If you are looking for more investment choices, you may want to consider the Coverdell Education Savings Account. ESA's are formerly known as known as Education IRAs and are another tax advantaged way to pay for college. Unlike 529 plans, you may invest in what you want when you want.
Advantages
- Earnings are tax deferred
- Withdrawals used for qualified education expenses are tax-free
- You may make tax free withdrawals to pay for private elementary and high school expenses
For more information visit www.irs.gov.
Income Restrictions
Married Filing Jointly
$2,000 if modified adjusted gross income is less than $190,000 per year. Contributions are phased out for couples filing jointly with modified adjusted gross incomes between $190,000 and $220,000. Contributions are not allowed for couples filing jointly whose modified adjusted gross income is above $220,000.
Single Taxpayers
$2,000 if modified adjusted gross income is less then $95,000. Contributions are phased out if modified adjusted gross income is between $95,000 and $110,000. No contributions are allowed if modified adjusted gross income exceeds $110,000.
Organizations, such as corporations can also contribute to ESA's and are not subject to income limits.
Contribution Limits
ESA's have two annual contribution limits:
- If you meet the ESA income limits, you may give up to $2,000 to any one beneficiary.
- For one beneficiary, the total of all contributions cannot exceed $2,000. This would also include contributions by all family members. A 6% excise tax is imposed on contributions exceeding contribution limits.
Deductibility limits can be confusing and tax laws are frequently changing. It is always best to review your specific situation and/or circumstances with a qualified tax advisor.