Income Tax Issues for Families

"For instance, a Coverdell Account ESA, which is a trust or custodial savings account created only for the purpose of paying qualified education expenses of the designated beneficiary, allows you to contribute up to $2,000 a year for your child's education, tax free. Qualified educational expenses include tuition, fees, books, supplies, internet access and equipment, and the costs of room and board. Then distributions are tax free if they are not more than the child's adjusted qualified education expenses for the year," she says.

She also notes that the Coverdell can be used not only to pay for college, but elementary and high school as well.