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...

London Stock Exchange switches auditing to EYThe London Stock Exchange will drop PwC as its auditor and replace it with EY after completion of the audit for the year ending March 2014, Harriet Agnew of the Financial Times...
The Penn State Smeal College of Business is offering a new concentration of courses for accounting majors interested in entering careers in corporate accounting and financial management immediately upon earning their...
CFOs are having a tough time filling vacancies quickly in their accounting and finance departments, according to a new survey from staffing services firm Robert Half.Open staff-level positions in accounting or finance take...

Upcoming CPE Webinars

Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.
May 1
This material focuses on the principles of accounting for non-profit organizations’ expenses. It will include discussions of functional expense categories, accounting for functional expenses and allocations of joint costs.