Coverdell Educational Savings Account

Give your child the gift of education.

Seeing a child work toward a college degree is a parent’s dream. A Coverdell Educational Savings Account (ESA) can help parents sleep at night. These ESAs were created to help you pay for your child’s education expenses, such as tuition, fees, books, supplies, equipment and, in some cases, room and board and computers. These options were improved by the Economic Growth and Tax Relief Reconciliation Act of 2001.

Contributions to a Coverdell ESA are never tax-deductible. However, a Coverdell ESA offers you the potential for tax-free withdrawals—including earnings.

The total contributions each year to a child’s Coverdell ESA cannot exceed $2,000. If you’re eligible, you may contribute the full amount for each child. For example, if you have three children and each has his or her own Coverdell ESA, you may contribute $6,000 ($2,000 to each ESA).

The primary benefits of a Coverdell ESA include:
  • Unlike state 529 plans, Coverdell ESAs can be used to pay for qualified elementary and secondary education expenses including college.
  • Earnings grow on a tax-deferred basis, and distributions are tax-free if the money is used to pay qualified education expenses.
  • For more information on Coverdell ESAs and the opportunity to determine if this might be a good option for your family, please contact Alicia Spurlock at aspurlock@telcommcu.com or call 417.886.5355.

Coverdell ESA Annual Contribution Limits Per Child

Traditional Roth
1For specific tax advice, consult a qualified tax professional
Highlights A retirement savings plan for those who have taxable conpensation and are under the age of 70½ in the contribution year.
Participation in an employer sponsored retirement program may reduce the tax deductibility of your Traditional IRA contributions.
There is no income limit on contribution eligibility.
A retirement savings plan for individuals with taxable conpensation and who meet income limit eligibility guidelines.
There is no age limit on contributions.
The Roth IRA potentially has greater tax benefit, such as possible tax-free earnings and no mandatory distribution requirements.
2018 Contribution Limits $5,500 or 100% of earned income, whichever is less. $5,500 or 100% of earned income, whichever is less.
2018 Catch-Up Provisions An additional $1,000 for individuals age 50 and over. An additional $1,000 for individuals age 50 and over.
Tax Deductibility1 Possible deductions1
(see IRS Publication 590)
None
Tax Advantages1 Taxes on deductibel contributions and earnings are deferred until a distribution is taken. Qualified distributions are tax-free (See Distributions below)
Income Eligibility Effect of Modified AGI on deduction if covered by a Retirement Plan at work:

  • Married filing jointly, where the spouse making an IRA contribution is covered by a retirement plan at work, deductions are phased out between $98,000 and $118,000
  • IRA contributor who is not covered by a retirement plan at work, but is married to someone who is, deductions are phased out when the couple’s income is between $184,000 and $194,000
  • Single or head of household covered by a retirement plan at work, deductions are phased out between $61,000 and $71,000
Effect of Modified AGI on Roth IRA Contribution:

  • Married filing jointly or qualifying widow(er), contributions are phased out between $184,000 and $194,000
  • Married filing separately and covered by a retirement plan at work, contributions are phase out between $0 and $10,000
  • Single or head of household contributions are phased out between $117,000 and $132,000
Distributions Distributions prior to age 59½ are generally subject to a 10% IRS penalty
(See Penalty-Free Distribution Exceptions for exceptions)
Distributions must begin no later than April 1, following the Member’s 70½ birthday.
In order to be considered a “Qualified Distribution,” the Roth IRA plan must have been open for at least 5 years and one of the following:

  • Age 59½ or older
  • Death
  • Disability
  • First-time Home Purchase

Distributions of contributions are tax-free and IRS penalty-free at any time.
Distributions are not required whil the Roth IRA owner is living.

Penalty-Free Distribution Exceptions Death, disability, substantially equal periodic payments, first-time home purchase, post-secondary education expenses Death, disability, first-time home purchase
Rollovers and Transfers Rollovers and transfers to and from other Traditional IRAs or qualified employer sponsored retirement plans are permitted Rollovers and transfers to and from other Roth IRAs are permitted
Annual Contribution Deadline IRs stated annual tax filing deadline IRS stated annual tax filing deadline
Need help calculating your savings for college? Use our handy-dandy calculator to make sure you save what you need.
Lobby Hours:
Monday–Thursday: 9:00 A.M. – 5:00 P.M.
Friday: 9:00 A.M. – 5:30 P.M.
Saturday: 9:00 A.M. – 12:00 P.M.
Drive Thru Hours:
Monday–Friday: 7:30 A.M. – 5:30 P.M.
Saturday: 9:00 A.M. – 12:00 P.M.
Lobby Hours:
Monday–Thursday: 9:00 A.M. – 5:00 P.M.
Friday: 9:00 A.M. – 5:30 P.M.
Saturday: 9:00 A.M. – 12:00 P.M.
Drive Thru Hours:
Monday–Friday: 7:30 A.M. – 5:30 P.M.
Saturday: 9:00 A.M. – 12:00 P.M.