Compare Education & Custodial Accounts
Which account type is right for you?
Once you've decided to invest for a child’s future, the next step is to understand your choices. Learn about the different types of education and custodial investment accounts to find the one that fits your goals.
Which Types of Accounts Are Available?
529 Plan
• State-sponsored education account
• Can be used for you, your children, your grandchildren or other loved ones
CESA
• Federally sponsored custodial account for education
• Invest on behalf of students under 18
UTMA
• Investment account for minors
• Can be used for any purpose and is not limited to education expenses
Additional Questions
How Can I Use the Money?
529 Plan
Qualified educational expenses at eligible 2- and 4-year colleges; graduate, vocational and technical schools and apprenticeships; and tuition for K-12 education (check your plan for availability). You can also repay student loans up to a $10,000 lifetime maximum per beneficiary.
CESA
Qualified educational expenses at elementary, secondary schools and higher education.
UTMA
Any purpose that benefits the child.
What Happens If the Money Isn't Used?
529 Plan
The plan can be transferred to a different beneficiary (including a next-generation beneficiary) or withdrawn as a non-qualifying expense.
CESA
The money can be withdrawn as a non-qualifying expense.
UTMA
The money is not limited to educational expenses, so there are no restrictions on how the money can be used.
What Are the Tax Considerations?
529 Plan
Contributions may qualify for a state tax deduction. Earnings also grow tax deferred at the federal and state levels.*
The earnings on withdrawals made for qualified education expenses are tax free, and earnings on non-qualified withdrawals are subject to federal and state income taxes and a 10% federal penalty.
CESA
Earnings grow tax deferred at the federal level. The earnings on withdrawals made for qualified education expenses are tax-free.
The money in the CESA must be used by the time a beneficiary reaches his or her 30th birthday.
UTMA
Earnings, distributions and transactions are reported to the IRS under the minor's Social Security number and are taxed according to IRS “kiddie tax” rules.
The availability of tax or other state benefits (such as financial aid, scholarship funds and protection from creditors) may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.
How Much Money Is Needed to Open an Account?
529 Plan
Many plans, including Learning Quest, have no minimum amount to open an account.
CESA
Contributions are capped at $2,000 a year per IRS rules. Our minimum to open this account is $1,000.
UTMA
You must meet the fund minimum, which is typically $2,500.
How Long Can Contributions Be Made to the Account?
529 Plan
There are no age restrictions. Contributions may be made at any age of the beneficiary.
CESA
Contributions can only be made before the beneficiary reaches age 18.
UTMA
Investments can only be made while the beneficiary is a minor (typically age 18).
Are There Any Income Limitations?
529 Plan
There are no income restrictions.
CESA
Contributions may be limited or restricted depending on your income level.
UTMA
There are no income restrictions.
Ready to Invest?
Start your account application now and choose your investments.
Investor Class Shares: 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. Non-Retirement Accounts: 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.
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.