Coverdell Education Savings Account (CESA)

The Coverdell Education Savings Account (Coverdell ESA or CESA) is a custodial account that allows individuals to save funds to pay qualified education expenses for a designated beneficiary. These expenses can include qualified elementary, secondary and higher education expenses. Parents, grandparents, legal guardians, or other interested individuals may establish a Coverdell ESA for a designated beneficiary. Contributions are made with after-tax dollars, and earnings grow tax-deferred. Distributions are generally tax-free when withdrawn to pay for the designated beneficiary’s qualified education expenses.1


  • Competitive dividend rate.2 View our Share and Deposit Account Rates.
  • Must be established for the benefit of a designated beneficiary who is an SECU member and is either under the age of 18 or has special needs3
  • Can be established by beneficiary’s parents, grandparents, or other interested individuals
  • Parent or legal guardian must be named as responsible individual as described under “Responsible Individual” below
  • Contributions, up to $2,000 per year, are made with after-tax dollars
  • Earnings grow tax-deferred
  • Tax-free withdrawals if used to pay for qualified elementary, secondary and higher education expenses
  • $25 minimum opening deposit

Opening a Coverdell ESA

To open a Coverdell ESA, the following requirements must be met:
  • The designated beneficiary must be a member of SECU and be either of the following at the time the account is established:
    • Under the age of 18
    • A special needs beneficiary3
  • A parent or legal guardian must be named as the responsible individual
  • A minimum deposit of $25 must be provided at account opening
If you meet the requirements and would like to open a Coverdell ESA, visit your local branch or request an account online via Member Access.

Account Specifications

There may be income restrictions when contributing to a Coverdell ESA or tax consequences when taking disbursements. The information below is provided for informational purposes only. Consult your tax advisor for additional information regarding the requirements and limitations on the Coverdell ESA.

Responsible Individual

Because the designated beneficiary is a minor at the time contributions to the account are made, an adult (initially a parent or guardian) is named as the “responsible individual” to administer the account for the benefit of the minor. Depending on what is specified when the account is established, the responsible individual may be able to retain authority for the account for as long as the account is open, or the authority may be transferred to the designated beneficiary when he or she reaches age 18.

A successor responsible individual can be named on the account in the event the initial responsible individual becomes incapacitated or dies before the beneficiary reaches the age of 18. The successor responsible individual does not have to be a parent or the legal guardian.

Qualified Education Expenses

Qualified elementary and secondary education expenses can include the following:
  • Tuition, fees, academic tutoring, books, supplies, and equipment expenditures incurred by the designated beneficiary in connection with enrollment or attendance at a public or private school
  • Room and board, uniforms, transportation, and supplemental items and services (such as extended day programs) required or provided by a public or private school
  • Computer technology, equipment or Internet access and related services, if used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is in school (This does not include non-educational software designed for sports, games or hobbies.)
  • In the case of special needs beneficiaries, expenses for special needs services incurred in connection with enrollment or attendance at an eligible institution
Qualified higher education expenses are expenses required for enrollment and attendance at an “eligible educational institution.” Almost all accredited postsecondary institutions qualify. Allowable expenses can include:
  • Tuition, fees, books, supplies, and equipment
  • A portion of room and board expenses if the beneficiary is enrolled on a half-time or greater basis
  • Expenses for the purchase of a computer or peripheral equipment, computer software or Internet access and related services (This does not include non-educational software designed for sports, games or hobbies.)
  • In the case of special needs beneficiaries, expenses for special needs services

Contribution Limit and Deadline

Any individual who meets adjusted gross income (AGI) requirements can make a non-deductible contribution on behalf of an eligible beneficiary, as long as total contributions from all individuals for that beneficiary do not exceed $2,000 for that tax year. Contributions for each tax year can be made from January 1 until the tax filing deadline in the following year. Contributions can be made until the designated beneficiary turns 18, or longer if the beneficiary has special needs.


The responsible individual determines when distributions from the account are taken. If the disbursed amount does not exceed the beneficiary’s qualified education expenses for the year, there is generally no tax liability. If the disbursed amount exceeds these expenses, a portion of the distribution that represents earnings is taxable to the beneficiary and is generally subject to a 10% tax penalty. The tax penalty will not apply if the distribution is due to the death or disability of the designated beneficiary, or if the beneficiary receives a qualified scholarship.

All funds must be disbursed or rolled over to another Coverdell ESA for the benefit of another family member within 30 days if either of the following occur:
  • The designated beneficiary dies
  • The designated beneficiary reaches age 30, unless he or she qualifies as a special needs beneficiary2
The American opportunity credit or the lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses aren't used for both benefits.
1 Rules about distributions from Coverdell IRAs and any resulting tax consequences are governed by the Internal Revenue Code. Please consult your tax advisor if you have any questions.
2 Quoted rates and annual percentage yields (APY) are subject to change daily.
3 A special needs designated beneficiary is an individual who, because of a physical, mental, or emotional condition (including learning disability), requires additional time to complete his or her education, as determined by the Department of Treasury Regulations. Consult a tax advisor to determine if the designated beneficiary qualifies as a special-needs designated beneficiary.