| Coverdell
Accounts - One step closer to your child's success. |
|
What is a Coverdell
(education IRA) ?
What is a qualified
higher education expense?
Who can contribute to
an education IRA?
Can I roll over funds
from another IRA?
Am I allowed to change
the Beneficiary?
Who is a member of the
Family?
Every parent looks at their child
and wonders what the future holds.
- What
jobs will be available?
- What
kind of training will my child need--college or technical
school?
- Will
the money be there for their education
You
may not know the answer to the first two questions,
but you have a new resource to help you with the last
--The Education IRA.
|
What
is an Education IRA? |
The
Education IRA offers tax-advantaged savings for all levels
of education.
Earnings on contributions of up $2,000 (in 2002) are tax-free
if the proceeds are used for higher education (in 2001)
and education at any level in (in 2002). In order to maintain
a tax-deferred status, accounts must generally be used
by age 30, but unused balances may be transferred tax-free
into education IRAs for other family members. |
| A
qualified higher education expense is one that is required
for the enrollment or attendance by your child at an
eligible educational institution.
These expenses include:
- tuition,
- fees,
- books,
- supplies
and
- entertainment
|
| Who
can contribute to an Education IRA? |
| The
answer to that question is "almost anyone". There are
two key limitations:
- Each
child can receive a total of $2,000 per year in contributions
from all sources. It does not make a difference if
this is done in a single account or multiple accounts
designed to benefit the same child.
- A
person may be limited in the amount of their contribution
if their modified adjusted gross income exceeds $95,000
for single filers or $150,000 for joint filers. Above
these income levels, the ability to contribute is
phased out. If income exceeds $110,000 for single
filers, or $160,000 for joint filers, no contribution
is allowed.
The Education IRA does not specify
that the contributor must be a member of the family.
With this broad range of potential contributors, it
is possible that more than one person may want to contribute
for the same child. A coordinated effort should be encouraged
to avoid excess contributions.
Or
price in one extended hors trading system than you would
in another extended hours trading system.
Additional
points include:
- It
allows after-tax contributions up to the annual limit
to be made for the child until he or she reaches the
age of 18. Withdrawals are tax-free and penalty free
including earnings, if used for qualified education
expenses.
-
Unlike other IRAs your contributions to a Coverdell
are never tax-deductible.
- You
can contribute up to $2,000 annually to a Coverdell,
regardless of how much you contribute to a 529.
- Contributions
to Traditional or Roth Ira don’t have any effect
on the contribution to each Coverdell ESA.
|
| Can
I roll over funds from another IRA? |
You
can roll over funds from one Education IRA to a new or
existing Education IRA only. The funds, however, must
benefit the same child or an eligible member of the child's
family. A rollover contribution does not affect the $2,000
annual contribution limit. Rollovers must
be completed within 60 days of the initial distribution
and are limited to one per 12-month period.
All rollovers from a traditional or Roth IRA into a Coverdell
ESA are prohibited.
|
| Am
I allowed to change the Beneficiary?
|
You
may change the designated beneficiary (child). An example
of why someone may wish to change the beneficiary is the
current beneficiary has completed their education
and there are funds remaining. The only stipulation is
that the new beneficiary must be an eligible member of
the family.
|
| Who
is a member of the Family? |
| There
are several possible family members. They would include:
- Grandparents
- Parents
- Spouses
- Brothers
and Sisters
- Children
and their Spouses
It
is important to remember that even with this extended
range of family members contributions can be made only
for those under the age of 18.
|
| Additional
Points |
- The amount of scholarship many your
child receives is deducted from the allowable expenses
for the Coverdell ESA.
- Coverdell ESA was expanded to included
education expenses from kindergarten through 12Th
grade as well as higher education expenses.
- Contribution deadline is the contributor’s
tax filing deadline, excluding the extensions.
- Age restrictions do not apply
for children with special needs.
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