Banks, brokerages, and investment firms that offer Coverdell accounts
You can open a Coverdell Education Savings Account (ESA) at most banks, credit unions, and investment brokerages. The account itself is not a product — it is a container that holds investments you choose. The financial institution holds the container and processes deposits and withdrawals, but you decide what goes inside it: money market funds, stocks, bonds, mutual funds, or cash.
Large national banks including Chase, Bank of America, Wells Fargo, and Citibank all offer Coverdell accounts. Credit unions such as Navy Federal and Vanguard Federal Credit Union offer them as well. Investment brokerages like Fidelity, Charles Schwab, E-Trade, and Vanguard are common choices because they give you the widest range of investment options within the account.
The choice between a bank and a brokerage depends on what you want to hold inside the account. If you want to keep money in a savings account or money market fund, a bank works fine. If you want to invest in stocks or mutual funds, a brokerage gives you more choices and usually lower fees.
Key Takeaways
- Coverdell accounts are available at banks, credit unions, and investment brokerages, and the choice depends on whether you want to hold cash or invest in stocks and mutual funds.
- You will need the beneficiary's Social Security number, your own tax identification, and proof of your relationship to the beneficiary before you open the account.
- Annual contribution limits are $2,000 per beneficiary per year across all accounts, regardless of how many institutions you open accounts at.
- Most institutions charge no fee to open a Coverdell account, but some brokerages charge annual maintenance fees or require a minimum balance.
- You can open an account online, by phone, or in person at most banks and brokerages, and the process usually takes one to three business days.
What you need to bring or provide
Before you open a Coverdell account, gather the beneficiary's Social Security number, your own tax identification (Social Security number or EIN), and proof that you are related to or authorized to open an account for the beneficiary. Most institutions ask for a government-issued ID as well.
You will also need to decide whether you are opening the account as a parent, grandparent, or other authorized adult. The beneficiary must be under age 18 (or age 30 if they have special needs), and only one custodian can control the account at a time. If you are opening it as a grandparent or other relative, the institution may ask for documentation showing your relationship.
Have the beneficiary's current address and date of birth ready. Some institutions ask for the school name and address if the money will be used for tuition, though this is not required to open the account.
Opening an account online versus in person
Most banks and brokerages let you open a Coverdell account online without visiting a branch. The online process typically takes 10 to 20 minutes and asks you to enter the beneficiary's information, your own information, and your funding method. You upload or verify your identity electronically, and the account opens within one to three business days.
Opening in person at a bank branch gives you the chance to ask questions and have a banker walk you through the process, but it takes longer — you need to schedule an appointment or wait for an available banker, and the account still takes one to three business days to activate after you leave.
Opening by phone is an option at many institutions. Call the customer service number on the institution's website, and a representative will guide you through the same questions as the online form. This route works well if you have questions or prefer to speak with someone, but it takes longer than the online process.
Fees and minimum balances
Most banks charge no fee to open or maintain a Coverdell account. However, some investment brokerages charge annual maintenance fees ranging from $25 to $100, and a few require a minimum balance of $500 to $2,500 to keep the account open. Check the fee schedule before you open the account — it is usually listed on the institution's website under "Account Fees" or "Pricing".
If you invest the money inside the account, you may pay investment fees as well. These are separate from the account fee and depend on what you buy — mutual funds charge expense ratios, and some brokerages charge trading commissions. These fees are not specific to Coverdell accounts; they apply to any account holding the same investments.
Some institutions waive annual fees if you maintain a certain balance or set up automatic deposits. Ask about fee waivers when you open the account.
Contribution limits and tax rules
You can contribute up to $2,000 per beneficiary per year across all Coverdell accounts. If you open an account at one bank and a grandparent opens an account at another bank for the same child, your combined contributions cannot exceed $2,000 in that calendar year. Contributions made after December 31 count toward the following year's limit.
Contributions are not tax-deductible on your federal income tax return, but the money grows tax-free inside the account. When the beneficiary withdraws money to pay for education expenses — tuition, fees, books, room and board, computers — the withdrawal is tax-free as well. Withdrawals for non-education expenses are taxed as income and subject to a 10 percent penalty.
The account must be emptied by the time the beneficiary turns 30, or the remaining balance is subject to taxes and penalties. However, you can transfer the balance to another family member's Coverdell account if that family member is under 30.
Comparing institutions side by side
| Institution Type | Account Fee | Minimum Balance | Investment Options | Best For |
|---|---|---|---|---|
| National Bank (Chase, Bank of America) | Usually none | Usually none | Savings accounts, money market funds | Conservative savers who want simplicity |
| Credit Union | Usually none | Usually none | Savings accounts, money market funds | Members seeking low fees and personal service |
| Discount Brokerage (Fidelity, Charles Schwab) | Usually none | Usually none | Stocks, mutual funds, ETFs, bonds | Investors comfortable choosing their own investments |
| Full-Service Brokerage | $25–$100 per year | $500–$2,500 | Stocks, mutual funds, ETFs, bonds | Investors who want professional guidance |
What happens after you open the account
Once the account is open, you receive an account number and login credentials. You can then deposit money by electronic transfer, check, or automatic recurring deposit. The institution sends you a confirmation statement showing the account details and the beneficiary's information.
You are responsible for tracking your contributions to stay within the $2,000 annual limit. The institution does not automatically stop you from over-contributing, so you must keep your own records or check with other custodians if multiple adults are contributing to the same beneficiary's account.
When the beneficiary is ready to use the money for education, you request a withdrawal from the account. The institution sends the money to you, the beneficiary, or the school, depending on what you request. You keep receipts for education expenses in case the IRS asks questions about whether the withdrawal was tax-free.
Frequently Asked Questions
Can I open a Coverdell account if I do not have a relationship to the beneficiary?
No. You must be a parent, grandparent, legal guardian, or other family member, or you must have written permission from a parent or guardian. Some institutions ask for documentation of your relationship. Friends or unrelated adults cannot open Coverdell accounts for children.
What if I contribute more than $2,000 in a year by mistake?
The excess contribution is subject to a 6 percent excise tax each year it remains in the account. You can withdraw the excess and any earnings on it before the tax deadline to avoid the penalty, but you must act quickly. Contact the institution and ask how to report and correct the over-contribution.
Can I move money from one Coverdell account to another at a different institution?
Yes. You can transfer the balance from one institution to another without penalty or tax. This is called a trustee-to-trustee transfer. Contact the new institution and ask them to initiate the transfer; they will request the account details from the old institution and move the money directly.
What if the beneficiary does not use all the money by age 30?
You can transfer the remaining balance to another family member's Coverdell account if that family member is under 30. Otherwise, the balance is subject to income tax and a 10 percent penalty. Some families use the account for younger siblings or cousins to avoid the penalty.
Do I have to invest the money, or can I just leave it in cash?
You can leave it in cash in a savings account or money market fund if you choose. The money still grows tax-free, though the growth is slower than with investments. This is a common choice for families who want to avoid investment risk or who plan to use the money soon.