facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Tapping an ESA for Back-to-School Expenses Thumbnail

Tapping an ESA for Back-to-School Expenses

It’s August and that means it is back-to-school time! The 2025-2026 school year is upon us. Kids are already back in the classroom and ready to learn.

Tapping an ESA for Back-to-School Expenses

Any parent will tell you that back-to-school time is an expensive time of the year. You cannot afford to miss out on any possible option that may help you save to cover education costs. There are often discussions about tax credits and 529 plans savings plans, but one tool that that you might overlook is the Coverdell Education Savings Account (ESA). Here is what you need to know.

ESA Contributions

You may establish an ESA with the custodian of your choice. The paperwork you complete is very similar to the paperwork necessary to establish an IRA. Contributions are made to the account to help save for education expenses of a designated beneficiary. The designated beneficiary is a child under the age of 18. You can make a contribution for your child, grandchild, or any other child under the age of 18. Contributions may be made for designated beneficiaries older than 18 if they have special needs. Your ESA contribution is not deductible, but the earnings will be tax-free if the funds are used to pay for qualified education expenses.

The maximum ESA contribution amount is $2,000 per year for each child, but you may contribute that amount to ESAs for multiple beneficiaries. For example, if you have three grandchildren, you could contribute $2,000 each year to each of their ESAs. There is no earned income or taxable compensation requirement to contribute to an ESA. There are no age limits either. There are income limits. If your income is above them, you might consider giving the funds to the child or another person with income under the limits and having them make the contribution to avoid those restrictions.

The contribution deadline is generally the tax-filing deadline, April 15. ESA funds are even eligible to be rolled over to qualified tuition plans.

ESA Distributions

Qualified distributions from an ESA are tax-free. The definition of qualified education expenses is very broad for ESA purposes. Qualified education expenses include college tuition, room and board as well as required books and supplies. The student can be a full-time or part-time student. Vocational school or community college expenses are included as well. A student’s computer and internet expenses are also qualified education expenses.

An important benefit of an ESA is that qualified tax-free distributions may be taken for primary and secondary school expenses. You are not limited to expenses after high school graduation. Eligible expenses include tuition, fees, tutoring and special needs services and expenses incurred in connection with enrollment of the designated beneficiary at a public or private school.

If an ESA distribution is not used for education expenses, the earnings portion will be taxable to the designated beneficiary and may be subject to a 10% penalty, unless an exception applies. Funds may be rolled over from an ESA to an ESA for a member of the designated beneficiary’s family who is under age 30.

ESA Benefits

Sometimes the benefit of ESAs is overlooked due to the relatively low contribution amounts, but this is short-sighted. With the costs of education, you will need every strategy and tax break that is available! Don’t miss out on ESA benefits. If you are already funding a qualified tuition plan or 529 plan, you can still fund an ESA as well.

By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC

Interested in reading more of our library of articles on topics like this and more? Click here to browse our selection of financial articles.

If you have an ESA that you would like to use to support your financial plan, click here to schedule a complimentary 20-minute Q&A with a licensed financial advisor who can help you start on the right path.

Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.

Copyright © 2025, Ed Slott and Company, LLC Reprinted from The Slott Report, 08/25/25, with permission. https://irahelp.com/tapping-an-esa-for-back-to-school-expenses/, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. 
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment advisor. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.
The information being provided is strictly as a courtesy. When you click on any of the links provided here, you are leaving this website and viewing information provided by a third party. We make no representation as to the completeness or accuracy of information provided by any third-party website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to, or your use of third-party technologies, websites, information and programs made available through this website. By accessing these calculators, you assume total responsibility and risk for your use of the third-party website.