(formerly known as Education IRA)
Considerations
Contributions of up to $2,000 a year may be made for the designated beneficiary under age eighteen (18) by any taxpayer that meets the Adjusted Gross Income Limits. A Coverdell ESA alone will not meet all of your child's expenses, but the account is easy to set up and is offered by most major mutual fund companies.
Note the following guidelines for an ESA:
Contributions are not deductible by the donor, and the $2,000 limit applies to the combined amount contributed by all donors to that one student each year. However, that also means that if you have four children, you, combined with others such as grandparents, can contribute a total of $8,000 each year to their ESAs.
Qualified contributors can't have too much income or the amount that they can contribute to an ESA can decrease to zero. That income level is $190,000 for a joint filer and $95,000 for single taxpayers.
The proceeds of an ESA account must be used for educational expenses before the beneficiary reaches age 30. Assets withdrawn from this account that meet these two conditions are not subject to tax or penalties.
If some or all of the account is not used for one child, the balance can be rolled over and used for another family member's college education. The rules are even more flexible for special needs beneficiaries.