Sort through the various education IRA accounts types and styles to determine which offer the highest yield. All the education IRA accounts, now called Coverdell Education Savings Accounts (CESA), carry different rates. Weigh the options and costs of each investment establishment and determine which provides the best rates for your unique investing plan.

When investing in an IRA for education, you invest in a Coverdell Education Savings Account, and the unique financial institution determines the types of interest you receive on the account. You have several choices of establishment and before investing you might want to consider the following information:

1. Invest in an educational IRA from a trust company.

2. Look into education IRA accounts types and styles from a variety of banks.

3. Check into the education IRA accounts held by a mutual fund company or other licensed financial institution.

Action Steps
The best contacts and resources to help you get it done

Consider making and investment in an education IRA contribution through a trust company

A trust company is a company that has authorization to act as a trustee for investment. It offers a variety of business and personal accounts, including accounts where you can make an educational IRA contribution. You can use the accounts for the education of any minor under the age of eighteen or when the minor goes to college.

I recommend: Katahdin Trust Company offers investors a Coverdell Education Savings Account with either a variable or fixed rate. It offers annual and quarterly statements and has automatic renewal. Principal Trust Company offers trustee services and a toll-free customer service number for questions for customers investing in a Coverdell Education Savings Accounts. It also provides the IRS forms 5498-ESA and 1099-Q.

Check out the different options and educational IRA interest rates from banks

When you open an education IRA from a bank, you have a plethora of choices depending on your individual needs and investment plans. Some accounts allow you to begin investing with a small sum of money and some offer very competitive interest rates. Ask your bank about its rates and options and offerings.

I recommend: Citigroup prides itself in its support of youth education programs, including its investment opportunities for education. It offers both 529 plans and Coverdell education accounts and has an article detailing the benefits of the bank-offered CESA plan on its website. Guaranty Bank lets you invest in a Coverdell Education Savings Account for as little as $100 and then allows you to transfer the cash to a higher-earning CD when the balance in the account becomes larger. The account receives quarterly compound interest.

Use a mutual fund company to invest in an educational IRA account

Some people find that using mutual fund companies for IRA for education accounts generates higher returns than other plans such as the 529, because they are more tax efficient. Many deem this type of investment strategy as one for risk-takers.

I recommend: State Farm Mutual Automobile Insurance Company offers a Coverdell Education Savings Account at a fixed rate or through mutual funds. Investors make annual contributions up to $2000 per child between January 1 and April 15 each year. Morgan Stanley & Co offers a variety of mutual fund investments, including the Coverdell Education Savings Account. It has an annual maintenance fee for accounts.

Through an account such as an education IRA (EIRA), people are able to save money to pay for qualified educational expenses. As the costs of education continue to rise, it's becoming increasingly necessary to save money to cover the costs.

Parents are typically the people to start education IRA accounts for their children, but anyone can start the plan for a child. When it's time to use the money in the educational IRA account, the money is tax-free as long as you use it for qualified educational expenses.

Some important facts about education IRA accounts:

1. You can an educational IRA to pay for tuition costs at elementary or high schools as well as colleges.

2. There is a limit to how much money you can contribute to an EIRA account. Check with the government to learn the educational IRA limits for any particular year.

3. Anyone in the family can make an education IRA contribution as long as the total amount isn't above the year's maximum contribution limit.

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Understand the education IRA rules to avoid penalties

You shouldn't always rely on Internet searches to give you the current information about educational IRA accounts. Sometimes, the information on web pages is outdated by several years. If you want accurate information, you should always look direct to the source.

I recommend: The U.S. government regulates educational savings funds that are tax-free. This means that you should always visit the IRS website for the most current rules and regulations. Read up on the Coverdell Education Savings Account (formerly called the "Education IRA") and other tax benefits for education.

Decide if an IRA for education is the right way to invest your money

An education IRA isn't the only want that you can save money for educational expenses tax-free. You may also be interested in a 529 savings plan or simple gift giving at the time. It's best to research all of your options before deciding what's best.

I recommend: Denver Tax Software offers a program that analyzes your financial situation and makes a recommendation for the best way for you to save for educational costs. Smart Money offers an extensive comparison of the various ways of saving for education.

Start an education IRA with your bank or investment firm

Once you've decided that the education IRA or Coverdell Education Savings Account is the right choice, you won't have to go far to start an account. Many banks and investment firms offer this type of account, so you can simply use your current bank.

I recommend: Wells Fargo allows current customers to open an education IRA online. If you prefer to keep your investments in one place, check with an investment firm, such as Charles Schwab, to open your account.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  An individual must use the funds in their education IRA accounts before they turn 30 years old. If you cannot use the funds, you should rollover the money into a younger family member's account. This will give them a large head start on their college fund.

