“Unlike traditional IRA contributions, Education IRA contributions aren’t tax deductible," says Dennis Zuehlke, senior compliance analyst for CUNA Mutual Group in Madison, Wis. “However,” he adds, “withdrawals to pay qualified expenses are tax-free.”

Qualified expenses include tuition, fees, books, elementary and secondary school expenses, computer technology or equipment--even online access--that the beneficiary uses while in school, and equipment required for enrollment or attendance at nearly any postsecondary educational institution. Certain room and board expenses also may qualify.

Total contributions to a Coverdell Education Savings Account cannot exceed $2,000 per year, per child, and must be made no later than the federal income tax return deadline, not including extensions. For example, you can make 2005contributions until April 15, 2006. Certain income limits apply.

You can contribute to a Coverdell Account until the child reaches age 18. Children have up until age 30 to use the funds.

You cannot contribute to a Coverdell in the same year you contribute to a state prepaid tuition plan.

“An automatic payroll deduction at your credit union can make contributing to a Coverdell easy,” says Zuehlke. “The earlier you start the better.”

Copyright 2002 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.