the account is established.”

Who owns a Coverdell ESA?

“While the child is the beneficiary, the parent or legal guardian is the owner of the account. Once the child reaches the age of majority, they may have the ability to take over ownership of the account.”

Can I buy real estate with a Coverdell?

“Buying real estate with an IRA or a solo 401k certainly can be done! You just need to find a custodian that will hold non-traditional or ‘alternative’ investments.”

Can I use a Coverdell to buy a house?

“You can use a Coverdell to buy a house.”

How do I use a Coverdell to buy a house?

“You first need to find a custodian that will hold non-traditional or ‘alternative’ investments and establish an IRA with them. You will then locate the house you want to purchase, and typically, your custodian will require you to sign some internal forms. After making sure the contract is in the name of the IRA, your custodian will purchase the property for you on behalf of your IRA.”

Where can you open a Coverdell Education Savings Account (ESA)?

“You can open a Coverdell ESA at the custodian of your choosing. Applications can often be found online and in-person.”

What is the Coverdell ESA contribution limit?

“The contribution limit for the Coverdell is $2,000 per year, per child.”

What are the Coverdell ESA income limits?

“Single filers are capped at $2,000 for MAGI up to $95,000, and are phased out for MAGI between $95,000 and $110,000. Annual contributions are capped at $2,000 for joint filers with a modified adjusted gross income (MAGI) up to $190,000, and are gradually reduced for MAGI between $190,000 and $220,000. Incomes above $220,000 are ineligible.”

How do you set up a self-directed Coverdell ESA?

“You will first need to find the custodian you like! Once you have picked a good custodian, you will complete some paperwork (typically an application) and in a few days, your account will be open. *Processes will vary by custodian.”