Try a Coverdell Education Savings Account
While a Coverdell education savings account is a great way for you to fund a child’s education, you can get in a lot of trouble, tax penalty wise, if said child doesn’t graduate before the age of 30. In some situations, young adults might want to postpone their higher education, but the funds in this account must be used by the time they reach 30.
What is a Coverdell education savings account, anyway? Well, it’s a tax-deferred trust account that can help pay for your child or grandchild’s elementary, secondary and higher education expenses. That means that you can also help pay for their room and board.
Your earnings will accumulate tax free and, best of all, distributions are free of income taxes as long as the funds are used for educational purposes. Don’t make the mistake of dipping into these savings for a rainy day and instead ensure that you have a well-established emergency fund as well.