Use ESA Funds For Elementary and Secondary School Costs

As the kids head back to school, it’s a good time to think about Coverdell Education Savings Accounts (ESAs). One major advantage of ESAs over another popular education saving tool, the Section 529 plan, is that tax-free ESA distributions aren’t limited to college expenses; they also can fund elementary and secondary school costs. That means you can use ESA funds to pay for such qualified expenses as tutoring or private school tuition. This favorable treatment had been scheduled to expire after 2012, but Congress made it permanent earlier this year.

Here are some other key ESA benefits:

  • Although contributions aren’t deductible, plan assets can grow tax-deferred
  • You remain in control of the account — even after the child is of legal age
  • You can make rollovers to another qualifying family member

Congress also made permanent the $2,000 per beneficiary annual ESA contribution limit, which had been scheduled to go down to $500 for 2013. However, contributions are further limited based on income. Contact us if you have questions about tax-advantaged ways to fund your child’s — or grandchild’s — education expenses, we’d be pleased to answer them.