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Is an education savings account the best choice for you? Among the various tax breaks available for education expenses is the education savings account (previously called an education IRA). An education savings account is a special account created to pay for a child’s "qualified" education expenses. Parents, grandparents, and others can make nondeductible contributions each year until a child reaches age 18. Funds in the account accumulate tax-free. Withdrawals are tax-free as long as they do not exceed the qualified education expenses paid. Tax rules for education savings accounts The tax rules for education savings accounts allow annual contributions of up to $2,000. Contributions can be made up to the due date (not including extensions) of the tax return for the year of the contribution. Funds from education savings accounts may be used to pay for elementary, secondary, and higher education costs. Qualified education expenses include tuition, fees, books, supplies, equipment, and certain room and board expenses. The student need not attend school full-time, but room and board will qualify only if the student attends school at least half-time. There are income limits for individuals who make contributions to education savings accounts. The phase-out for married taxpayers filing jointly begins at $190,000 of income and ends at $220,000. The phase-out range for singles begins at $95,000 and ends at $110,000. Contributions to education savings accounts can also be made by corporations and other entities, regardless of their income. A Hope or lifetime learning tax credit can be claimed in the same year that education savings account distributions are taken, as long as different expenses are covered by each. In
analyzing your options for building an education fund, the education
savings account is certainly worth checking out. For details, give
us a call.
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