Texas offers two main education savings accounts, and which one you use depends on what you're saving for

Texas has two separate accounts designed to help families save for education: the Texas Education Savings Plan (TESP), which is a 529 college savings plan, and the Education Savings Account (ESA), which is a tax-advantaged account for K-12 private school tuition and related expenses. The TESP has been around since 1996 and covers college and graduate school. The ESA is newer—Texas launched it in 2022—and covers private school tuition, tutoring, textbooks, and certain other K-12 costs. You don't choose between them based on which is "better"; you choose based on what you're actually paying for.

If you're saving for college, you open a TESP account. If you're saving for private school in elementary through high school, you open an ESA. Some families open both. The opening process for each is straightforward and takes about 15 minutes online, though you'll need to have decided on an investment option before you start.

Key Takeaways

  • The Texas Education Savings Plan (TESP) is for college and graduate school; the Education Savings Account (ESA) is for private K-12 school tuition and related expenses.
  • Both accounts are opened online through their respective websites—TESP through Vanguard and ESA through the Texas Education Agency—and require no minimum deposit to open.
  • You must choose an investment option (such as age-based portfolios or individual funds) before opening, and this choice affects how your money grows.
  • Contributions to both accounts are made with after-tax dollars, but the growth and withdrawals are tax-free when used for their intended education purpose.
  • Texas residents can open either account for themselves or as custodians for children, and there are no income limits or residency requirements for the account holder.

Opening a Texas Education Savings Plan (TESP) account for college

The TESP is administered by Vanguard on behalf of the state. You open it directly through Vanguard's website at vanguard.com/tesp. The process starts with choosing an investment option. Vanguard offers age-based portfolios (which automatically shift from stocks to bonds as the beneficiary gets closer to college age) and individual fund options if you want to pick your own mix. Most people choose an age-based portfolio because it requires no ongoing decisions.

Once you've decided on an investment option, you'll provide your name, Social Security number, and the beneficiary's information (the person who will use the money for college). The beneficiary can be your child, grandchild, or even yourself. You'll link a bank account for your initial deposit—there's no minimum required to open the account, though most people deposit at least $25 to $50 to get your free guide. The account opens when ready, and you can begin making contributions right away.

You can contribute as much as you want each year, but there's a federal limit on the total amount you can have across all 529 plans for a single beneficiary. That limit is currently around $235,000 to $550,000 depending on the state and plan, but it's high enough that most families won't hit it. Contributions are made with money you've already paid taxes on, but the growth inside the account is never taxed, and withdrawals for college expenses come out tax-free.

Opening an Education Savings Account (ESA) for private K-12 school

The ESA is newer and works differently from the TESP. You open it through the Texas Education Agency's website at tea.texas.gov/esa. Like the TESP, there's no minimum deposit and no income limits. You'll need to provide your information and the beneficiary's information, and you'll choose how your money is invested—again, age-based portfolios are available if you don't want to pick individual funds.

The key difference is what you can spend the money on. ESA funds cover private school tuition, fees, and materials. They also cover tutoring, online courses, educational therapies (like speech therapy), textbooks, and certain technology like computers and internet service used for education. They do not cover public school expenses, sports fees, or meals. You'll need to keep receipts showing what you spent the money on, because the account issuer may ask for documentation when you withdraw.

ESA contributions are also made with after-tax dollars, and growth is tax-free. Withdrawals for may be able to access K-12 expenses are tax-free. If you withdraw money for something that doesn't count as an may be able to access expense, you'll owe income tax on the growth portion plus a 10 percent penalty, similar to the TESP.

What you need before you open either account

You need three things: a Social Security number (yours, if you're the account owner), the beneficiary's Social Security number, and a bank account to link for your initial deposit. You don't need to be a Texas resident to open either account, though both are designed for Texas residents and offer Texas tax benefits. You also don't need to have decided which school the beneficiary will attend—the account is flexible and can be used at any may be able to access institution.

Before you open the account, spend a few minutes looking at the investment options available. For the TESP, Vanguard's website shows each age-based portfolio's current allocation and historical performance. For the ESA, the Texas Education Agency's site does the same. You're not locked into your choice—you can change your investment option once per calendar year without penalty—but it helps to start with something that matches your timeline and comfort with risk.

The difference between opening an account for yourself versus as a custodian

You can open a TESP or ESA account as the account owner (the person who controls the money and makes decisions about it) or as a custodian for a minor. If you open it as a custodian, you control the account until the beneficiary reaches age 21 (for TESP) or age 18 (for ESA), at which point they take control. If you open it for yourself as the beneficiary, you control it from the start.

Most parents open accounts as custodians for their children. Grandparents often do the same. The tax benefits are the same either way. The main practical difference is that once the beneficiary reaches the age of majority, they can decide how the money is spent—so if you're saving for college and your child decides not to go, they can transfer the money to a sibling or use it for graduate school, but they control that decision, not you.

Making your first contribution and setting up ongoing deposits

Your first contribution happens when you open the account—you'll link your bank account and deposit whatever amount you choose. After that, you can make additional contributions whenever you want. Many families set up automatic monthly transfers, which is optional but makes saving easier because the money moves without you having to remember to do it.

Both Vanguard (for TESP) and the ESA provider allow you to set up automatic deposits from your linked bank account. You can change the amount or pause deposits at any time. There are no fees for making contributions, and no fees for setting up automatic transfers. The only fees are the investment management fees charged by the funds themselves, which are typically 0.05 to 0.20 percent per year depending on which funds you choose.

What happens if you need to change your beneficiary or investment choice

You can change your investment option once per calendar year without any penalty or tax consequence. If you want to change it more often, you can, but it may trigger a taxable event. Most people don't need to change their investment more than once a year, if at all.

You can also change the beneficiary. If you opened an account for one child and want to move the money to another child (or grandchild, or sibling), you can do that without tax consequences as long as the new beneficiary is a family member. The definition of family member is broad and includes cousins. If you want to change the beneficiary to someone who is not a family member, the growth in the account becomes taxable and subject to a 10 percent penalty.

Frequently Asked Questions

Can I open both a TESP and an ESA for the same child?

Yes. Many families do this—they use the ESA to save for private school tuition in elementary and middle school, and the TESP to save for college. The accounts are separate and have different contribution limits, so there's no conflict. Just keep track of which account is which so you withdraw from the right one when you need the money.

Do I have to be a Texas resident to open a TESP or ESA?

No. Anyone can open either account. However, both are designed for Texas residents and offer Texas tax benefits. If you live in another state, you may want to check whether your state's 529 plan offers better benefits for you, though the TESP is competitive with most state plans.

What happens if I withdraw money and don't use it for education?

You'll owe income tax on the growth portion of the withdrawal, plus a 10 percent federal penalty. Your original contributions come out tax-free (since you already paid taxes on them), but any earnings are taxed. For example, if you contributed $5,000 and it grew to $6,000, you'd owe tax and penalty on the $1,000 in growth.

Can I transfer money from a TESP to an ESA or vice versa?

No. The two accounts are separate and serve different purposes. Money in a TESP is meant for college; money in an ESA is meant for private K-12 school. You can't move money between them. However, if you have leftover ESA money after your child finishes private school, you can transfer it to a family member's ESA or TESP without penalty.

Is there a important date to open an account before the school year starts?

No. You can open an account at any time during the year. There's no important date tied to the school calendar. If you're planning to use ESA money for tuition in the fall, it's helpful to open the account and make your contribution earlier in the year so the money has time to settle, but there's no hard important date.