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What Is A Coverdell Education Savings Account?

Once known as an Education IRA, a Coverdell Education Savings Account (CESA, Coverdell ESA) is a type of custodial or trust account. With this in mind, this tax-deferred account was created by the U.S. government to help families pay for the rising costs of education. Moreover, the account can be used for higher education, elementary, or secondary school costs. Although contributions are pre-taxed and one child can have more than one account, there is a $2,000 deposit limit per year.

What Can I Use A CESA For? 

Overall, funds are used for qualified elementary, secondary, or higher education expenses. In addition, there is a penalty if you do not use the funds for an educational expense. For example, expenses may include tuition, school fees, books, or supplies. For more information, visit IRS’s Tax Benefits for Education.

Pearl Hawaii Coverdell Education Savings Account Benefits

Coverdell Education Savings Account

  • Low minimum balance requirements
  • Low minimum to open an account
  • No monthly account maintenance fees
  • There may be tax advantages*

What You Need To Know About A Coverdell Education Savings Account

  • Overall, this account is to help save for the costs of education
  • Contributions are allowed before the child turns 18
  • When using the funds for something other than a qualified educational expense, there is a 10% penalty fee.
  • If there’s a balance in the CESA at the time the beneficiary reaches age 30 or dies (if earlier), it must be distributed within 30 days.
  • Also, earnings on the account are taxable
  • Account balances may be rolled over to another beneficiary who is under the age of 30.
  • To use the account, you must make less than the designated Annual Gross Income (AGI).
  • Also, contributions must be made in cash and are not deductible.
  • Visit the IRS for details.

How To Open A Coverdell Education Savings Account

Pearl Hawaii Federal Credit Union offers a Coverdell ESA, which allows you to invest while saving for education costs. Overall, saving for college doesn’t need to be difficult or complicated. As a result, using a CESA account to save for your child’s education can help defray costs down the road.

Call 808.737-4328 or visit any Pearl Hawaii Federal Credit Union location to get started.


Type Minimum Balance APY*
3 Year-IRA Certificate (Traditional, Roth, Coverdell Education Savings Account)$1,000 3.00%
2 Year-IRA Certificate (Traditional, Roth, Coverdell Education Savings Account)$1,000 2.00%
1 Year-IRA Certificate (Traditional, Roth, Coverdell Education Savings Account)$1,000 1.25%
8 Month - IRA Certificate (Traditional, Roth, Coverdell Education Savings Account)$1,0004.25%
IRA Savings Account (Traditional, Roth, Coverdell Education Savings Account)$5.000.20%

*Annual Percentage Yield. Rates are subject to change without prior notice. Rates and terms effective 4/15/24. Fees could reduce the earnings on the account. Penalty for early withdrawal. Federally insured by NCUA.

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*Please consult a tax advisor for your specific tax advantages or questions. Also, rules about distributions from Coverdell IRAs and any resulting tax consequences are governed by the Internal Revenue Service.