Coverdell ESAs vs ESAs in K-12 Education

Education savings accounts (ESAs) are a popular, relatively new innovation in K–12 education meant to expand parents ability to customize their children’s education. Arizona was the first state to create an ESA program for families in 2011. Since then, a handful of other states have followed suit.

But even as ESAs pick up steam across America, they’re easily confused with Coverdell Education Savings Accounts (Coverdell ESAs), which have been around for longer. The two types of programs are distinctly different. Here’s how:

Coverdell Education Savings Accounts (Coverdell ESAs)

Coverdell education savings accounts, or Coverdell ESAs, used to be known as Education IRAs. As you might guess from that name, this type of account offers a tax-advantaged way for parents to save money for a specific purpose—namely, their children’s education.

Coverdell ESAs are a federal program similar to 529 college savings plans. They offer tax-free growth for your investment and tax-free withdrawals. Unlike 529 plans, parents can use their Coverdell ESA funds to pay for certain K–12 educational expenses as well as college expenses.

The key distinguishing factor with Coverdell ESAs: To get a Coverdell ESA, families must choose to open an account and contribute money out of their own pockets to accrue savings. In other words, any parent can open a Coverdell ESA, but they have to have the money.

Education Savings Account (ESA) Programs in K–12

K–12 education savings accounts, usually referred to as ESAs, are taxpayer-funded spending accounts the government offers eligible families, so they can use the funds—often in the form of a debit card—to pay only for educational expenses that tailor an education to their children’s specific needs. The “savings” in the name of this program type comes from parents’ ability to save funds from quarter to quarter, or school year to school year, to use for future educational expenses, such as college tuition or more expensive learning therapies etc.

The key distinguishing factor with ESA programs in K–12 education: The money doesn’t come from parents’ pockets; it comes from the tax dollars the government already sets aside for every child’s education. Instead of that money going directly to a government-assigned school your child might not even attend, the money follows your child to the school or other education provider you choose for them. This allows families with more modest incomes to access more and diverse schooling options for their children, a luxury only affluent families could enjoy before educational choice began to take hold in the states.

Though ESAs and Coverdell ESAs confusingly share an acronym, they have very different backgrounds and purposes. To make understanding their similarities and differences simpler, we’ve broken down the details into a helpful table:

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As you can see, K–12 education savings accounts and Coverdell ESAs are really quite different. They can both be useful tools for parents looking to pay for alternative schooling options. But K–12 ESAs give even parents of limited means true control over their children’s elementary and secondary educational journeys.

Does My State Have a K–12 ESA?

Five states have ESA programs to date, but many more states are considering creating them. The list below includes the names of existing programs along with quick links to those program details, which include eligibility quizzes, approved expense types, funding amounts and more.

AZ – Arizona – Empowerment Scholarship Accounts

FL – Florida – Gardiner Scholarship Program

MS – Mississippi – Equal Opportunity for Students with Special Needs Program

NV – Nevada – Education Savings Accounts

TN – Tennessee – Individualized Education Account Program

If you don’t see your state in this list but you’d like more information about the possibility of ESAs in your state, please contact us at [email protected].