Coverdell Education Savings Accounts (formerly known as Education IRAs) have significantly increased in popularity in recent years. The annual contribution limit is $2,000, and contributions for tax year 2007 may be made as late as
April 15, 2008.

Funds withdrawn from a Coverdell Education Savings Account (both contributions and earnings) are tax free if used to pay for the child's qualified education expenses. Qualified expenses include certain elementary and secondary school expenses, as well as college expenses. Tax-free distributions are not allowed if one of the education credits is used for the same expenses for the same student.

The $2,000 contribution is phased out based on the donor's income level. To see if you qualify, click here.

Grandparents and other family members may also make contributions for your children. Corporations and other entities can make contributions as well. So even if you don't qualify, your children can still benefit. However, total contributions received by one child cannot exceed $2,000, regardless of who made the contributions.