Ask a Tax Question - Coverdale IRAs
Tax This!: An Insider's Guide to Standing Up to the IRS
by Scott Estill

Tax This! An Insider's Guide to Standing Up to the IRS, is just that. It provides the insight of an insider that will help you stand up to the IRS in any situation. Little known facts and difficult to conceive strategies are revealed that will help any target of the IRS deal effectively with them or help prevent you from becoming their target.

Author Scott Estill discloses all the rights, which are many, that citizens have when confronted with a problem involving the IRS. He gives an insider's look at the culture, attitudes, and seemingly out of control bureaucracy that prevails inside the IRS and prepares you to deal with the IRS at that level also. His information is backed up by references to the Internal Revenue Code, Congressional Law, and established judicial decisions.

Tax This also provides clear examples of completed IRS forms, which are many and varied. Overall, this is an informative, easy read for someone like me with little knowledge of the IRS. It will hold your interest even if the IRS isn't breathing down your neck and may be invaluable if they are.

     

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Tax Treatment for Coverdale IRAs   
Tony Novak

A number of publications, including my own, have mistakenly reported over the past year that Coverdale IRAs, formerly known as Education IRAs, are tax deductible.

Coverdale IRAs are not tax-deductible.

Originally the concept of education IRAs was meant to provide a tax-deductible benefit that would defer taxes on contributions until the time of withdrawal, but the accounts were limited in size to only $500 per year. Due to the small allowable account size, these Education IRAs were not very popular with savers of financial institutions. Then in 2001 the amount of the allowable contribution was increased to $2,000 for individuals with an income up to $95,000 or couples filing jointly with an income up to $190,000. But the contribution is not deductible from taxable income for federal income tax purposes in the same manner as a traditional IRA account.

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Ashland Community And Technical College Offers Fall Scholarships (The Ironton Tribune)
ASHLAND. Ky. — April 1 is the priority application deadline for fall 2010 scholarships at Ashland Community and ...

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One possible "work around" to achieve the immediate tax deferral benefit of deductibility is to make a regular tax deductible IRA contribution if you qualify, and then make a penalty-free withdrawal for education purposes in a later year. Education expenses are one of the special IRA withdrawals allowed that are exempt from early withdrawal penalties.


This tax issue aspect is separate and distinct from the issue of tax credits for higher education - known as the lifetime learning credit and the Hope Scholarship credit. The tax credits have their own rules. Also, Section 529 tuition plans offer additional tax deferral alternatives.

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Keith Bulluck Of Tennessee Titans Funds Scholarships In Honor Of Steve McNair (ESPN)
Titans linebacker Keith Bulluck has awarded nine Middle Tennessee high school football players scholarships in honor of his late teammate, Steve McNair.

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One common theme in all of these plans is that upper income taxpayers cannot effectively use these tools to reduce their current tax bill. These built-in income limitations plus the effect of alternative minimum tax rules make these tools ineffective for current-year planning, but can still have a significant tax effect over a longer period of time. Upper income taxpayers should consider the use of various types of trust accounts for more effective income tax planning strategies.

For more information on this topic, the IRS has a well-written Publication 970 titled "Tax Benefits for Higher Education. This is available by calling 1-800-TAX-FORM or on the Web at www.irs.gov/pub/irs-pdf/p970.pdf.



About the Author: Tony Novak, MBA, MT, is a financial adviser based in Narberth, Pennsylvania. He is editor/publisher of "Tax and Benefit News" and moderator of the tax forum for financial planners at "Financial Planning Interactive". He is available by telephone at 1-877-529-7435 to address public inquiries on tax and benefit planning issues free of charge through OnlineAdviser service sponsored by www.MedSave.com and www.FreedomBenefits.com.

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