Coverdell Changes Make College Savings Easier

Changes in the federal tax law are making it easier for families to save for college.

As of Jan. 1, parents can set aside more money each year for college through what are called Coverdell education savings accounts.

The accounts allow for a contribution of up to $2,000 per child each year. The limit used to be $500.

The education savings account works like a regular IRA.

"The Coverdell accounts are personal savings plans where the money you set aside grows tax-free. Instead of a retirement nest egg, the money is earmarked for education," said Marlys Harris of Consumer Reports.

To be able to put away the maximum amount of $2,000 a year, a married couple filing jointly can have an adjusted gross income of no more than $190,000; For single taxpayers it is $95,000.

There is another big change.

"For the first time, employers can contribute to a Coverdell account. So, it's worth asking if your company is offering this benefit," Harris said.

When the child goes to college, the money can be used for tuition, room and board, and books -- tax-free.

Something else to consider: Money in a Coverdell account is considered an asset, so it could effecting those applyign for financial aid. Other plans have less impact.

To help evaluate options, check out is SavingForCollege.com.

Copyright ©2002 Consumers Union of U.S., Inc. All rights reserved.