Education Savings Account

A Coverdell ESA is a tax-advantaged, custodial account similar to a Roth IRA, except funds must be used exclusively for paying education expenses for the beneficiary.

You do not need earned income to contribute to an education savings account (ESA), and the contributor can be any individual, including the designated beneficiary of the account. As opposed to many 529 Plans, contributions are discretionary, meaning that you are not required to make deposits every year.

A self-directed Coverdell education savings account with Advanta IRA provides you the ability to grow money and gain wealth on a tax-free basis for your child’s education. By self-directing the funds in an educational account into non-traditional investments that you know, such as real estate, notes, and partnerships, you may grow the wealth in the account faster than through traditional investments.

Contributions to a self-directed Coverdell ESA are not tax deductible. However, the earnings are tax free, assuming the contribution is less than the account holder’s annual adjusted, qualified education expenses. In the event that the distributions are higher than the expenses, the gains are taxed at the account holder’s rate rather than the contributor’s rate (which is typically higher).

 Choose a self-directed Coverdell with Advanta IRA account if:

  • You have dependants that will eventually attend an educational institution, whether elementary, secondary, public, private or religious.
  • You are looking for savings to grow tax-deferred or tax-free.
  • You are seeking an investment vehicle that can be used for a number of educational expenses such as uniforms, computers, and transportation for school.

Contributions to an education savings account:

  • You can contribute up to $2000 annually per child.
  • Contributions can be made until the beneficiary’s 18th birthday.
  • There are exceptions for children with special needs.
  • Contributions are not tax-deductible, but earnings grow tax-free.
  • Contributions can be made as late as the contributor’s tax filing date.
Contribution Limits 2016 2017
ESA (education savings account) $2,000 per year, per child $2,000 per year, per child