The credit cannot be taken if an exclusion for education IRA
or state tuition program is claimed.
Further, a taxpayer can claim the Hope Credit and the Lifetime Learning Credit in the same year there is a distribution from an Education IRA
, provided that he does not use the distribution to cover expenses for which he claims the credits.
Congress also has broadened the universe of those who may contribute to an education IRA
. The contribution phase-out range for joint filers jumps to double that of single filers and is $190,000 to $220,000.
Beginning next year, Education IRA
annual contribution limits will be increased from $500 to $2,000; and Education IRA
funds may be used for elementary and secondary education expenses.
Families funding their children's college education face an array of confusing--and sometimes conflicting--choices and strategies: the education IRA
, prepaid state tuition plans, tax credits, saving or not saving in your child's name, using a Roth IRA, etc.
The Taxpayer Relief Act of 1997 permits a maximum annual $500 contribution to a separate education IRA
for each child.
But while you can't write off your child's parochial school education as a deduction, you can get some tax benefit by establishing a Coverdell Education Savings Account (formerly an Education IRA
that pays qualified education expenses for a designated beneficiary.
Under the prior law, education IRAs
were of limited benefit because the annual contribution limit for a beneficiary was only $500; the contributed amounts were nondeductible; and neither the Hope credit or Lifetime Learning credit could be used in the same year that amounts were distributed from the education IRA
Qualified Education Expenses: The definition of qualified education expenses that may be paid tax-free from an education IRA
is expanded to include qualified elementary and secondary school expenses which are:
Further, a beneficiary is no longer required to waive the tax-free treatment for distributions from an Education IRA
to claim the education credits.
QEEs also included amounts paid or incurred to purchase tuition credits or make contributions to a qualified state tuition program (QSTP) for the education IRA
Funds in an education IRA
, a new IRA that offers tax-free earnings for higher education, must be used by the time the beneficiary turns age 30.