Coverdell Education Savings Accounts Formerly called Education IRAs, Coverdell ESAs now boast a less confusing name (after all, they have nothing to do with retirement) and more generous contribution limits. When first introduced, these accounts allowed annual contributions of just $500 per child, hardly enough to put a dent in college expenses. Now, however, the annual limit is $2,000, making Coverdells a much more attractive option for many families. Coverdells work just like Roth IRAs, except they are intended to be used for education expenses, not retirement. Like the Roth, contributions aren’t deductible, and earnings are never taxed (provided the withdrawals are for education expenses). What’s more, any investment that can go into an IRA also can go into your Coverdell, including stocks, bonds, CDs and mutual funds. One point that’s often overlooked: Though usually intended for college, Coverdells actually can be used for just about any education expense, including private elementary and secondary schools.  top
UGMA Accounts The Uniform Gift to Minors Act, or UGMA, is the federal law that allows children to own stocks, bonds, mutual funds and other securities. An UGMA account must be registered in the name of a child, but an adult (usually a parent or grandparent) serves as custodian and is responsible for managing the assets within it. There is no limit on the amount that can be invested in an UGMA account. Contributions aren’t deductible and parents/custodians should work with an appropriate tax advisor to consider all tax implications. A potential drawback is that you lose control of UGMA assets when your child turns 18 or 21, dpending on the state. At that age, your son or daughter can legally use the money however they want. An advantage is that UGMA funds can be used for any expense that benefits your child, not just education. top
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