Coverdell ESA contribution limits are set at $2,000 per beneficiary per year. Coverdell ESA plans are like IRAs for education, following most of the same rules as IRAs. The plans are also similar to 529 plans except they’re more flexible in terms of how the money in them can be invested.
- Traditional IRA Contribution Limits
- Roth IRA Contribution Limits
- SIMPLE IRA Contribution Limits
- SEP IRA Contribution Limits
- Traditional 401k Contribution Limits
- Roth 401k Contribution Limits
- One-Participant 401k Contribution Limits
- Coverdell ESA Contribution Limits
- HSA Contribution Limits
Coverdell ESA Contribution Limits
The table below shows Coverdell ESA contribution limits.
Coverdell ESA limits may seem a little confusing. The total limit on all annual contributions to any Coverdell ESA is set at $2,000. Another limit prevents more than $2,000 from being contributed for any beneficiary of a Coverdell ESA. The reason for the second limit is that there’s no limit on the number of Coverdell ESAs that can be opened for any single beneficiary.
Let’s imagine the case of a ten year old girl whose parents opened a Coverdell ESA for her. Without the parents’ knowledge, the girl’s maternal grandparents also opened a Coverdell ESA in the same year. A year later, the girl’s paternal grandmother also opens a Coverdell ESA in her name.
The Coverdell ESA contribution limit of $2,000 per beneficiary means the total allowed contribution in any one year to all three accounts is capped at $2,000. Any contributions over $2,000 per beneficiary are taxed at 6% per year.
Formerly known as education IRAs, Coverdell ESAs are savings plans that follow the same general rules as IRAs but are intended to pay for a beneficiary’s education. The plans are named for late U.S. Senator Paul Coverdell.
Coverdell ESAs are similar to 529 College Savings plans except they’re more flexible about how the money in them can be invested. While money in 529s can only be invested in a small variety of government approved investments, money in ESAs can be invested in any way the account holder decides. ESAs also have much lower limits than 529s on how much money can be put into them.
There is no tax deduction for putting money into a Coverdell ESA. In other words, Coverdell ESA contributions aren’t tax free. However, money in a Coverdell ESA can grow tax free and be withdrawn tax free to pay for education.
- IRA contributions can also be withdrawn and used for education expenses without penalty, even before retirement age.
- Coverdell ESA contributions are non-deductible. However, investment growth and withdrawals for education expenses are tax free.
- Coverdell ESA contributions have to stop when a beneficiary reaches age 18, except for special needs beneficiaries.
- Individuals with Modified Adjusted Gross Income (MAGI) above $110,000 can’t make Coverdell ESA contributions. For married couples filing jointly the limit is $220,000. To figure MAGI, use the IRS worksheets in IRS Publication 970.
For more information on savings plan contribution limits, see our articles on traditional IRA contribution limits and Roth IRA contribution limits.
Sources
- Coverdell Education Savings Account (ESA) – IRS.gov
- Education Exception to Additional Tax on Early IRA Distributions – IRS.gov