Coverdell Educational Savings Accounts
(Formerly Education IRAs)
Changes During 2001
Note: See the general
regulations for overall rules as of December 31, 2000. Only the major changes enacted
during 2001 (through August) are noted below.
Contributions
- For taxable years beginning after December 31, 2001, corporations and
other entities may make contributions, regardless of the entity's income level.
- For taxable years beginning after December 31, 2001, contributions
may be made for beneficiaries older than 18 IF they meet the definition of "special
needs."
- For taxable years beginning after December 31, 2001, the contribution
limit per beneficiary and per contributor is increased from $500 to $2,000 per year.
- For taxable years beginning after December 31, 2001, the AGI
limitation and phase-out are increased.
- For taxable years beginning after December 31, 2001, contributions
may be made up to the due date of the individual's tax return (not including extensions).
The current law is by December 31st.
- For taxable years beginning after December 31, 2001, contributions
may be made for a beneficiary in the same year that contributions are made to a qualified
tuition program. Currently you may only contribute to one or the other.
- Contributions are considered gifts and may be subject to gift tax
provisions.
Distributions
- Distributions, if used for specified educational purposes, are not
taxable.
- Distributions, not used for specified educational purposes, generally
are taxable on the portion that is not a return of the contribution, plus subject to an
additional 10% tax (on the taxable portion).
- For taxable years beginning after December 31, 2001, the distribution
requirements at age 30 do not apply to beneficiaries IF they meet the definition of
"special needs."
- For taxable years beginning after December
31, 2001, qualified education expenses includes qualified elementary and secondary
education expenses, as well as qualified higher education expenses.
Rollovers
- For taxable years beginning after December 31, 2001, the age 30
limitations under both the rollover rule and the changing-in-beneficiary rule do not apply
to any designated beneficiary with special needs.
- For taxable years beginning after December 31, 2001, a first cousin of the designated beneficiary also is considered a member of
the beneficiary's family.
Reporting
- The trustee must provide reports to the IRS and the beneficiary.
- Beneficiaries receiving a distribution must file form 8606 with their
1040 or separately if they are not required to file a 1040.
For taxable years beginning after December 31, 2001,
individuals may be able to claim a Hope or Lifetime Learning Credit (not for the same
expenses) if they also have an Education IRA distribution. Currently, you cannot.
Expiration
- All changes above expire December 31, 2010 and the old rules are
reinstated unless specifically extended by Congress.
Education IRAs are very complex and interact with other tax-favored
plans. See us to examine your overall educational savings plan before creating any
specific plan or making contributions. It is very important that these be carefully
controlled as limits and rules apply per beneficiary even though multiple plans
might be set up by different individuals.
Related Information:
College Savings
- Section 529 Plans Overview
Education IRAs -
Regulations as of December 31, 2000
Ideas and
Information About Taxes
Personal
Financial Planning
Selecting a Tax Advisor
Tax Services
Taxes and College
Financial Aid
© Copyright 2001 Raymond S. Kulzick. All rights reserved.
010901.
This publication provides business, financial planning,
and/or tax information to our clients. All material is for general information only and
should not be acted upon without seeking appropriate professional assistance.
Contact rkulzick@kulzick.com with questions or
comments about this web site.
Copyright © 2001 Kulzick Associates, PA - Last modified: September 13, 2008