Program & Portfolio

Investment earnings accumulate tax free, and withdrawals are tax free as long as they’re used to pay for qualified education expenses (such as tuition, fees, books as well as certain room and board expenses) at eligible educational institutions. Contributions are not tax deductible.

Your clients may contribute up to $2,000 annually to a Franklin Templeton Coverdell ESA on behalf of a designated beneficiary under the age of 18. Contributions cannot be made after a child turns 18 (except in the case of a Special Needs Beneficiary).

A Special Needs Beneficiary is an individual who, because of a physical, mental or emotional condition (including a learning disability), requires additional time to complete his or her education.

Your clients can contribute to both a Coverdell ESA and a 529 college savings plan on behalf of the same beneficiary, as long as assets are not used to pay for the same qualified expenses.

Any individual whose modified adjusted gross income (AGI) is less than $95,000 (single) or $190,000 (joint) can make a full annual contribution of $2,000. Reduced contributions are allowed for individuals with AGIs between $95,000 and $110,000 (single) or $190,000 and $220,000 (joint).

The deadline to make contributions to a Franklin Templeton Coverdell ESA is your client’s tax-filing deadline (usually April 15), not including extensions.

Assets in the account must be distributed to the designated beneficiary by age 30, or transferred to another Coverdell ESA for the benefit of another eligible family member — except in the case of a Special Needs Beneficiary.

Distributions for qualifying education expenses are tax free. If the distributions are more than the beneficiary’s qualified education expenses for the tax year, a portion of the distribution will be taxable to the beneficiary.

A $15 maintenance fee will apply, regardless of the number of funds your client chooses. This fee is automatically deducted from their account each year, unless they pay the fee separately by check.

Franklin Templeton is one of the largest mutual fund organizations in the U.S., offering a variety of professionally managed mutual funds covering every major asset class. Whether your clients’ risk/reward profile leads to a conservative, moderate or aggressive asset allocation plan, Franklin Templeton Investments offers funds to meet their investment needs.

Before your clients invest, they should carefully consider a fund’s goals, risks, charges and expenses. This and other information is contained in the fund’s prospectus. Please have your clients read the prospectus carefully before they invest or send money.

To establish a Franklin Templeton Coverdell ESA, simply complete the Coverdell ESA account application and return it to us. You can also access individual forms on our Forms and Applications page.

Call us at (800) 527-2020 and help your client start saving for education expenses today.

Franklin Templeton Coverdell Education Savings Account (ESA) is designed to help accumulate assets for a child's elementary, secondary and post-secondary education. It can help your clients pay for qualified education expenses such as tuition, fees, books, supplies, and certain room and board costs at eligible elementary, secondary and post-secondary educational institutions.

A way you can transfer assets to a minor under the Uniform Gifts to Minors Act (UGMA) and/or Uniform Transfers to Minors Act (UTMA). Most states have established these acts, allowing adults to transfer assets to a minor.⁵

The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) allow a minor to own securities in an account without forcing families to underwrite the expense of having an attorney draw up a special trust.

While UGMA and UTMA accounts are not specifically designed to provide financing for college, many investors use them for this purpose because the assets become available to the minor when he or she reaches the age of majority specified under the state's UGMA or UTMA law (See “Age of majority in your state” below).

UGMA and UTMA accounts are similar in many ways, but they differ in the type of assets you can transfer to them.⁶

Similarities:

Both are managed by custodians.

Parents, grandparents, relatives and friends can make irrevocable transfers in any amount to the account.

If the donor, acting as custodian, dies before the funds are turned over to the child, the account may be taxable as part of the donor’s estate.

Differences:

UTMA law allows virtually any kind of asset, including real estate, to be transferred to a minor.

UGMA law limits gifts/transfers to bank deposits, securities (including mutual funds), and insurance policies.

A donor’s income taxes may be lowered by transferring income-producing assets to a child, who is likely to be in a lower tax bracket. If a parent, acting as custodian dies before the funds are turned over to the beneficiary, the account may be taxable as part of your client’s estate.

The first $1,050 of the account’s unearned income (interest, dividends or capital gains) is exempt from federal income tax if the child is under age 18 at the end of the tax year. The second $1,050 of unearned income is taxed at the child’s rate. Any unearned income over $2,100 is taxed at the higher of the child’s or parents’ marginal tax rates.

It’s important to note that all assets transferred under UGMA and UTMA law represent irrevocable transfers. This means that the child owns the assets even if he or she decides not to go to college.

Upon reaching the age of majority under the state UGMA/UTMA law—usually 18 or 21, depending on the state—the child (minor) gains control of the assets and may use them as he/she sees fit.⁶

Keep in mind that an UGMA or UTMA account may affect the amount of financial aid your child receives. Therefore, some parents invest in their own name instead of the child’s because when it comes to qualifying for financial aid, parental income is less important than the child’s. Custodians may, as permitted by law, use UGMA and UTMA assets for the benefit of the child prior to completing financial aid forms; hence, parents receive the tax benefit and avoid losing financial aid.