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Coverdell Savings for Children's Education

My children are young, 5 and 1. They would likely benefit from the magic of compounding interest if we were to start a savings account for them. There are tax advantages to choosing something called a Coverdell Account
http://www.fairmark.com/college/saving/coverdell/index.htm

And it looks flexible as to what is considered an educational expense. Furthermore, the beneficiary can be changed, so if one child doesnt use it, you can designate another beneficiary (I dont even think they have to be related)

But of course, its hard to predict (impossible?) if my children would choose the types of things that would be covered, and it might be difficult to prove the educational expense (not sure how that works)

So, I was wondering if anyone has used this type of account and their experiences with it, or if people have avoided "educational" savings like these (tax benefit ones)

OF course, we could save money in any ole other way. But tax benefits are tempting.

Thoughts?

Thanks,
Nancy in Chicago
happychildhood.homeschooljournal.net

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Permalink Reply by Sandra Dodd on February 27, 2009 at 7:35pm: We have savings bonds that can be used tax-free if it goes to secondary education. Kirby took two free classes. Marty talks sometimes about the possibility of studying engineering, but I don't know the rules on how old he can be before they can't be used for that. Maybe we can gift them to him and he can use them tax free for his own education?

If the kids move out and haven't used them, I could go to school with them, or Keith. But we're at the point that we might end up getting posthumous master's degrees. Might not be worth it.

Or we could cash them out and pay 30% of it in income tax.
Holly's only 17 and undecided. They might go to something she decides here before long.

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Permalink Reply by Amanda on February 27, 2009 at 9:49pm: You could try an UTMA or UGMA depending on your state. Universal transfer (gift) to minors act. It give all the money to the child at a certain age (varies by state) or the parent can spend it on the child for anything other than basic expenses. Translation: It cannot be used for food, clothing or shelter, but it can be used for colleges, classes, car, computers and things that don't start with "c".

http://collegesavings.about.com/od/ugmautmacustodialaccts/ss/custod...

Amanda
Eli 7, Samuel 6; ▶ Reply to This