Distributions from a Coverdell Education Savings Account (ESA) are generally tax-free as long as they are used to pay for the beneficiary’s qualified education expenses.

Coverdell ESAs are funded with after-tax dollars, so contributions are not tax-deductible. However, the money in the account grows tax-deferred, and earnings can be withdrawn tax-free when used for eligible expenses.

If a distribution is not used for qualified education expenses, the earnings portion of the withdrawal becomes taxable to the beneficiary and may also be subject to a 10% additional tax.