TeenBusiness.com > Teenvestors > Coverdell ESA > Coverdell ESAs vs. College Savings Plans


Coverdell ESAs are not to be confused with College Savings Plans. While Coverdell ESAs can certainly be used to pay for college expenses, they are not state-sponsored plans. Below are the most significant features of a Coverdell ESA that are not features of a College Savings Plan:

Income Limitation

There are income limitations for participants in a Coverdell ESA. Since your parents are the ones that will probably open the account for your benefit, they will have to pay attention to the income limitations. This limitation is that if one of your parents generally makes over $110,000, he is prohibited from opening the account. If both of your parents want to jointly open an account for you, they generally can't make more than $220,000 collectively. College Savings Plans have no income limitations.

Investment Limitation

You can only invest a maximum of $2,000 in a Coverdell ESA. You can invest up to $200,000 or more depending on your state's investment limitations.

Eligible Grades

The funds in a Coverdell ESA can be used for grades K-12 as well as for colleges and universities. By contrast, money from a College Savings Plan can only be used for colleges and universities.

It Is A Custodial Account

The Coverdell ESA is a custodial account, which means that an adult (which would most likely be your parents or guardians) will have to open it on your behalf. You can't directly control the investments without input from the adult. Technically, however, you own the assets in the account although you can't get full control of it until you are no longer a minor. Anyone can open a College Savings Plan and the person who opens it, owns the assets and controls the assets.