Educational Employees Credit Union

Coverdell Education Savings Accounts (ESAs) are investment accounts designed to help families save for education expenses from elementary school through college.

Key characteristics and benefits:

• Coverdell ESAs consist of funds intended to help families save for qualified education expenses.
• A family member can open a Coverdell ESA.
  • Example: A grandmother may contribute to her grandson’s Coverdell ESA to help with future education costs.
  • Example: An uncle may contribute to his niece’s Coverdell ESA to help with her future college expenses.
• There are no tax deductions on contributions into a Coverdell ESA.
  • However, Coverdell ESAs can give the designated beneficiary a tax break later during withdrawals.
  • Contributions to a Coverdell ESA must also abide by the contribution guidelines and the limits for the year. Refer to the IRS website for details.
  • We strongly advise you to seek advice from a tax professional to determine your Coverdell ESA contribution eligibility.
• Contributions to a Coverdell ESA can no longer be completed in the year the designated beneficiary is turning 18.
• The Coverdell ESA must also be closed by the time the designated beneficiary turns 30.
• The earnings (dividends) in Savings and/or Certificates in a minor child’s Coverdell ESA also grow and may be tax-free even when they are distributed later, as long as when the responsible individual or designated beneficiary withdraws the funds they are used for qualified expenses.
  • Earnings in a Coverdell ESA are not reported to the IRS.
  • Qualified expenses are listed on the IRS website.
• Because withdrawals from a Coverdell ESA can be tax-free, provided the funds are used for qualified expenses, this means that earnings in the Coverdell ESA are then also tax-free.
  • o Both contributions and earnings may be distributed tax-free when used for qualified education expenses.
• There are currently no annual service fees on EECU Coverdell ESAs.
• Another benefit of a Coverdell ESAs is that you have access to distribute your assets at any time.
  • Please call us at 800-538-3328, email us at IRAdesk@myeecu.org, or visit your nearest EECU branch for assistance.

Important Disclosure: This information is for educational purposes and does not constitute tax or legal advice. Tax laws are complex and subject to change. EECU recommends consulting with a qualified tax advisor to determine your eligibility and the best IRA strategy for your specific financial situation.