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:

ESA in K–12 Coverdell ESA
Who Is Eligible?Not all states have ESA programs. States and their legislators decide to make laws that create ESAs for families, and they decide whether those programs are open to all kids or just some. For instance, Florida’s ESA program is open only to students with special needs. To find out whether your state has an ESA program, click here.Anyone under the age of 18 in the United States can be the beneficiary of a Coverdell ESA. Beneficiaries with certain special needs may not be subject to the same age restrictions. Only taxpayers with a modified adjusted gross income that’s less than or equal to $110,00 ($220,000 if filing a joint tax return) may contribute to a Coverdell ESA.
How It’s FundedThese ESAs are funded with money that would have gone to a student’s assigned district school. When the parents apply for an ESA and chooses to send their child to a different school or education provider, the state transfers the student’s funding—or a certain percentage of it—into this account. Anyone who meets the federal government’s income requirements can contribute to a Coverdell ESA, including the account’s beneficiary. The contributions often come from a child’s parents and grandparents. The government or taxpayers do not contribute funds to these accounts.
Funding LimitsESA funding limits vary from state to state, but are typically a percentage of what the state would have spent to educate the student in a public school. In Arizona’s ESA program, for instance, students receive $9,056, on average.Contributors can put up to $2,000 per year (as of 2015) into Coverdell ESAs for a beneficiary. If a child is the beneficiary of multiple Coverdells, the total contributions to all of them for a year must not exceed $2,000.
Allowed UsesThe allowed uses for ESAs also vary from state to state. Generally, though, parents can use ESA funding to pay for a variety of education-related products and services, including private school tuition, tutoring, books and supplies, special needs services, education therapies, online courses, and more. Coverdell funds can be used for certain elementary and secondary school expenses, including tuition and fees for private school (or public school if the family pays to send the child to school out of district in a state without open enrollment policies); books, supplies, and equipment; academic tutoring; special needs services for qualifying beneficiaries; room and board; required uniforms; required school transportation; supplementary items and services required by the school and certain computer technology and equipment.
Using Beyond K–12 EducationIn some states, like Arizona, a certain percentage of ESA funds can be rolled over from quarter to quarter or year to year. After 12th grade, the funds can be used to pay for college tuition and textbooks.Coverdell ESA funds can be used for certain higher educational expenses, including tuition and fees, books and equipment, room and board (for students attending at least half-time), and necessary computers and Internet access.
Regulation and AccountabilityK–12 ESAs are regulated at the state level, but typically hold parents directly accountable for where they spend the funds. Parents must keep receipts for their education expenses. Often, the state conducts random audits of ESAs, and some programs come with a restricted-used debit card, which parents can only use with whitelisted providers.Those who use a Coverdell ESA will receive Form 1099-Q at the end of the year. The taxpayer will file this form with his or her federal income taxes, and may be required to prove with receipts that Coverdell distributions were used for appropriate purposes.

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