A savings account that is set up to pay the qualified education expenses of adesignated beneficiary. A designated beneficiary is the individual named in the document creating the Coverdell ESA who will receive the benefit of the funds in the account. The Coverdell ESA is a custodial account, which means that your parents will have to open the account for you and designate you as the beneficiary. You can still make some of the investment decisions in the account, however, as long as you parents are aware of what you are doing.

Qualified educational expenses are expenses required for the enrollment or attendance of the designated beneficiary of the Coverdell ESA at any eligible educational institution. These expenses include tuition, fees, books, supplies, and equipment such as computers, calculators, and other school-related items. An eligible educational institution is any college, university, vocational school, elementary/secondary (K-12), and other institutions eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and private, elementary, secondary, and post-secondary institutions. Any educational institutions should be able to tell you if it is an eligible educational institution.

Contribution Limits

Since 2002, the maximum contribution amount that you can put into the Coverdell ESA account for any one beneficiary can be no more than $2,000. This means that if a beneficiary adds up all the Coverdell ESA accounts opened up for him, the total contribution amount can’t be more than $2,000. For example, suppose a girl’s grandparents, parents and godmother all open a Coverdell ESA for her. In order to receive the favorable tax treatment of a Coverdell ESA, the total contribution in all of these accounts opened on her behalf can’t be more than $2,000.