With the cost of education seemingly skyrocketing, it's important to stay informed on the latest rules regarding education IRA accounts. Contribution limits, ways the money can be invested and how those contributions might be deducted are ever-changing.

So before you open an educational IRA account, do your research on the latest news regarding those accounts. For instance, the name "Education IRA" has actually been changed to the "Coverdell Education Savings Account." So when searching for information on the topic, be sure to include that name as well. Here are some quality sources where you can locate news and trends.

1. Find online publications that cover the world of finance including information on education IRA accounts.

2. Locate government or banking websites that discuss in detail the latest education IRA accounts news and trends

3. Go to multimedia financial websites that cover topics such as educational IRA and other higher education savings programs.

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Locate online magazines that cover the latest news regarding EIRA or related savings products

There are several reputable online financial magazines that cover information such as educational IRA interest rates, educational IRA limits and other changing parameters as they unfold. Locate these reputable sources and use their comprehensive search engines to find the latest information regarding education IRA rules.

I recommend: Visit the website for Investment News, an online financial magazine intended for financial industry professionals. The Kiplinger website, which is also geared toward industry professionals, releases periodical articles on Education IRAs.

View government or banking websites with in-depth information on IRA for education savings program

When looking for the latest news and trends regarding educational savings accounts with allowable deductions by the Internal Revenue Service, then it is best to go to the source. The Internal Revenue Service website is regularly updated with the latest news. Also, banks, which must hold these accounts for consumers, are quick to follow so that their customers have the latest information.

I recommend: Visit the website for the Internal Revenue Service. Check the Newsroom for articles regarding the latest changes made to the tax code, including changes to education IRA accounts or Coverdell savings accounts. Also visit the Saving For College.com website. A subsidiary of the Bankrate Company, this site offers a host of articles on education IRAs and the re-named Coverdell Education Savings Account.

Find media companies with multiple platforms that cover education IRA accounts

There are several companies that now offer television channels, radio programs and websites dedicated to covering financial information such as the latest news on educational IRAs. Seek out these media companies, visit their websites, watch their programs and listen to their radio broadcasts.

I recommend: Visit the website for Fox Business. They have many articles on education IRA accounts, with one of the most helpful being "Your April Tax Checklist" which instructs the user on the latest contribution limits as allowed by the IRS. Also, the CNBC website offers a similar result. Simply use their search engine for the latest news and trends regarding the Coverdell Education Savings program.

An education IRA is a newer type of IRA account that provides adults with a method to save for their children's educational expenses. Parents, grandparents or guardians can set up an account in a child's name and make a maximum contribution of $500 per year. Contributions are non-deductible, but the accumulated earnings in the account are tax free as long at the beneficiary uses it for qualified expenses at an institution of higher education.

Action Steps
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Contribution

A contribution is a specific amount of money added to an education IRA account each year. All IRA accounts have specific contribution limits and limits on who can contribute to the account.

I recommend: League Financial provides a chart that lists the contributions for an education IRA, account transfer options and the deadlines for submitting yearly contributions.

Annual contribution limits

The annual contribution limits are the maximum amounts of money that can be contributed to an EIRA in a single year. EIRAs have a limit of $500, which is in addition to the $2,000 limit on any type of IRA. Contributions are limited to the time before a beneficiary turns 18.

I recommend: The IRA Guide provides descriptions and contribution limits for all types of IRA accounts, including education IRAs.

Distributions

The distributions of an education IRA account refers to the money withdrawn from the account that is designated 'tax free.' The beneficiary spend the money on qualified expenses at an eligible educational institution to qualify for tax-free status.

I recommend: Reality Recruits provides information and examples of taxable and tax free distribution payments.

Higher education expenses

Higher education expenses for EIRA accounts include tuition, books, fees, supplies and any other equipment necessary for enrollment in an educational institution.

I recommend: Pensco Trust provides a list of qualified expenses that be charged against an EIRA account.

Eligible educational institution

The eligible educational institution is a college or university that qualifies for the beneficiary to use the money in the EIRA for tuition and some of the room and board expenses. There are no limits on whether the student must be full time or part time.

I recommend: Any institution that qualifies for Federal Student Aid and can be found through a school code search is considered an eligible educational institution.

Beneficiary

The beneficiary of an education IRA is the person who will receive the money in the account for educational expenses. The beneficiary must be a child under the age of 18 when the account is set up.

I recommend: Pro 1040 provides information on education IRAs and frequently asked questions about setting up the account for the beneficiary, who that can be and who can contribute the account.