Coverdell Education Savings Account

The Coverdell education savings account (ESA) is a tax-deferred, financial trust account created by the U.S. government to help families fund educational expenses for beneficiaries under the age of 18.

While a Coverdell ESA accumulates tax-deferred investment earnings until the beneficiary is 18 or enrolled in post-secondary education, its funds are not limited to post-secondary expenses; they can be used to cover grades K through 12 based upon school eligibility.

One of the limitations of a Coverdell ESA is that yearly contributions are capped at $2,000, whereas a 529 college saving plan, another college-savings vehicle, has no yearly contribution maximum and can be used to pay off up to $10,000 of student loans. Beneficiaries of Coverdell ESAs are also eligible for 529 plans.