IRS Form 5305-E – IRS Form, Instructions, Pubs 2026

IRS Form 5305-E  – In today’s rising education costs landscape, planning ahead for a child’s learning expenses is crucial. One effective tool for this is the Coverdell Education Savings Account (ESA), a tax-advantaged option designed to help families save for qualified education costs. At the heart of setting up a trust-based ESA is IRS Form 5305-E, which serves as a pre-approved model agreement. This comprehensive guide explores what Form 5305-E entails, how to use it, and its benefits, drawing from official IRS resources to ensure accuracy and relevance for 2026.

What Is a Coverdell Education Savings Account (ESA)?

A Coverdell ESA is a trust or custodial account established exclusively in the United States to cover qualified education expenses for a designated beneficiary. These expenses include tuition, fees, books, supplies, equipment, and even room and board for eligible students enrolled at least half-time. Unlike other savings plans, Coverdell ESAs can fund not only higher education but also elementary and secondary school costs, such as private or religious institutions.

The account offers tax-free growth on earnings and tax-free distributions when used for qualified purposes. To qualify, the beneficiary must be under 18 when the account is created (or have special needs, exempting them from age limits). Contributions are nondeductible, but the real advantage lies in the tax-deferred accumulation and potential tax-free withdrawals.

The Purpose of IRS Form 5305-E

IRS Form 5305-E, titled “Coverdell Education Savings Trust Account (Under section 530 of the Internal Revenue Code),” is a model trust agreement pre-approved by the IRS to meet the requirements of IRC Section 530(b)(1). It’s specifically for establishing a trust-based Coverdell ESA, where a grantor (often a parent or guardian) sets up the account for the beneficiary’s education.

This form is not filed with the IRS; instead, it’s executed between the grantor and a qualified trustee (like a bank or approved entity) and kept in the grantor’s records. It outlines the legal framework for contributions, investments, distributions, and management, ensuring compliance with federal tax rules. For custodial accounts (non-trust versions), use the related Form 5305-EA.

The latest revision of Form 5305-E is from October 2016, with no major updates noted through 2026, though always check IRS publications for any changes.

How to Establish a Coverdell ESA Using Form 5305-E?

Setting up the account involves completing Form 5305-E with key details:

  • Grantor Information: Name, address, and identification number (usually SSN).
  • Beneficiary Details: Name, address, date of birth (must be under 18 unless special needs apply).
  • Responsible Individual: Typically the beneficiary’s parent or guardian, who manages the account.
  • Trustee: The financial institution or approved entity handling the trust.
  • Initial Contribution: The grantor assigns an initial cash amount (e.g., $X in cash).

Once signed by the grantor and trustee, the ESA is active. The form includes space for additional provisions under Article X, such as investment options or fees, which must comply with state laws and IRC rules.

Reproduce the form as needed, but ensure it includes only the trustee’s offered options. If amending an existing account, check the “amendment” box.

Key Provisions and Articles in Form 5305-E

The form is structured around nine core articles, plus optional provisions:

  • Article I: Allows cash contributions up to $2,000 per tax year (excluding rollovers) if the beneficiary is under 18. Phase-outs apply based on modified adjusted gross income (MAGI): $95,000–$110,000 for singles; $190,000–$220,000 for joint filers.
  • Article II: Prohibits investments in life insurance and limits commingling to common funds.
  • Article III: Requires distribution of the balance by age 30 (or within 30 days of death, unless a family member under 30 inherits).
  • Article IV: Grants the responsible individual power over investments and administration.
  • Article V: Defines the responsible individual and succession rules; includes an option to retain control post-majority.
  • Article VI: Permits changing the beneficiary to a family member.
  • Article VII: Outlines reporting requirements to the IRS.
  • Article VIII: Ensures Articles I–III prevail over inconsistencies.
  • Article IX: Allows amendments for compliance.

Family members include spouses, children, grandchildren, siblings, parents, and more. Special needs beneficiaries are exempt from age-based distribution rules.

Contribution Limits and Eligibility for 2026

For tax year 2026, the annual contribution limit remains $2,000 per beneficiary across all Coverdell ESAs. This cap is per child, not per account, and applies regardless of the number of contributors. Contributions must be in cash and can be made until the tax filing deadline (typically April 15, 2027, for 2026 contributions).

Eligibility phases out with MAGI:

  • Singles: Full contribution below $95,000; reduced to zero at $110,000.
  • Joint filers: Full below $190,000; zero at $220,000.

Military death gratuities can be contributed up to 100% without counting toward the $2,000 limit, per special rules.

Distribution Rules and Qualified Expenses

Distributions are tax-free if used for qualified expenses, which encompass:

  • Elementary/secondary: Tuition, tutoring, uniforms, transportation.
  • Higher education: Tuition, books, internet access, computers.

If not used for qualified purposes, earnings are taxable, plus a 10% penalty. All assets must be distributed by age 30 (waived for special needs). Upon the beneficiary’s death, funds can roll to a family member under 30.

Trustees report distributions on Form 1099-Q by February 2 following the tax year, and contributions on Form 5498-ESA.

Benefits and Tax Advantages of Coverdell ESAs

Coverdell ESAs stand out for their flexibility:

  • Broader expense coverage than 529 plans (includes K-12).
  • Investment control: Choose stocks, bonds, or other assets (via self-directed options).
  • Tax-free growth and withdrawals for education.

However, the $2,000 limit is lower than 529 plans, and income restrictions apply. Compare with other options like 529s for your needs.

  • Form 5305-EA: For custodial ESAs.
  • Form 5498-ESA: Annual contribution reporting.
  • Publication 970: Detailed tax benefits for education.
  • Download Form 5305-E: IRS PDF Link.

Consult a tax professional for personalized advice, as rules can evolve.

Conclusion

IRS Form 5305-E simplifies creating a Coverdell ESA trust, offering a smart way to save for education with tax perks. By understanding its structure and rules, families can maximize savings for future learning. Start early to leverage compound growth—your child’s education is an investment worth planning for today. For the latest updates, visit IRS.gov or speak with a financial advisor.