TeenBusiness.com > Teenvestors > Coverdell ESA > Opening ESA Accounts


A Coverdell Educational Savings Account or Coverdell ESA is not an investment but a type of account with which you can buy stocks, mutual funds, and other assets for educational expenses. As we discussed in a previous section, your parents have to be involved in the decision as to whether to invest in a Coredell ESA because they have to open a custodial account on your behalf and there are income limitations (and tax issues) that come into play with such accounts.

Assuming you are eligible to invest in Coverdell ESAs and you've decided its a wise investment option, you'll have to find a broker. If you already have a broker, see if your broker will allow you to open a Coverdell ESA, most brokers do these days. If your broker does not set up Coverdell ESAs, you are going to have to shop for a new broker. Keep an eye on the fees brokers charge on these accounts. The fees, charges, and expenses will vary based on the investments you select for your Coverdell ESA portfolio and where you open your account. Because the amount you are allowed to contribute is so low (i.e. a maximum of $2,000), annual expenses can eat up a big portion of your contributions.

An alternative to opening up a Coverdell ESA with a broker is to open a Coverdell ESA with a large mutual fund company such as Vanguard. Mutual fund companies allow you to open tax-advantaged accounts such as the Coverdell ESA with less money (from $500 to $1,000) than the $2,500 to $3,000 they normally require for regular mutual fund accounts. There are some big mutual fund companies such as Fidelity and Putnam, however, that don’t allow you to open Coverdell ESA accounts.