Like the UGMA accounts, Coverdell ESA’s are self directed, giving you more investment opportunities. Like 529 plans, Coverdell ESA’s are tax free up to the year 2010 when used for college. Once concern, as with Educational IRA, is that there is a contribution limit of $2,000 which is combined with grandaparents and phase outs from parental income of $95,000 as a single filer and $190,000-$220,000 for joint filers. If it is over funded you will face penalties.

The benefits of using a 529 college savings plans are so compelling that many parents have closed out their custodial accounts, paid the respected tax, and reinvested it into the 529 plan.