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Coverdell accounts (also known as Coverdell ESAs or CESAs) are federally sponsored custodial accounts that allow an adult to open an account for students under the age of 18.
CESAs offer tax advantaged investing that permits tax-free qualified withdrawals for higher education, as well as elementary and secondary school expenses.
You may open an account with $500W2 in any American Century Investments® fund that typically has a $1,000 fund minimum. However, you cannot choose a second fund until the $1,000 minimum is met for your first fund.
It can be used for qualified elementary and secondary school expenses as well as for any eligible 2- or 4-year college, vocational/technical school, or graduate school anywhere in the country.
Examples of qualified expenses include tuition, mandatory fees, computers, books, supplies, equipment, and certain room and board costs.
Contributions are capped at $2,000 a year per IRS rules.
You may open your first account with $500W2 even in a fund that typically has a $1,000 minimum.
Earnings grow tax deferred. Withdrawals are tax free if used for qualified expenses.*
* State and local taxes may apply. Withdrawals are required by the student's 30th birthday or taxes and penalties may apply (except for special needs students)
Accounts are established by a Depositor. A parent or guardian is named the Responsible Individual, who is authorized to act on the account (the Depositor and Responsible Individual are often the same person).
At the age of majority (typically 18), the Responsible Individual is removed and the former minor becomes the owner.
Yes, your contributions may be limited or restricted depending on your income level (see table below).
Contributions can only be made before the beneficiary reaches age 18. Withdrawals must be made before the beneficiary reaches age 30 or given to another family member to avoid taxes and penalties.
You can transfer the account to another beneficiary, if that person is a "member of the family" as defined by federal tax law.
American Century Investments charges a $25.00 annual account maintenance fee to investors whose total investments with us are less than $10,000 for each taxpayer identification number (for example, Social Security number).
This is in addition to any fund management fees. Please see your fund's prospectus for details.
CESAs are generally considered an asset of the student, but consult your tax (or FAFSA) advisor for further guidance.
Depending on your income level, you may be restricted to a limited contribution or you may not be eligible to contribute any amount. Review the Modified Adjusted Gross Income (MAGI)1 phase out ranges below.
1 Modified Adjusted Gross Income (MAGI) is your Adjusted Gross Income (AGI) with standard deductions included.
Get started by reviewing the CESA Disclosure Statement and Custodial Agreement and downloading the application, or call us:
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
W2 Minimum initial investment is $1,000 for IRA and CESA accounts, and $2,500 for non-retirement accounts, but these minimums are waived with an initial investment of at least $500 per account and automatic investments of at least $100 per month. If your account balance falls below the minimum, or if you cancel your automatic monthly investment plan prior to reaching the minimum, American Century Investments may redeem the account and send the proceeds to you. Prior to doing so, we will notify you and give you 90 days to meet the minimum or reinstate your automatic monthly investment plan.