Coverdell Education Savings Account (ESA)

Education Savings Accounts (ESAs) are designed to save for children's educational expenses. Parents, grandparents, and friends and other relatives who may want to contribute up to $2,000 per year to a child's education fund, would be interested in an ESA.

This tax-deferred savings tool for educational expenses is a valuable education savings vehicle. Contribution limits are $2,000 per year/per child. Deadline for contributions is your regular tax deadline.

A PENSCO Coverdell ESA is a custodial account established to pay for the qualified education expenses of a designated beneficiary. At the time of contributions, the beneficiary must be under age 18 or he or she needs to be a special needs beneficiary.

When the funds must be withdrawn

The ESA beneficiary must have taken a full distribution of the account on or before his or her 30th birthday (unless he or she is a special needs beneficiary). If this does not occur, the remaining funds will be paid out within 30 days. The earnings will then be subject to tax and the additional 10% penalty tax. However, it is possible to avoid the penalty taxes by rolling the account over to an ESA of another younger family member, or by changing the beneficiary of the account to another younger family member. An amount is considered rolled over if it is withdrawn and then deposited into another Coverdell ESA within 60 days.

Open a Coverdell Education Savings Account (ESA)

You'll need to use the Custodial Account Application to open an ESA.