Coverdell Education Savings Accounts (Coverdell ESAs), formerly called Education IRAs, were introduced in 1997 and offer the ability to save, on a tax-advantaged basis, toward education expenses.

Coverdell ESAs have one important advantage over other tax-advantaged education savings plans — they can be used for primary and secondary (K-12) tuition and expenses, as well as for higher education. Parents who plan on private or religious school can start a Coverdell ESA when the child is very young and have tax-advantaged savings in hand by the time the child reaches school age.

Coverdell ESAs are funded with after-tax money so contributions are not deductible, but any investment earnings accrue tax-deferred, and withdrawals for qualified education expenses are exempt from federal taxes, as long as withdrawn for qualified education expenses. The accounts don't provide state tax breaks in many states. Your tax advisor can discuss your situation.

Who Offers Them

Coverdell ESAs are offered by TIAA-CREF and other financial companies.

Who Is Eligible

Coverdell ESAs are available for beneficiaries (students) who are under age 18 when the account is established. There are exceptions for beneficiaries with special needs. Single filers whose adjusted gross income (AGI) is $110,000 or less, or joint filers whose AGI is $220,000 or less are eligible to contribute to an account on behalf of a beneficiary (see below for salary-based contribution limits). Corporations and tax-exempt organizations can also contribute to Coverdell ESAs.


The funds are controlled by the account owner (e.g., the parent) at all times.

Contribution Limits

The maximum annual contribution is $2,000, per beneficiary. Single filers with a maximum MAGI of $110,000 or less, or joint filers with a maximum MAGI of $220,000 or less are able to contribute the full $2,000. Partial contributions are available to single filers with income between $95,000 and $110,000 ($190,000 - $220,000 for joint filers).

Taxation of Contributions

Contributions are made from after-tax dollars and are not deductible from federal taxes. A small number of states allow state income tax deductions on Coverdell ESA contributions; most do not. Check with your tax adviser.


As with many products, you choose the investments. You may choose among any of the 18 TIAA-CREF no-load mutual funds for your Coverdell ESA. This variety of accounts offers you the ability to vary your mix of investments and tailor the level of risk in the portfolio to your child's age. For example, as time to pay tuition nears and fluctuations in the account value become less tolerable, you may want to rebalance your assets and reallocate contributions toward a more conservative strategy. Consider, among other things, your particular financial circumstances, investment time horizon, tolerance for risk and whether or not you have other savings in place for education expenses. Past performance, of course, does not guarantee future results.

Qualified Expenses

Qualified higher education expenses include expenses for tuition, fees, books, supplies, and equipment required for enrollment or attendance. If the designated beneficiary is enrolled at least half time at an eligible educational institution, certain room and board expenses are qualified education expenses. Expenses also include amounts contributed to a qualified tuition program for the same designated beneficiary. Qualified expenses include public, private and religious elementary and secondary school expenses.

Taxation of Earnings

Investment earnings, if any, accrue free of federal taxes. Withdrawals used for qualified K-12 and higher education costs of the designated beneficiary are free of federal taxes and, in some cases, state taxes as well. Withdrawals used for other purposes are subject to a 10% penalty on investment earnings, and account owners must also pay income taxes on earnings. The 10% additional tax is waived if the beneficiary dies or becomes disabled.


The balance in a Coverdell ESA must be distributed within 30 days after a beneficiary turns 30. Age limits do not apply to beneficiaries with special needs. Benefits not needed by the named beneficiary can be transferred to a sibling.

Effect on Federal Financial Aid

Current tax treatment is subject to change, however, until the student begins making withdrawals. Coverdell ESA assets are generally considered to be the account owner's rather than the student's assets, which can help reduce the negative impact these funds may have on financial aid determinations. Once withdrawals begin, the assets are considered to belong to the student. Coverdell ESA withdrawals can be used in the same year as 529 college savings plan withdrawals and federal tax credits

Open an Account

Learn more about opening a TIAA-CREF Education Savings account.

Get Started

Learn More About Education Savings

Tools & Calculators

Need Help?