Coverdell ESA rules, contribution limits and tax benefits for 2026 

What is a Coverdell Education Savings Account (ESA)?

A Coverdell Education Savings Account (ESA) is a custodial investment account for students. Contributions grow tax free, and you can use the money to cover your child’s future qualified education expenses.

Your contributions are not tax deductible, but distributions from the account are tax free if they don’t amount to more than the beneficiary’s qualified education expenses for the year. Any individual (including the student beneficiary) can contribute to the account during the year if their income is below the modified adjusted gross income (MAGI) limit for that tax year (more on that later).

Beneficiaries must be under the age of 30 to use the Coverdell funds with no tax consequence. If a beneficiary reaches 30, you can roll the funds over to a younger relative.

Coverdell ESA contribution limits for 2026

The maximum contribution you can make to a Coverdell ESA is $2,000 per beneficiary for 2026. However, the amount the IRS allows you to contribute, if at all, depends on your MAGI and filing status.

Income limits: Who can contribute to a Coverdell ESA?

Anyone can contribute to a Coverdell ESA, as long as their MAGI doesn’t exceed the IRS’s income limits for their filing status.

If you’re a single filer, you can contribute the full $2,000 if your MAGI is less than $95,000. The IRS starts phasing out the amount you can contribute at $95,000. If your MAGI is more than $110,000, you are no longer eligible to contribute.

If you’re married filing jointly, you can contribute the full $2,000 if your combined MAGI is less than $190,000. The IRS starts phasing out the amount you can contribute at $190,000. If your MAGI is more than $220,000, you are no longer eligible to contribute.

What expenses can you pay for with a Coverdell ESA?

You can use money from a Coverdell ESA to cover many primary, secondary, and post-secondary education expenses tax free, but qualified expenses vary depending on the beneficiary’s level of schooling.

If your child (or the plan’s beneficiary) is in any grade from kindergarten to 12, you can use Coverdell ESA funds to cover:

• Tuition and fees
• Required books, supplies, and equipment
• Academic tutoring
• Computer equipment, software, and internet access, if it’s for your child’s use during the years they’re enrolled
• Special needs services, if the beneficiary has special needs

Plus, if required by your child’s school, you can also use Coverdell ESA funds to cover:

• Uniforms
• Room and board
• Supplementary services, like day programs
• Transportation

If your child is in college or attending a university, you can use Coverdell ESA funds to cover:

• Tuition and fees
• Required books, supplies, and equipment
• Room and board, if your child is enrolled at least half-time
• Computer equipment, software, and internet access, if it’s for your child’s use during the years they’re enrolled
• Special needs services, if the beneficiary has special needs

Take note that you can only use Coverdell ESA funds tax free for qualified education expenses if your child is attending an eligible school or educational institution.

For primary and secondary schools, the IRS only requires that your state recognizes the school as providing elementary or secondary education. For post-secondary schools, the IRS generally requires that colleges, universities, and vocational schools be accredited, nonprofit or privately-owned, and eligible to participate in a U.S. Department of Education student aid program.

What is the difference between a 529 Plan and a Coverdell ESA?

Both Coverdell ESAs and 529 plans offer tax-free growth and cover qualified education expenses tax free for eligible students, but they differ in several important ways.

Can you use a Coverdell ESA and a 529 plan for the same beneficiary?

Yes, you can use a Coverdell ESA and a 529 plan for the same beneficiary in the same year. This includes making contributions to both accounts and using both accounts to pay for qualified expenses.

You can also roll funds over from a Coverdell ESA and a 529 plan for the same beneficiary. But you cannot roll funds over from a 529 plan to a Coverdell ESA.

One key thing to note is that you cannot use both a Coverdell ESA and a 529 plan to cover the same education expenses, nor can you pair these accounts with education credits, like the Lifetime Learning Credit or the American Opportunity Tax Credit.

How to open a Coverdell ESA 

To open a Coverdell ESA, find a bank, brokerage firm, or mutual trust company anywhere that offers them, and apply online or set up an appointment to do so in person.

Designate someone (the beneficiary’s parent or legal guardian) to manage the account. The beneficiary must be under 18, unless they have special needs.

Make sure that you have your Social Security number (or that of the parent or legal guardian managing the account), and the child’s birth certificate.

How do you withdraw money from a Coverdell ESA?

To withdraw money from a Coverdell ESA, reach out to your bank or other provider holding your account, and submit a distribution request. With most providers, you can do this online or by paper, but different providers have different procedures.

You can choose to direct the funds to you, your child (or other beneficiary), or directly to the eligible educational institution. Just make sure that your withdrawals match your eligible education expenses, and keep records, including invoices, receipts, and enrollment information so you can verify your expenses if the IRS ever asks you to.

Are Coverdell ESA contributions and distributions taxable?

Coverdell ESA contributions are not tax deductible and are made with after-tax dollars (in other words, money that’s already been taxed). However, the funds grow tax free in a Coverdell ESA, and distributions are tax free, too, so long as they are used for qualified education expenses for a qualified beneficiary.

Distributions from a Coverdell ESA are reported to the recipient on Form 1099-Q, Payments From Qualified Education Programs. The reported amount is only included in the tax return as “other income” if the amount exceeds the qualified education expenses. If the distributions are greater than your qualified education expenses, then report the taxable part on Schedule 1, Additional Income, of Form 1040. Keep the Form 1099-Q with your tax records.

Can a Coverdell ESA be transferred or rolled over?

Yes, you can roll a Coverdell ESA over to a 529 plan tax-free, as long as it’s for the same beneficiary. You can also roll the funds over into another Coverdell ESA for the same beneficiary or for a different eligible family member under the age of 30.

Can a Coverdell ESA be converted to Roth IRA? 

No, you cannot convert a Coverdell ESA to a Roth IRA. However, you could roll the funds over into a 529 plan, and may be able to eventually move them to a Roth IRA. To do so, the 529 must be open for 15 years with the funds untouched for at least 5 years to do so, the rollover amount cannot exceed the annual Roth IRA contribution limit, and the beneficiary must have earned income greater than or equal to the amount being rolled over.

A Coverdell ESA can be a great savings tool for future education expenses, but the IRS rules around who can contribute, which education expenses are eligible, and how you can roll over funds can be complicated. Turn to your Jackson Hewitt Tax Pro all year round for tax help, questions, or concerns. Find tax services near you, then walk in or book now.