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Coverdell Education Savings Account

A Coverdell Education Savings Account (CESA) is a tax-advantaged custodial account designed to help pay for a designated beneficiary’s education.

Tax-deferred education savings

Parents, grandparents, legal guardians, or other interested individuals may establish a CESA for a designated beneficiary. Contributions to CESAs 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 Distributions are generally tax-free when withdrawn to pay for the designated beneficiary’s qualified education expenses.1

  • Flash icon Competitive dividend rate

    View our Share and Deposit Account Rates.2

  • Not allowed icon Tax-free withdrawals

    Withdraw funds tax-free for qualified elementary, secondary, and higher education expenses.

  • Family icon Designate a beneficiary

    CESAs 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 needs.3

  •  Contribute up to $2,000 annually

    Contributions are made with after-tax dollars and capped at $2,000 per year.

Opening a CESA

To open a CESA, visit your local branch or request an account online via Member Access. The following requirements must be met:

  • The designated beneficiary must be an SECU member and be either under the age of 18 or have special needs.3

  • A parent or legal guardian must be named as the responsible individual.

  • A minimum deposit of $25 must be provided at account opening.

Account specifications

There may be income restrictions when contributing to a CESA 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 CESA.

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 they reach 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 a 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.

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 distributions1 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.

Frequently asked questions about Coverdell Education Savings Accounts

No, you can request a withdrawal at anytime over the teller line or online. However, any withdrawn interest is subject to tax and a penalty if funds are not used for qualified education expenses.

There is no maximum balance for a CESA, but there is an annual contribution limit of $2,000.

Both CESAs and NC 529 Plans can be used to help pay for education costs, however, the key differences between each are the contribution amounts, account restrictions, and investment options.

CESAs have income limits, restrict the age of the beneficiary to under the age of 18 (unless the beneficiary has special needs3), and have a lower annual contribution cap than NC 529 Plans. CESAs allow more investment options, whereas NC 529 Plans are limited to the investments that the state-sponsored plan offers.

NC 529 Plans have no income level restrictions, can be opened for a beneficiary over 18 years old, and have a higher annual contribution limit than CESAs. Additionally, NC 529 Plans limits elementary and secondary education expenses to tuition only, whereas CESA funds can pay for elementary and secondary education expenses including but not limited to tuition, room and board, equipment, special needs services, and more.

The information above is provided for informational purposes only. Consult your tax advisor for additional information regarding the requirements and limitations on CESAs and NC 529 Plans.