ACCOUNT TYPE
Coverdell Education (ESA)
A Coverdell Education Savings Account (ESA) enables the holder to make tax-advantaged investments to pay for the future education expenses of a beneficiary.
AT-A-GLANCE
What should you know about a Self-Directed ESA?
Tax Benefits
- Qualified ESA distributions are completely tax free if they are used for qualified education expenses.
- Investment earnings are tax deferred.
Other Benefits
- With an ESA, you can invest in real estate, private loans, precious metals, or any other alternative asset of your choosing.
DISTRIBUTION RULES
What should you know about ESA distributions?
Minimum Distribution Facts
- If an ESA balance goes unused by the time the beneficiary reaches age 30, the balance must be distributed or rolled to another family member (who becomes the new beneficiary) within 30 days of the beneficiary’s 30th birthday.
Early Distribution Facts
- ESA distributions can take place at any time without tax or penalty as long as they are used for qualified education expenses for the account beneficiary.
- ESA distributions taken for non-qualified purposes are subject to income taxes and may be subject to an additional 10% penalty.
| BELOW AGE 59½ | AGE 59½ - 72 | AGE 72 OR OLDER | |||
|---|---|---|---|---|---|
| You may distribute cash or assets from your Traditional IRA at any time, though a 10% early distribution penalty will apply. This penalty will be assessed on top of any applicable taxes. | Upon reaching age 59½, you will no longer have to worry about the 10% early distribution penalty. Withdrawals will be taxed as regular income and need only occur at your election. | You must begin taking required minimum distributions (RMDs) every year. RMDs are calculated in accordance with your age and your account value. |
BELOW AGE 59½You may distribute cash or assets from your Traditional IRA at any time, though a 10% early distribution penalty will apply. This penalty will be assessed on top of any applicable taxes. |
|
AGE 59½ - 72Upon reaching age 59½, you will no longer have to worry about the 10% early distribution penalty. Withdrawals will be taxed as regular income and need only occur at your election. |
|
AGE 72 OR OLDERYou must begin taking required minimum distributions (RMDs) every year. RMDs are calculated in accordance with your age and your account value. |
Contributions
You can contribute up to $2,000 per year in 2020 and 2021. ESA contributions are not deductible from your income for tax purposes.
Transfers
ESAs with the same beneficiary can be transferred or combined without limit.
Rollovers
An ESA can be rolled over to another family member, who would become the new beneficiary.
OTHER INVESTMENTS
ROI is everywhere if you know where to look.
No financial advisor knows you better than yourself. With a Self-Directed IRA you have the freedom to invest your tax-advantaged retirement funds in the assets you’re most passionate about. From real estate to startups to small businesses to more “out there” opportunities, if you can find it, we will help you fund it.
EDUCATION CENTER
Want to learn more about ESA accounts?
Self-Directed IRA Guide
