Education IRA

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.

Education IRA

References in periodicals archive ?
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 beneficiary.
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.

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