Education Savings Account (ESA)

Education Savings Account (ESA)

An education savings acount is a savings account set up by an adult for the benefit of a child. Funds are deposited in this account on a tax-deferred basis to be later used for the child’s educational expenses.  A yearly maximum of $2000 can be contributed into the account. Also known as a Coverdell education savings account.

The tax treatment of ESAs is much the same as that of 529 plans, with a few differences. Both allow money to grow tax-deferred and for funds to be withdrawn tax-free for qualified educational expenses at a qualified institution. However, in an ESA, primary and secondary school as opposed to just college and university also count as qualified expenses.

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