Wednesday, September 19, 2012

saving for college

I'm thinking of opening an account for Mason's college expenses.

I see there's a Coverdell Educational Account which is sort of like an IRA, but for education instead of retirement.  It looks like it works more like a Roth as withdrawals are tax-deductible.

Are there other plans?

Google saving for college.  I see there's a 529 Plan too.

[10/2/12] Education IRAs were first introduced in 1998. The idea was to allow families within given income guidelines to set money aside for college without having to pay taxes on earnings or distributions. Originally, contributions were limited to $500 per child per year. In 2001, as part of the tax cuts signed into law under President George W. Bush, use of the Education IRA was greatly expanded and the measure was redubbed the Coverdell Education Savings Account after Paul Coverdell, a U.S. senator from Georgia who had supported this expansion and who had died the year before. Among the most significant changes were an increase in the annual maximum contribution--to $2,000 per child--and the expansion of covered educational expenses to include those for students in kindergarten through 12th grade.

Fast forward a decade and here we are, with the Bush tax cuts (which were extended under President Obama two years ago) about to expire and taking the expanded Coverdell provisions with them. That means that, unless Congress and the president act, beginning in 2013 Coverdell contributions will again be limited to $500 per year, and proceeds from Coverdell accounts will again be usable only for college-related expenses. Other restrictions also will go into effect, including eliminating the age-limit exclusion for special needs beneficiaries and adding an excise tax that makes it prohibitive to contribute to both a Coverdell and a 529 account for the same beneficiary in the same year.

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