February 23, 2018

What is a Coverdell Education Savings Account (CESA) (IRA)?

Why Were These Rules Established?

How Much Can I Contribute?

What Are the Trends?

A Coverdell Education Savings Account (aka an Education Savings Account, an ESA, or a CESA), is a Tax-Advantaged Investment Account in the United States designed to encourage savings to cover future education expenses for Kindergarten, Elementary, Secondary or College. It is found at section 530 of the Internal Revenue Code (26 U.S.C. § 530). Senator Paul Coverdell pushed the bill through Congress in the early 2000’s. In January, 2013 Congress made several features permanent and breathed new life in this terrific tax savings account. It is worth a financial visit.

The Concept is to:

1. Make the annual contribution for your child, through gifting, then 1040usiitr

2. Create and direct safe profitable investments on behalf of the student. The earnings are then sent directly to the school without having to first pay income taxes. You give your child or grandchild student up to a 40% increase on their total educational funds by avoiding state and federal taxes.

3. The Total Contributions for the Beneficiary of this account may not exceed $2,000 in any one year, no matter how many accounts have been established.


The current trend in Education is State aid is decreasing and college costs are skyrocketing. This is causing a major squeeze on the student with major increases in tuition as is exhibited below.

College Education Expenses graph

Source: CBPP calculations using date from Illinois State University’s annual Grapevine Report……….Because enrollment data is only available through 2012 school year, the enrollment data for 2013 used in these calculations is estimated based on enrollment trends from past years. Center on Budget and Policy Priorities / cbpp.org