Start saving for education before the bills arrive.
A Coverdell Education Savings Account is a tax-advantaged account designed to cover education expenses from elementary school through college. Contributions are made with after-tax dollars but earnings grow tax-deferred and withdrawals are tax-free for qualified expenses. Anyone can contribute on behalf of a child up to $2,000 per year, as long as individual income limits are met.
Grow education savings at a guaranteed rate.
The Coverdell ESA Certificate† combines the tax advantages of an education savings account with the higher guaranteed rate of a share certificate. Available in 18-month, 3-year and 5-year terms with a $1,000 minimum balance.
$1,000.00 – $9,999.99
| Term | Minimum Balance | Dividend Rate | APY |
|---|---|---|---|
| 18 Months | $1,000 | 3.83% | 3.90% |
| 3 Year | $1,000 | 3.83% | 3.90% |
| 5 Year | $1,000 | 3.83% | 3.90% |
$10,000.00 and over
| Term | Minimum Balance | Dividend Rate | APY |
|---|---|---|---|
| 18 Months | $1,000 | 3.88% | 3.95% |
| 3 Year | $1,000 | 3.88% | 3.95% |
| 5 Year | $1,000 | 3.88% | 3.95% |
What qualifies as an education expense?
K-12 qualified expenses.
Tuition and fees, books, supplies, academic tutoring, uniforms, school-required transportation, computer equipment and internet access used for educational purposes, and extended day programs.
Higher education qualified expenses.
Tuition, fees, books, supplies, room and board for students enrolled at least half-time, and computer equipment and internet access.
Tax-free withdrawals for qualified expenses.
Withdrawals used for qualified education expenses are free from federal income tax, giving your savings more purchasing power when it matters most.
Non-qualified withdrawals come with a cost.
Withdrawals for non-qualified expenses are subject to federal income tax plus a 10% penalty on the earnings portion. Plan your withdrawals carefully to avoid unnecessary costs.
What you need to know before you contribute.
Before you contribute, make sure you understand the age limits, income thresholds and withdrawal rules that apply to a Coverdell ESA.†
Contributions must stop at age 18.
The beneficiary must be under age 18 at the time contributions are made, unless they have special needs. Once the beneficiary turns 18, no further contributions are allowed.
All funds must be used before age 30.
Funds remaining in the account when the beneficiary turns 30 must be distributed within 30 days and will be subject to tax and penalty on earnings. Unused funds can be rolled over to another qualifying family member under age 30 to avoid this.
Income limits apply to contributors.
Contributions are phased out for single filers with a modified adjusted gross income between $95,000 and $110,000, and for joint filers between $190,000 and $220,000. Contributors above those thresholds are not eligible.
Membership is required.
The designated beneficiary on a Firefighters First Coverdell ESA† must be a member of the credit union.
Everything you need to know about Coverdell ESA†.
What is a Coverdell Education Savings Account?
A Coverdell ESA† is a tax-advantaged custodial account designed to help pay for a child’s qualified education expenses from kindergarten through college. Earnings grow tax-deferred and withdrawals are tax-free when used for qualified expenses.
Who can contribute to a Coverdell ESA†?
Anyone can contribute on behalf of an eligible child, including parents, grandparents, other relatives and family friends, as long as their modified adjusted gross income is within IRS limits. The total contributions from all individuals for a single child cannot exceed $2,000 per year.
Are there income limits for contributors?
Yes. Single filers with a modified adjusted gross income above $110,000, and joint filers above $220,000, are not eligible to contribute. The contribution limit phases out between $95,000 and $110,000 for single filers and between $190,000 and $220,000 for joint filers.
Are contributions tax deductible?
No. Contributions are made with after-tax dollars and are not deductible. However, earnings grow tax-deferred and withdrawals used for qualified education expenses are generally free from federal income tax.
What happens if the funds are not used for education?
Withdrawals for non-qualified expenses are subject to income tax plus a 10% federal penalty on the earnings portion. If funds remain in the account when the beneficiary turns 30, they must be distributed within 30 days and will be subject to the same tax treatment.
Can unused funds be transferred to another child?
Yes. Unused funds can be rolled over to a Coverdell ESA† for another qualifying family member who is under age 30. The IRS broadly defines family member to include siblings, parents, nieces, nephews, aunts, uncles, grandparents and more.
Can a child have both a Coverdell ESA† and a 529 plan?
Yes. A child can be the beneficiary of both accounts and contributions can be made to both in the same year. Talk to your tax advisor or reach out Firefighters First Tax Services about which combination makes the most sense for your situation.
APY = Annual Percentage Yield.
* Certain restrictions, limitations, and exclusions apply. See terms and conditions for details.
† Coverdell ESA Share Certificate = Education Savings Account.
Fees may reduce earnings. Dividends will be compounded monthly and credited monthly. Penalty for early withdrawal. All Firefighters First Credit Union deposit accounts except for share certificates have a variable rate. All rates subject to change. The designated beneficiary on this account must be a member of the Credit Union. Coverdell ESA assets must be distributed within 30 days after the designated beneficiary reaches age 30. Consult your tax advisor regarding the tax implications of contributions and withdrawals. This information is provided for educational purposes only and does not constitute tax or legal advice.