College Savings Plans, Coverdell Accounts

The cost of a college education continues to rise unabated and will continue to do so. Why invest in a college savings plan? Because it makes sense.  Coverdell education savings accounts are the most popular type of college savings account. Investments in Coverdell accounts grow tax-deferred, just like the others, and funds can be withdrawn tax-free when used to fund various education related expenses. To help you determine whether Coverdell savings accounts would be a good fit for your college savings goals, consider eligibility requirements, qualified expenses, contribution limits, investment options, rollover options, and the enrollment process.

Coverdells impose limitations on contributors who establish and fund an account and beneficiaries who receive and accounts proceeds. To establish a Coverdell account you must have a modified adjusted gross income below $95,000 for single filers and $190,000 for married couples. Beneficiaries must be under age 18 in order for you to make qualified contributions.

Though you can set up an unlimited number of Coverdell accounts for one particular beneficiary, contributions to all those accounts cannot exceed $2000 in total per year. Coverdell contributions limits will drop to just five hours per year as of January 1, 2011.

Coverdells can be used to fund more than just college related expenses, the two most common qualified expenses being post secondary school, and elementary and secondary school related expenses.

One of the unique features of Coverdells is that they are very accommodating in terms of investment options. You can own any investment you can own in a standard investment account. That includes individual stocks, bonds, mutual funds, exchange traded funds, precious metals, CDs and more.

Which type of investments work best in Coverdells? The investments you buy in your Coverdell account will vary based on several factors, such as your tolerance for risk and the length of time that you expect to hold your investments. Though you can buy individual stocks, bonds, and precious metals, most investors find it easier to build a balanced investment portfolio by buying just a few index funds. Coverdell savings accounts work just like investment accounts.

Generally setting them up is easy. Contact the broker, financial advisor, bank or financial services firm you use for banking or investing. Coverdell savings accounts are very popular because of the control and access you have your investments. There are certainly worse it looks as a viable college savings plan for your family.