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Coverdell Education Savings Account
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What is a Coverdell Education Savings Account?
The Education Savings Account provides tax-free investment growth for children under the age of 30. In prior years, Education Savings Accounts were not very attractive to parents, grandparents, and other parties interested in contributing to a child’s education because contributions were limited to $500 and could only be used for higher education. The new tax laws have made significant changes that make them much more appealing.
| Who’s Eligible to Invest
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Individuals or Entities. No earned income required. Contribution amount is limited if Modified Adjusted Gross Income (MAGI) is between
~ $95,000 and $110,000 for individual returns
~ $190,000 and $220,000 for joint returns
Beneficiary must be under age 18.
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| Maximum Annual Contribution
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$2,000
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| Contribution Deadlines
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IRA’s for the taxable year can be opened and funded any time between the first day of your tax year and the date your tax return is due for the year, excluding extensions. This due date is normally April 15 of the following year.
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| Catch-up Contribution Limits
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No.
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| Tax Advantages
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Tax-free investment growth for children under the age of 30.
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| Contribution Deductibility
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No deduction for contributions. Tax-free growth replaces this benefit.
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| Withdrawal of Assets
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Withdrawals to pay for elementary, secondary or higher public and private education are tax-free. Eligible expenses include but are not limited to tuition, books, room and board, academic tutoring, uniforms, and computer technology. The money must be used by the time the child reaches age 30, or it will be taxed and subject to a 10% IRS penalty. Unused funds may be transferred to another family member’s Education Savings Account.
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| Tax Credit
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No.
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| Mandatory Distributions
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Funds must be withdrawn by age 30.
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| Eligibility with other Retirement Plans
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Other retirement plans do not effect eligibility.
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Conversions
Traditional IRA to Roth IRA
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No.
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| Transfers and Rollovers
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Yes
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The above information is based on the Economic Growth and Reconciliation Act of 2001 and the current interpretation of the language in the Taxpayer Relief Act. Where language in the Act is unclear, assumptions have been made. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Representatives of this bank may not give legal or tax advice.
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