Education IRAs were not exactly the most attractive vehicle for saving for college. One problem was that these programs – which allowed money to grow tax deferred and be withdrawn tax free if used for college – had annual contribution limits of just $500 per child.

That all changes in 2002. Indeed, thanks to the new tax bill, the contribution limit jumps to $2000 per year per child.

An added benefit is that you will be able to use your Education IRA to fund pre-college education expenses -- tuition, fees, academic tutoring, books, supplies, room and board, uniforms, transportation, computers, or equipment for kindergarten through grade 12 at any school.

The changes make Education IRAs a much more a viable option for college saving. The plans are attractive due to their tax advantages. Also, Education IRAs offer lots of flexibility in terms of investment options. Indeed, you can establish an Education IRA with virtually any mutual fund company or brokerage firm, such as BUYandHOLD.

Remember that the income limits for full contribution to an Education IRA are $95,000 for singles and $190,000 for married couples. Lesser amounts may be contributed for higher incomes up to $110,000 for a single filer and $220,000 for joint filers.

One final point. If your adjusted gross income is too high (AGI over $110,000 for a single filer and over $220,000 for joint filers) to be eligible to contribute to an Education IRA, you may be able to get around the rule with some creative “giving.”

For example, let’s say you are a wealthy uncle who wants to set aside $2000 per year for five nieces and nephews. Even though your income requirements may not allow you to open the Education IRA, you still may be able to provide the funding by giving the parents of the children a gift in the dollar amount required to fund the accounts.

You can give anyone a tax-free gift of up to $10,000 per year. As long as the parents’ incomes don’t exceed the limits, the parents can take your gift and use the money to fund the Education IRAs.