Coverdell ESA: Basic Rules for Education Accounts
Published November 6, 2026
Publication 970 (2025), Tax Benefits for Education, explains the Coverdell ESA. A Coverdell ESA is an account for a child or other young beneficiary. It pays education costs. The rules on contributions, withdrawals, and the age limit are specific. This guide is general information. It is not advice about your return.
What a Coverdell ESA is
The publication says a Coverdell ESA is a trust or custodial account. It must be created or organized in the United States. It exists only to pay the qualified education expenses of the designated beneficiary. In this guide, the designated beneficiary is called the student. A bank or another IRS-approved entity must act as trustee or custodian.
The student must be under age 18 when the account is set up. Special needs beneficiaries are an exception. The account must be named as a Coverdell ESA when it is created. Money in the account cannot be put into life insurance. It also cannot be mixed with other property, except in a common trust or investment fund.
Who can contribute
Any individual can contribute. This includes the student. The contributor's modified adjusted gross income (MAGI) must be less than $110,000. For a joint return, the limit is $220,000. For most taxpayers, MAGI is the adjusted gross income on the tax return.
Contributions must be in cash. They cannot be made after the student turns 18, unless the student is a special needs beneficiary. Contributions for a tax year must be made by the return's due date. Extensions do not count.
The $2,000 yearly limit
The total contributions for each beneficiary cannot be more than $2,000 in a year. This is true no matter how many accounts are set up. It is also true no matter how many people contribute. Contributions are not deductible.
Extra contributions create a problem. The publication gives an example. In 2024, a total of $2,300 was contributed, which is $300 more than the limit. If the excess was not withdrawn by June 1, 2025, a 6% additional tax applied to the excess. The excise tax is reported on Form 5329, Part V. It is then reported on Schedule 2 (Form 1040), line 8.
Withdrawals and taxes
A withdrawal is generally not taxable. The total must be no more than the student's adjusted qualified education expenses (AQEE) for the year. The expenses must be for an eligible educational institution. The publication says this applies to elementary and secondary school costs as well as college costs.
If the total withdrawn is more than the AQEE, part of it is taxable. The taxable part is generally the earnings portion. You receive Form 1099-Q for each account you withdrew from. A 10% additional tax generally applies to the taxable amount. The publication lists exceptions, such as withdrawals made because the student died or became disabled.
The age 30 rule
The publication says the balance generally must be paid out within 30 days. The 30 days start after one of two events. The first is the student's 30th birthday, unless the student is a special needs beneficiary. The second is the student's death.
Before that point, you can move the balance. A rollover to another Coverdell ESA is not taxable if it is paid within 60 days. The new account must be for the same beneficiary, or for a family member under age 30. You can also name a family member under age 30 as the new beneficiary, with no tax consequences.
Simple steps
- Check the MAGI limit and the $2,000 yearly limit before you contribute.
- Keep records of every contribution, and the year it was made for.
- Keep records of education expenses paid from the account.
- Watch the age 30 date and the June 1 deadline for excess contributions.
- Keep Form 1099-Q with your tax records.
For the 529 plan version of this topic, see Form 1099-Q and 529 plan distributions. For education credits, see student education credits and Form 1098-T.
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Sources: Sources: IRS, Publication 970 (2025), Tax Benefits for Education; Coverdell Education Savings Account (https://www.irs.gov/pub/irs-pdf/p970.pdf) This is general information, not advice about your specific return.
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