How to open an education savings account

How to open an education savings account

An education savings account (ESA)—sometimes called a Coverdell account—at Charles Schwab is one of many college savings options to help your clients save for their children's future. When advising on the right account for your clients, keep in mind the specific goals and advantages of each type of account as well as tax considerations. Schwab encourages you to consult a tax or legal advisor.

You can open an ESA using DocuSign® or paper forms.

To open an ESA, you will need the following:

All accounts
  • A completed Education Savings Account Application form
    • The application instructions for more information
    • Your firm name and master account
    • The designated beneficiary’s and responsible individual’s name, home address, identification number Tooltip , birthdate, telephone numbers, citizenship status, employment status, employer, occupation, business address, and business phone number
    • A qualified contributor Tooltip
    • Easy to open an account—No account opening minimum or maintenance fees. Other account fees, fund expenses, and brokerage commissions may apply.
    • Adobe® Reader® or Adobe Acrobat® 7.0 or higher (download the latest version on the Adobe website)
    • If the custodian is affiliated with a member firm of an exchange or Financial Industry Regulatory Authority (FINRA) and Rule 3210 applies, a FINRA Rule 3210 Consent Letter
In addition to the information required above for all account holders, the following information may be required:
Additional features
  • For additional features requested by the client:
    • If establishing an ACH (Schwab MoneyLink®) profile:
      • A completed ACH (MoneyLink) form 
      • A valid document from the other financial institution containing the client's account title, account number, account type, and ABA number (e.g., check, deposit slip, statement, or letter on bank letterhead signed by an officer)
    • If adding a power of attorney to the account, a completed Power of Attorney (Individual POA) form
    • If options will be traded in the account, a completed Options Trading and Margin Application form

This process may be used to open an ESA using paper forms. Option 2 is using DocuSign:

  1. Select the Education Savings Account Application form and click Select, and then select Open PDF.
  2. Complete all necessary fields and ensure all additional features the client requested have been added. 
  3. Obtain signatures from all account holders and submit to Schwab.
  4. Option 1: Print forms, obtain wet signatures and send the signed form(s) to your Schwab service team via a Schwab Advisor Center service request or fax.
    Option 2: Save forms to your computer or file server and send for electronic signature by following: How to send a Schwab form for electronic signature > Option 2 section of How to use DocuSign.
  • Once you submit your request and the account is opened at Schwab, your client can immediately withdraw funds. Withdrawals are tax-free when used for qualified education expenses Tooltip .
  • If you have questions about opening ESAs, call your service team.
  • If forms were submitted using DocuSign, see the What's next? section of How to use DocuSign.

Form: Education Savings Account Application
Form: ESA Distribution Form
Form: Options Trading and Margin Application
Form: Power of Attorney (Individual POA)
Resource: Investing for Your Child's Future—Your Account Options

Do ESAs have any impact on a beneficiary's financial aid eligibility?
Yes. ESAs are likely to have a minimal impact on financial aid eligibility, depending on the investor's financial situation. A parent-owned ESA is considered a parental asset for purposes of calculating financial aid eligibility. However, only 5.6% of parental assets and income are reflected in the calculation.

Can my client roll over funds from a traditional or Roth IRA into an ESA?
No. Rollovers into ESAs are not allowed.

If the beneficiary has more than one ESA, does the $2,000 contribution limit apply to each account?
No. The $2,000 total annual contribution limit applies to a single beneficiary across all accounts and contributors, per year.

My client exceeded the maximum contribution limit for their ESA. What are their options to correct this?
There are three options for handling an excess contribution in an ESA:

  • Carry forward the excess amount and pay a 6% excise tax on the excess contribution by filing Form 5329 with the IRS.
  • Take an excess distribution before June 1 of the following tax year in which the excess contribution was made, and file Form 5329 with the IRS.
  • Take a distribution only on the excess contribution amount after May 31 of the following tax year in which the excess contribution was made, and file Form 5329 with the IRS.

Your client should consult a tax or legal advisor regarding the best solution for their specific situation.

How to add features to an account
How to establish a Schwab MoneyLink® profile
How to open a 529 College Savings Plan
Introduction to education savings accounts
Introduction to householding