Coverdell Education Savings Account

Distributions from a Coverdell ESA may be tax-free, but they must be used to pay for qualified educational expenses.

With a Coverdell ESA account, you can invest in a wide variety of products including stocks, bonds, and mutual funds.

• A retirement savings plan that allows an individual to contribute earnings until they are withdrawn.
• Contributions are subject to annual limits depending on the age of the account owner and may or may not be deductible depending on the individual’s circumstances.
• Earnings accumulate tax deferred until distributed to you at which time the earnings are subject to tax upon withdrawal.
• A spouse may contribute to a separate account subject to the same limits.
• Withdrawals made prior to age 59½ are subject to a 10% penalty unless certain special circumstances apply.
• Distributions must begin by the account owner’s required beginning date (RBD), which is April 1 following the year that the account owner reaches age 70½.
• Once the account owner reaches age 70½, he or she must withdraw at least a minimum amount called an annual Required Minimum Distribution (RMD).
• If an account owner fails to withdraw the full amount of the RMD annually, or fails to withdraw the RMD, there is a 50% tax penalty that may be imposed by the IRS on the amount not withdrawn.