|
College Funding
Today it takes a college degree
to get the job you could get with a high school diploma twenty-five
years ago. Do you have a child or grandchild or are you concerned
about helping another child pay for college? Anyone can establish
an account for a child and invest money for that child’s education.
These programs using fixed insurance products can be used by persons
at every economic level.
Coverdell Education Savings
Account
The old Educational IRA has gotten a bit of a makeover, and now
it's called the Coverdell Education.
New tax laws have made this plan much more attractive. When saving
for a child's post-secondary education, you can now contribute up
to $2,000 per year (per child) until the child is age 18. This is
significantly higher than the old limit of only $500. Contributions
are not tax deductible. However, withdrawals from the account are
completely tax free, including earnings, when withdrawn to pay for
qualified education expenses. (Remember that this is somewhat similar
to a Roth IRA: after-tax going in, tax-free coming out!)
Who Can Contribute and How Much?
Anyone can contribute to a Coverdell Education Savings Account as
long as their income does not exceed certain limits (see below).
Keep in mind, however, that the $2,000 per year limit is PER CHILD,
regardless of the number of contributors or donors. For example,
if a grandparent contributes $1,200 for a child, the parent could
not contribute more than $800 for the same child.
The Coverdell Education Savings Accounts will have a "manager"
(often the parent) who will need to monitor contributions for the
beneficiary (child) to help insure there are no excess contributions.
Like Traditional IRA's, excess contributions over $2,000 are subject
to a 6% federal tax penalty.
Income Limits
A donor may be limited as to the amount of their contribution if
their modified adjusted gross income exceeds $95,000 for single
filers, or $190,000 for joint filers. Contribution amounts are gradually
phased out between the incomes of $95,000 and $110,000 for single
filers and $190,000 and $220,000 for joint filers. Persons with
income amounts above $110,000 (single) and $220,000 (joint) would
not be able to contribute to a Coverdell Education Savings Account.
How Long Can Benefits Stay In the Account? The funds can remain
in the account until the beneficiary turns age 30. Any remaining
funds could be rolled over to an another qualified family member
(see next section). Any funds left and not rolled over by age 30
would be taxable to the beneficiary. In addition, because the funds
were not used for educational purposes, there would also be a 10%
penalty.
Rollovers
Rollovers can be made from an existing Coverdell Education Savings
Account to a new Coverdell Account if the new beneficiary is a member
of the original beneficiary's family. Family members would include:
Grandparents, Parents, and Spouses, Brother and Sisters, Children
and their Spouses, Stepchildren and their Spouses. This could be
particularly helpful if a family had several children. Example:The
oldest child in a family had a Coverdell Education Savings Account
and decided not to attend college. Their account could be rolled
to his brother or sister as long as it was done prior to the oldest
reaching age 30.
Suppose a beneficiary does not use all the money in his account
and has children prior to reaching age 30. Remaining funds could
be rolled to that original beneficiary's child(ren) prior to the
beneficiary reaching age 30. One could also rollover an existing
Coverdell Education Savings Account to another existing Coverdell
account for the same child.
Neither American National
nor its agents provide legal or tax advice. Please consult your
attorney or tax advisor for your specific situation.
|
