IRAsCoverdell Education Savings Account

Previously known as an Education IRA, this account is designed to help meet a child's higher education expenses. As with the Roth IRA, contributions are not tax-deductible but the investment and earnings compound tax-free.

The basics of the Coverdell Education Savings Plan are:

• There is a $2000 maximum annual contribution limit per child in 2012.
• You can make contributions until the child reaches 18 or longer for a special needs child.
• The contributor must meet Adjusted Gross Income guidelines; contributions are not limited to parents - anyone who meets the income guidelines can contribute as long as total contributions per child do not exceed the maximum annual contribution limit.
• You can roll a Coverdell Education Savings account for one child into another child's name if the first child does not go on in their schooling.

If the money is not used before the beneficiary turns 30 years old, the balance must either be transferred to an account for another family member or distributed. If assets are transferred, the transfer must occur before the beneficiary turns 30 years old. Assets are taxed and subject to a 10% penalty if distributed after the beneficiary turns 30 years old or if not used for qualified education expenses.