Money Talk!

Coverdell Annual Contribution Limit: $2000

You may contribute up to $2,000 annually to a child's Coverdell ESA if your modified adjusted gross income MAGI is less than $95,000 as a single tax filer (or married filing separate), or $190,000 as a married couple filing jointly. The $2,000 maximum contribution limit is gradually reduced if your MAGI exceeds these limits.

All funds in the account must be distributed to the beneficiary within 30 days after his or her 30th B'day. If the assets in Coverdell account cannot be used by the designated beneficiary when he or she turns 30, then the funds in the account can be roll over to a another designated beneficiary who is qualified family member.

If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship. Hope and life time learning credits can be taken in the same year when tax free qualified distribution is taken from the plan.

Unless Congress acts, some Coverdell benefits expire after 2010.

• K -12 expenses will no longer qualify.
• With annual contribution limit reduce to $500 from $2000.
• Withdrawals will not be tax-free in any year in which a Hope credit or Lifetime credit or Lifetime Learning credit is claimed for the beneficiary.

However as Coverdell can be roll over to any 529 Plans without any tax consequences, potential sunset of Coverdell doesn't look bad.

I-Bonds: I Bonds which are sold at face value and issued in either paper or electronic form, offers an alternative and more safer investment for future college tution. If used for college education, interest income is exempt from federal income tax. However there is no restriction on mandatory withdrawal for education etc. They can be purchased directly from treasury direct www.savingsbond.gov

Education cost is spiralling, not sure if I Bond can catch up. Probably equity is still better options for parent whose kids are still atleast 10 years away from college.