Coverdell ESA – The Best Way to Save for K-12 Education

Coverdell ESA (formerly called Education IRA) is the most attractive way to save for K-12 expenses, including UGMA/UTMAs and mutual funds. However, there are income requirements that preclude some 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.

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