Weighing the Pros and Cons of an Education Savings Account (ESA): Is It Right for Your Family?

scale with the words Pros on the left and Cons on the right.

What Are the Pros and Cons of an ESA (Education Savings Account)?

Saving for your child’s education is a top priority for many families, but choosing the right savings vehicle can be overwhelming. Among the most popular options is the Education Savings Account (ESA), also known as a Coverdell ESA. While ESAs offer several advantages, they also have specific limitations that may make them unsuitable for everyone.

This guide will break down the pros and cons of ESAs, so you can make an informed decision about whether this savings plan fits your family’s financial goals. We’ll also explain why working with a financial advisor can help you navigate your options and develop a sound education savings strategy.

The Pros of an ESA

  1. Tax-Free Growth
    One of the most significant benefits of an ESA is that earnings grow tax-free. As long as the funds are used for qualified education expenses, you won’t owe federal taxes on withdrawals.
  2. Broad Expense Coverage
    ESAs can be used for a wide range of qualified education expenses, including tuition, books, supplies, tutoring, and even technology like laptops. This applies not only to college but also to K-12 expenses, offering more flexibility than some other education savings plans.
  3. Investment Flexibility
    Unlike a 529 Plan, which typically limits investment options to a set list of portfolios, an ESA allows you to choose from a broader range of investments, including stocks, bonds, mutual funds, and ETFs. This flexibility can be beneficial for families with a higher risk tolerance and a long-term savings horizon.
  4. Control Over Withdrawals
    Since the account holder retains control over the funds, they decide when and how much to withdraw, as long as the expenses are qualified.
  5. Rollover Options
    If the original beneficiary doesn’t use all the funds, you can roll over the remaining balance to another family member under the age of 30 without penalty.

The Cons of an ESA

  1. Contribution Limits
    Contributions to an ESA are capped at $2,000 per beneficiary per year. For families who want to save more, this limit can be restrictive, especially considering the rising costs of education.
  2. Income Restrictions
    ESAs have income eligibility limits. Individuals earning more than $110,000 (or $220,000 for married couples filing jointly) may not be eligible to contribute. This limitation can exclude higher-earning families from using this savings vehicle.
  3. Age Restrictions
    ESA funds must be used by the time the beneficiary reaches the age of 30, or the remaining balance will be subject to taxes and penalties unless transferred to another eligible family member. Additionally, contributions can only be made for beneficiaries under the age of 18, unless they have special needs.
  4. Limited State Tax Benefits
    Unlike 529 Plans, which may offer state tax deductions or credits for contributions, ESAs generally don’t provide any state-level tax benefits.
  5. Risk of Penalties
    If ESA funds are used for non-qualified expenses, the earnings portion of the withdrawal will be subject to income tax and a 10% penalty. This risk makes it essential to track how the funds are spent.

When to Consider an ESA

An ESA can be a great option if you:

  • Want to save for K-12 and college expenses.
  • Prefer greater control over investment options.
  • Have a moderate savings goal, given the $2,000 annual contribution limit.
  • Fall within the income eligibility limits.


However, if you need to save larger amounts or want access to state tax benefits, a 529 Plan might be a better alternative. Understanding how ESAs compare to other options is crucial, and a financial advisor can guide you through the decision-making process.

Call to Action: Meet with a Financial Advisor Today

Choosing the right education savings plan is a significant financial decision, and it’s not one-size-fits-all. While ESAs offer valuable benefits, they also come with limitations that may impact your long-term goals. A financial advisor can help you assess your unique situation, compare different savings options, and create a customized plan to secure your child’s educational future.

Take action today!
Schedule a consultation with a professional financial advisor to explore how an ESA—or another education savings plan—can fit into your family’s overall financial strategy. Don’t leave your child’s future to chance; start planning now.

Global View Capital Management (GVCM) is an affiliate of Global View Capital Advisors (GVCA). GVCM is a SEC Registered Investment Advisory firm headquartered at N14W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188-1126. 262.650.1030. Ryan Peca is an Investment Adviser Representative (“Adviser”) with GVCM. Additional information can be found at www.adviserinfo.sec.gov Global View Capital Insurance Services (GVCI) is an affiliate of Global View Capital Advisors (GVCA). GVCI services offered through Experior Financial Group, ASH Brokerage, and/or PKS Financial. GVCI is headquartered at N14W23833 Stone Ridge Drive, Suite 350, Waukesha, WI 53188-1126. 262-650-1030. Ryan Peca is an Insurance Agent of GVCI.

These views do not necessarily represent the views of GVCM or any of its affiliates. Investment involves risk.

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