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ESA (Education)

Coverdell Education Savings Account (ESA)

An ESA is a savings account designed to help save for qualified education expenses for your child, grandchild or any other youth.  Anybody who meets the income requirements can open and contribute to a child’s Coverdell ESA.  The account is opened in the name of the beneficiary or youth.  There is no minimum contribution that must be made per year but there is a maximum amount that cannot be exceeded.  Contributions can be made until the child turns 18. However, there are exceptions for special needs individuals (see Additional Contribution Exceptions below).


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Quick Reference

  • Maximum contribution limits per year, per beneficiary
  • Income limits exist.
  • Two deposit/contribution options:  Share (accumulative) and Certificates
  • Separate application required. This is not available online but can be mailed to you.
  • Please consult your tax advisor for complete details.

Coverdell ESA Overview

  • Who can contribute to an ESA?
    • Any entity (person, corporation, etc.) can make contributions to an ESA.  However, there is a maximum amount that can be placed into an ESA per beneficiary, per year.  If there are multiple ESAs, the annual maximum applies per child – not per account.
  • How are contributions to an ESA made?
    • You have the option of accumulating funds or purchasing certificates with your ESA in one-, two-, three-, four- or five year terms.  Payroll deduction can be set for the accumulative ESA but not for the certificates.  Many members build their annual contribution limits through payroll deduction in an accumulative ESA, then move the funds into an ESA certificate.
  • What are the tax benefits?
    • There are no tax benefits to those contributing to the ESA.  If the funds are used toward qualified education expenses then use of these funds is tax free.  However, if the funds are used for other purposes, the funds are considered taxable income for the beneficiary.
  • What can these funds be used for?
    • Funds in the ESA can be used for qualified education expenses of the beneficiary.  This includes tuition to elementary and secondary schools, college, vocational and technical schools and expenses such as room and board, fees, books and computers.
  • What is the deadline to contribute?
    • You have until April 15 (or designated Tax Day) of the following tax year to make contributions to the current year’s limit.
  • Income Restrictions
    • There are income restrictions regarding who is eligible to contribute to any ESA in a given year.  There are also maximum limits on how much you’re able to contribute to an ESA within a year, as well.  And that limit applies across the board per beneficiary (per social security number) – not per ESA.
  • Contribution Limits
    • You can make contributions for any amount to your ESA up to the maximum limit.  But you are not required to make contributions within any year.
  • Unused Funds
    • If a beneficiary does not need or use the funds for education by age 30 the proceeds of the account must be withdrawn and taxes paid or they can be transferred to certain qualified family members, such as a younger sibling.
  • Additional Contribution Exceptions
    • If you have a special needs beneficiary, there are exceptions to making contributions after the child reaches 18.
  • Insured Funds
    • The funds of this account are insured to at least $250,000 by the National Credit Union Administration’s Share Insurance Fund and backed by the full faith and credit of the United Stated Government.  The insured is the beneficiary of the ESA.

Definitions/Clarifications

  • Designated Beneficiary
    • This is the minor for whom the account is opened.  The funds from the account are for the benefit of this person.
  • Contributions
    • These are the deposits made to the ESA.
  • Earnings
    • There are no taxes on earnings on the ESA.
  • Distributions
    • These are the withdrawals made from the ESA.  The funds must be used for qualified education expenses or the funds will be taxed as income.

A branch manager can help you evaluate your options and decide whether a Coverdell ESA is a good choice for your family.

Please consult your tax advisor for complete details.


Application Process/Next Step

  • ESAs require separate application.  Southern Security can mail this to you; you can visit or contact one of our locations for more information.
  • While there is no approval process, per se, there are income restrictions (both minimums and maximums) which adjust annually.  See www.irs.gov.
  • You can set up payroll deduction to the accumulative account.  You can request a Payroll Deduction Form to make adjustments to your current allocations.
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Do you have a family member who is already a Southern Security member? Or, do you work for one of over 500 of our sponsor companies?

You may not be eligible for membership at this time. Please call 901.452.7900 or 800.633.4128 or visit a branch for further assistance.