SD ESA (Coverdell)

[José Linares]

Hello,

I have been putting money on coverdell accounts for two of my kids (3/1) and have them invested on a REIT and a high dividend ETF. I am planning on putting the 2k every year for both accounts until they go to college. That said, I read about self-directed accounts and the potential of possibly growing these accounts through real estate investments. With the accounts being so small not sure how I could use them for this and was hoping that someone out there had ran into this issue. Thanks again for any I sit and advice.

[Doreen Chaisson]

While the accounts are most likely too small to purchase RE, you can use the funds in a Self-Directed Coverdell/ESA to invest in private REITS, or to make private mortgage loans, secured loans, unsecured loans or convertible notes to other non-disqualified parties/companies.  The two accounts could also co-invest with others on larger investments; their IRAs would have a fractional ownership percentage.    One thing to be aware of - many alternative assets are illiquid - when it comes time to start paying for educational expenses, you want to make sure the money you need will be in the accounts.  That could be a challenge if its tied up in a piece of RE or any kind of partnership.  Your timing will be critical to meeting the goals you've set up these accounts to achieve.