New Name, Better Benefits for Education

Americans, in general, are not savers. Not even when the reason for saving is a good one: education. Uncle Sam has decided to try to encourage saving for education by renaming and revamping the education IRA.

The new program is called a Coverdell Education Savings Account or ESA. It was created as an incentive to help students and their parents save for education expenses.

Like the education IRA, an ESA is set up for a beneficiary under the age of 18. Any individual, including the beneficiary, can contribute to the ESA providing their modified adjusted gross income (MAGI) is less than $110,000 ($220,000 for those filing joint tax returns). Total annual contributions to an ESA cannot exceed $2,000, regardless of the number of ESAs created or the number of contributors. Contributions can be made up until the tax-filing deadline, April 15.

The beneficiary of the ESA will not owe tax on any distributions as long as the total distributions do not exceed the qualified education expenses at an eligible educational institution. Distributions can be applied to elementary and secondary education expenses as well as higher, post secondary, education. Eligible institutions include any public, private or religious school as determined by state law.

Balances remaining in an ESA when the beneficiary reaches the age of 30 must be distributed within 30 days. A portion representing the earnings on the account will be taxable and subject to an additional 10 percent tax. These taxes may be avoided by rolling the remaining balance into another ESA for another family member.

You may like these other stories...

Event Date: August 21, 2014, 2 pm ETMeet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs.  Kristen Rampe will share how knowing the keys to structuring...
Event Date: August 20, 2014, 2:30 pm ETIn this session we'll review best practices for how to generate interest in your firm’s services. Topics include:Web Based Marketing StrategiesAppointment SettingNetworking...
Recently, there has been a lot of buzz about the future of continuing professional education (CPE). The American Institute of CPAs (AICPA) created a task force on the Future of Learning with an accompanying fancy website. In...

Upcoming CPE Webinars

Aug 5
This webcast will focus on accounting and disclosure policies for various types of consolidations and business combinations.
Aug 20
In this session we'll review best practices for how to generate interest in your firm’s services.
Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.