Course 210: How to Invest for College
Education Savings Account
In this course
1 Introduction
2 What You'll Need
3 Choosing a College-Saving Plan
4 Education Savings Account
5 Section 529 Plans
6 State Prepaid Education Plans
7 Traditional IRAs
8 Roth IRAs
9 Uniform Gifts to Minors Act
10 Turn Tame When the Time Is Right

The Coverdell Education Savings Account (formerly known as the Education IRA) is a creation of the Taxpayer Relief Act of 1997. As the name implies, it's tailor-made for college savings.

Here are the answers to the five college-savings-plan questions:

  • You can usually contribute up to $2,000 per year to an Education Savings Account, possibly less depending on your income. A child can only be "funded" by $2,000 per year, though. So you and grandma cannot each invest $2,000 in an Education Savings Account for your son each year.
  • You can invest the Education Savings Account in just about anything.
  • Although you pay taxes on contributions, withdrawals are tax-free.
  • The recipient (the child going to college) technically controls how the money is spent, but he or she can only use it for education. If he/she doesn't use the money, you can transfer the account to a relative who will use the money for education.
  • Money in the account can only be used for education.

The Education Savings Account is a good choice for anyone who qualifies. However, saving just $2,000 per year for college may not get your kid very far. As a result, the Education Savings Account should only be one part of your college-saving plan.

Next: Section 529 Plans >>

 
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