Which education savings plan is best?

I have already set up a 529 savings plan for my 2 yr old. But now as I'm looking into opening a college savings plan for my newborn, I'm wondering which is best - 529, Coverdell or a ROTH IRA?

To me, it depends on who is going to fund it and with how much annually.

The 529 is great because of the high contribution limits, which means parents, gransparents, aunts, uncles, just about anyone can throw money into the thing for the child.
The Coverdell, unfortunately, has lower limits, but can be used for qualifying K-12 expenses, whereas a 529 cannot. Alot of families like the idea of private high schools, and this would help with the tuition.
I am not in favor of using the Roth for education, unless there is absolutely no question to whether or not the owner is going to meet their own retirement goals. You can get school loans, but nobody offers retirement loans.

529s may get all the press, but I'm partial to Coverdells. They work like an IRA and the earnings grow tax free. You can invest the money wherever you want and you're not limited to spending it on college -- you can use it to pay for private school tuition or junior's other educational expenses like a computer, books or summer camp. (Learn more about Coverdells (http://www.irs.gov/publications/p970/ch07.html).)

With a 529, you're limited to the investments offered by that specific plan. This makes them a nice option if you aren't comfortable picking your own investments. But watch out for excessive fees. See Ivy-Covered Hall of Shame (http://www.kiplinger.com/personalfinance/magazine/archives/2005/05/529plan.html) for the best and worst 529 plans.

Coverdells cap contributions ($2,000 total per child each year), and impose income limits. If you earn more than $220,000 a year, married filing joint, you cannot personally contribute to a Coverdell. But you can give $2,000 to your child to contribute to his own account. Or the grandparents. Or a friend. As long as they don't make more than the limit. With a 529 plan, you won't run into any income limitations, and contribution limits are much higher than with a Coverdell -- and some states don't set any limit at all (Learn more about 529 plans (http://www.kiplinger.com/personalfinance/basics/archives/2003/02/529faqs.html).)

If you can't decide between the two, consider investing in both. You can invest up to $2,000 in the Coverdell, and then if you have more money to save, put the rest in a 529.

LisaR - I won't add to what Sadale and Erin offer, except to say don't consider the Roth IRA if you are expecting to be eligible for financial aid (and if FAFSA doesn't get changed in the meantime).

Erin - You wrote that some states don't have contribution limits. I think that is wrong. I believe contribution limits are required by the feds, and that the actual levels are left to the states. Correct me if I am wrong, by all means.

TJ

TJ:

I should have clarified that better. You're right: Each state sets its own lifetime contribution limit -- which usually falls between $200,000 to $300,000. But many states don't impose any limits on annual contributions, as long as you don't exceed the overall limit.

Erin - I understand what you mean now.

I don't think there are any states with a maximum annual contribution. Leastwise, I have never read about one.

TJ