Making Your Education IRA Contributions
The Education Individual Retirement Account (IRA) which was renamed as the Coverdell Education Savings Account or Coverdell ESA for brevity is a non-tax deductible account that provides tax sheltered savings for your child’s education.
Coverdall ESA, which was named after the law’s principal legislative author; the late U.S. Senator Paul Coverdell, provides for a tool and a means to save on your child’s elementary, secondary or post-secondary education (college, vocational institution or graduate school).
Education IRA contributions are governed by eligibility rules:
• The first rule is that the account must be strictly for the benefit of your child’s education. • The beneficiary must be below 18 years old. Once the child reaches 18 then contributions to this IRA will no longer be accepted. However a parent-to-child relationship is not a requisite for eligibility to the Coverdell ESA. Anyone may contribute and that would include a grandparent or even the child himself can provide Education IRA contributions to the account. The maximum allowable Education IRA contributions is pegged at $2,000 annually. If you are a single-filer and your Modified Adjusted Gross Income or MAGI is below $95,000 or your spouse are joint filers and has MAGI at a range of $190,000-$220,000 you can contribute up to the maximum amount of $2,000. Your allowable contribution of $2,000 is gradually reduced if your MAGI breaches this income range. Contributions to Coverdell ESA from January 1 and through the tax return due date which is usually April 15, can either be Education IRA contributions for the current year or it can be applied to the preceding year. Anyone can contribute to your Education IRA; there is no age requirement as long as it is within the maximum allowable contribution limit, the child is below 18, and your MAGI falls within acceptable range. So even if you turn 70.5 years old you still can provide Education IRA contributions. A parent can avail of the Education IRA or Coverdell for as many children as he desires. If he has four children, he can apply his maximum allowable Education IRA contributions on each child, as long as they are still below 18. Education IRA contributions are above and beyond the maximum contribution limits an individual can give to his IRA account, since technically it is not meant as a retirement plan, but is strictly intended as a child’s education savings plan.
Hence you cannot deduct it from your income taxes. Excess Education IRA contributions and the earnings coming from the excess contributions must be withdrawn from the child’s Coverdell account before June 1 of the following year. A 6% excise tax will be the penalty for each year the excess contribution amount is not withdrawn. During its inception in 1997, the contribution limit for Education IRA was seen as too small to answer actual education costs. The 1998 IRA education contribution limit was then set at $500 and the growing costs of college education was a major concern for many account holders. During the account’s inception, a four-year college education would cost about $10,000 a year and was expected to rise at 5% each year. Education IRA contributions were not indexed for inflation and would be useless in case runaway inflation hits the nation. Proposed Coverdell ESA amendments were the provisions of catch-up contributions for plan holders in order to match the increasing costs of education.
Ira Contribution
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