Coverdell ESA.

In plain English

A Coverdell Education Savings Account (ESA) is a tax-advantaged account you fund with after-tax money to pay a beneficiary's education costs. The money grows tax-free, and withdrawals are tax-free when used for qualified expenses, which can include K-12 costs as well as college. The annual contribution limit is $2,000 per beneficiary, and your ability to contribute phases out at higher incomes. Contributions generally must stop once the beneficiary turns 18, and any remaining funds are usually meant to be distributed by age 30. You open one at a bank or brokerage and choose your own investments, which is a key difference from many other education accounts.

01Why it matters

If you want to save tax-free for private K-12 tuition or want hands-on control of how the money is invested, a Coverdell can fit where other accounts do not. The low yearly contribution cap and income limits, though, make it a smaller tool than a 529 for many families.

02The math, step by step

A parent opens a Coverdell for a child, invests the contributions, and later withdraws the money tax-free to pay qualified school expenses. Contributions are capped at $2,000 per year per child (set by statute, not inflation-indexed) and phase out once contributor income passes the IRS thresholds, which are fixed by statute (not inflation-adjusted) at a modified adjusted gross income of $95,000 to $110,000 for single filers and $190,000 to $220,000 for joint filers.

03What this is NOT

04Receipts

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