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Education IRA |
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Education IRA A type of individual retirement account enabling the contribution of up to $500 per year tax free for each child up to the age of 18 by the parents in the family.
Coverdell Education Savings Account An account into which one may deposit funds on a tax-deferred basis, on the assumption that they will be used to pay for the education of the account holder. The funds are invested in a portfolio, much like an IRA or another retirement account. If the funds are in fact used for education, withdrawals from a Coverdell account are tax-exempt up to the total cost of education. Importantly, any tax liability on a Coverdell account is assessed at the account holder's bracket, rather than the contributor's. This protects the account holder from an excessive tax liability in the event a wealthy parent made most or all of the contributions. It was formerly called an education IRA. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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Current California law limits education IRA contributions to $500 annually, while federal law, beginning in 2002, allows $2,000 and permits corporations to contribute. An Education IRA is an account set up by a donor to help pay for a beneficiary's future education expenses. If you plan to claim the Hope Credit or the Lifetime Learning Credit, any expenditure from the Education IRA will be taxed - which means Washington gets a cut when the money goes in and another when it comes out. |
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