When it comes to accumulating money for college expenses, you generally have two options:

Inveting - Due to investment growth, you invest less than you need.
Borrowing - Because of interest you pay more than you need.

Of course, your child may be eligible for financial aid (which is based on a calculation of how much you are able to afford according to your income) and scholarships (which vary widely from college to college and depend on your child's academic record).

To make it easier for families to prepare for college costs, Congress created the Coverdell Education Savings Account (formerly known as the Education IRA) as part of the Taxpayer Relief Act of 1997. Unlike other IRAs, the Coverdell Education Savings Account is not a retirement account. It's an investment accoutn you establish specifically on behalf of a child for a wide range of educational expenses, such as college, as well as public or private elementary or secondary schools. Best of all, it comes with the very attractive advantages of tax-deferred growth and tax-free withdrawals.

And, you can combine the advantages of a Coverdell Account with a Hope Scholarship Tax Credit or Lifetime Learning Tax Credit in the same year, as long as the Coverdell distribution is not used for the same education related expenses as the Hope or Lifetime Learning credits.

How a Coverdell Account can add up: $35,000 became $244,692 In this hypothetical scenario, $2000 in contributed to a Coverdell Education Savings Account at a child's birth and on each birthday through age 17 - for a total of $36,000. Growing at an average 8% annually, it becomes $80,093 byt the child's 18th birthday. If left untouched until age 25, it becomes $157,909. And if it remains in the account until the child/beneficiary reaches age 30, it becomes $244,692.

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