The third biggest financial goal for a family is saving for a college education. Buying a house and retirement are the first two goals. With the cost of higher education on the rise, parents are beginning to try and set aside money for education as soon as a child is born. There are two popular federal and state sponsored plans that make saving for college easy: the Coverdell and the 529 plan.
The Coverdell Education Savings Account
The Coverdell is a federally sponsored plan that helps you to set aside money for higher education expenses. These expenses include tuition, fees, books and supplies, and even room and board.
The annual contributions are not tax deductible, making the withdrawals tax-free as long as they are used to pay for eligible education costs. There are limits to the amount of annual contributions that can be made each year.
The Coverdell is established as a custodial account, set up by the parent or another adult to pay for the education expenses of a designated beneficiary. The child must be under the age of 18 to establish an account. All balances must be spent within 30 days of the child’s 30th birthday.
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