Banks, brokerages, and investment firms all offer Coverdell accounts
You can open a Coverdell Education Savings Account (ESA) at most banks, credit unions, brokerage firms, and investment companies. There is no single "official" place—the IRS allows any financial institution to offer them, so your options depend on where you already bank or invest, and what investment choices matter to you.
The most common places are Fidelity, Vanguard, Charles Schwab, and Merrill Edge on the brokerage side, and most major banks including Chase, Bank of America, Wells Fargo, and regional banks on the banking side. Credit unions often offer them too. Each charges different fees, offers different investment options (some let you pick individual stocks and funds; others offer only savings accounts or preset portfolios), and has different minimum balances.
You do not need to use the same institution where you have a checking account. If you want low fees and broad investment choices, a brokerage often makes sense. If you want simplicity and prefer to keep everything in one place, your bank may be easier.
Key Takeaways
- Coverdell accounts are offered by banks, credit unions, and brokerages, so you have many choices based on fees and investment options.
- You will need the beneficiary's Social Security number and date of birth to open an account, plus proof of your identity.
- Annual contribution limits are $2,000 per beneficiary per year, and you must stop contributing after the beneficiary turns 18.
- The account must be opened before the beneficiary turns 18, though money can stay in the account and grow until age 30.
- Brokerages typically offer more investment choices and lower fees than banks, but banks may be simpler if you want a basic savings option.
What you need to open an account
To open a Coverdell account, have the following information ready: the beneficiary's full name, Social Security number, and date of birth; your own name, address, and Social Security number; and a government-issued ID. Some institutions also ask for your employment information and the beneficiary's relationship to you (parent, grandparent, guardian, or other).
The account must be opened in the name of the beneficiary, with you as the account owner or custodian. You control the money until the beneficiary reaches age of majority in your state (usually 18 or 21), at which point they take control. If you are opening the account for someone else's child—as a grandparent, aunt, uncle, or friend—you still need the child's Social Security number and the parent's or guardian's permission.
You do not need to show proof of income or have a minimum balance to open most Coverdell accounts, though some brokerages require a small initial deposit (often $100 to $500) to activate the account.
Comparing banks, credit unions, and brokerages
| Type | Investment Options | Typical Fees | Best For |
|---|---|---|---|
| Traditional Bank | Savings account, CDs, sometimes mutual funds | $0–$50 annual maintenance | Simple, low-risk savings; keeping everything in one place |
| Credit Union | Savings account, CDs, sometimes mutual funds | $0–$25 annual maintenance | Members seeking lower fees and personal service |
| Brokerage (Fidelity, Vanguard, Schwab) | Stocks, bonds, mutual funds, ETFs, money market funds | $0–$25 annual maintenance; no trading fees | Long-term growth; access to diverse investments |
Banks and credit unions are straightforward if you want to keep the money in a savings account or certificate of deposit (CD) and avoid stock market risk. Interest rates on savings accounts are currently low (often under 1% annually), but CDs may offer 4% to 5% depending on the term and institution.
Brokerages give you access to mutual funds, exchange-traded funds (ETFs), and individual stocks, which historically have grown faster than savings accounts over long periods but carry more risk. If the beneficiary is young and you have 10+ years before the money is needed, a brokerage portfolio of low-cost index funds is a common choice. If the money is needed soon or you want to avoid market risk, a bank savings account or CD is safer.
Steps to open an account online or in person
Most institutions let you open a Coverdell account online in 10 to 15 minutes. Go to the institution's website, find the education savings or Coverdell section, and click "open an account." You will answer questions about the beneficiary and yourself, upload or enter your ID information, and choose your initial investment (if applicable). The account is usually active within one to three business days.
If you prefer to open an account in person, visit a local branch with your ID and the beneficiary's Social Security number. A representative will walk you through the paperwork, which takes about 30 minutes. In-person opening can be helpful if you have questions about investment options or want to set up automatic monthly contributions.
After the account is open, you can deposit money by bank transfer, check, or automatic monthly transfer from your checking account. Most institutions let you set up recurring deposits so you do not have to remember to contribute each month.
Annual contribution limits and deadlines
You can contribute up to $2,000 per beneficiary per calendar year, regardless of how many people contribute to that child's account. If a grandparent, aunt, and parent all want to contribute, the total across all three cannot exceed $2,000 in a single year. Contributions must be made in cash (not securities), and you have until December 31 of each year to make that year's contribution.
The account itself must be opened before the beneficiary turns 18. However, money already in the account can stay and grow until the beneficiary turns 30. At age 30, any remaining balance must be withdrawn or rolled into a 529 plan (another education savings account type) to avoid taxes and penalties.
What happens if you do not use the money for education
If the beneficiary does not go to college or does not use all the money in the account, you have options. You can roll the remaining balance into a 529 plan for the same beneficiary without penalty. You can also change the beneficiary to another family member (a sibling, cousin, or even your own child if you opened it for a grandchild) and the money stays in the account.
If you withdraw money for non-education purposes, the earnings portion is subject to income tax plus a 10% penalty. The contributions you made come out tax-free, but the growth does not. For example, if you contributed $10,000 and the account grew to $12,000, withdrawing the full $12,000 for a non-education reason means the $2,000 in earnings is taxed and penalized. This is why it is important to open a Coverdell only if you reasonably expect the money to be used for education.
Frequently Asked Questions
Can I open a Coverdell account for a child who is already 17?
No. The account must be opened before the beneficiary turns 18. If the child is already 18, you cannot open a new Coverdell in their name. However, you can still save for education using a 529 plan or a regular savings account.
What if I want to move my Coverdell account to a different bank or brokerage?
You can transfer the account to another institution by requesting a direct transfer (also called a trustee-to-trustee transfer). Contact the new institution and ask for their transfer form. The old institution sends the money directly to the new one, and there is no tax or penalty. The process usually takes one to two weeks.
Can I open a Coverdell account if I do not have a Social Security number?
You need a Social Security number or Individual Taxpayer Identification Number (ITIN) to open a Coverdell account. If you do not have one, you will need to obtain an ITIN from the IRS before opening the account. The beneficiary also needs a Social Security number or ITIN.
Do I have to contribute the full $2,000 every year?
No. You can contribute any amount from $1 up to $2,000 per year. Many families contribute smaller amounts monthly (for example, $167 per month adds up to $2,000 per year). There is no minimum contribution requirement.
What if the beneficiary gets a scholarship?
If the beneficiary receives a scholarship, you can withdraw an amount equal to the scholarship from the Coverdell without the 10% penalty on earnings. You will still owe income tax on the earnings portion, but not the penalty. You must withdraw the scholarship amount in the same year the scholarship is received.