Coverdell ESA Calculator

Coverdell ESA Calculator

Annual Savings:
Before-Tax Return on Savings (%):
Tax Bracket (defaults to 25%):
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Coverdell ESA Definition

Below is an explanation of the features and limitations of a Coverdell Education Savings Account. A calculator, at the bottom of this article, is used to help estimate potential returns. The calculator will be explained after the overview.

What is A Coverdell Education Savings Account?

A Coverdell Education Savings Account (Coverdell ESA) is an incentivized way for account holders to save for the cost a students education. It has features of qualified retirements accounts to help the balance grow. It can hold cash or investments such as stocks, bonds, and mutual funds.

What are the Tax Benefits and Restrictions of a Coverdell ESA?

The funds deposited in a Coverdell ESA are not tax-deductible. The accounts contributions do grow tax free. The distributions from the account are also tax-free, if they are used for qualified expenses.

Qualified expenses for a Coverdell ESA include tuition costs of most primary, secondary, and post-secondary schooling. The schools included can be public, private, or religiously affiliated.

Qualified expenses also include education related purchases of books and supplies, as well as room and board.

Like qualified retirements plans, there are limits to the amount contributed to a Coverdell ESA. Total contribution for any one beneficiary cannot exceed $2,000.00 in any single year. Unlike qualified retirement plans, this contribution maximum holds no matter how many accounts are opened for a single beneficiary.

A person may contribute $2,000.00 to one account or across multiple accounts but cannot contribute more than $2,000.00 in total.

What are the Distribution Restrictions of a Coverdell ESA?

If the distributions from a Coverdell ESA are used for non-qualified expenses, or the beneficiary has reached a certain age, there are restrictions and other taxes involved. Distributions used for non-qualified expenses are not tax-free and are subject to a 10% additional tax.

If the beneficiary of the Coverdell ESA has reached the age of 30, and there are still funds in the account, the funds must be distributed within 30 days. These funds may be, alternatively, rolled into another Coverdell ESA for a different beneficiary.

How to Use the Coverdell ESA Calculator

Above is a Coverdell ESA Calculator used to estimate potential account growth. There are four fields to fill in before an estimate can be calculated.

  1. The field labeled ‘Annual Savings’ should be filled in with the yearly contribution amount, remember not exceeding the $2,000.00 maximum.
  2. Next, in the ‘Years’ field, put the length of time the contributions will be made before and distributions have been taken out.
  3. In the field ‘Before-Tax Return on Savings (%)’ put your expected yearly growth of the account. Check with the bank or investment advisor the fund was purchased fund if the rates or returns are unknown.
  4. The ‘Tax Bracket’ field is last and should be filled with the investors (not the beneficiaries) tax bracket. Consult with a tax professional if the investor tax bracket is unknown.

The last step is simply to click ‘Calculate’ and the estimated return will be shown.

How to Calculate Coverdell ESA

Let's be honest - sometimes the best coverdell esa calculator is the one that is easy to use and doesn't require us to even know what the coverdell esa formula is in the first place! But if you want to know the exact formula for calculating coverdell esa then please check out the "Formula" box above.

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