Ditch This College Savings Plan
If you own a Coverdell Education Savings Account, here's some lousy news: For many parents, the Coverdell 
is going to become a tax dud.
After 2010, the attractive tax benefit for this college savings plan will disappear for many parents. And that's not the only bad news. The yearly contribution levels for a Coverdell will shrink and the federal government will forbid many tax-free uses for this money.
So what should you do? Many parents should consider ditching this college savings plan. "It probably makes sense for Coverdell owners to withdraw funds sooner rather than later," suggests Kal Chany, the author of Paying for College Without Going Broke.
Here's why: The Coverdell has traditionally been a great tool for parents because the money inside these accounts has been protected from taxes. What's more, when parents tap this cash for college, the withdrawals are tax-free. Unlike 529 college savings plans, which can only be used to pay college costs, parents also enjoy the Coverdell tax freebie when they pay for educational expenses for youngsters as young as kindergarteners.
After Dec. 31, 2010, however, any investment gains that you withdraw from a Coverdell that aren't earmarked for college expenses will be taxed. You no longer will be able to use a Coverdell, for instance, to pay for a child's summer camp or a math tutor without getting dinged with a tax bill. For parents planning to tap this college savings account strictly for college, the Coverdell change won't matter.
If you do want to spend Coverdell cash on younger children, consider speeding up those expenditures before Jan. 1, 2011.
For parents who want to continue feeding the Coverdell kitty, the maximum contribution amounts, which were never princely, are going to shrink. Beginning in 2011, the yearly maximum contribution will drop from $2,000 to $500.
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College savings plan image by TSmall. CC 2.0.