Tax and Tax Information

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Tax and Tax Information - Coverdale IRAs

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Tax and Tax Information * Coverdale IRAs

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.

Article to continue below----------------------------------------------

Jobs Bill Gives Firms Tax Holiday (Chicago Sun-Times)
Companies that hire unemployed workers will get a temporary payroll tax holiday under a bill that easily won congressional approval Wednesday.The 68-29 bipartisan vote in the Senate sent the legislation...

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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.

Article to continue below----------------------------------------------

Strikes In Greece Over Proposed Tax Law Overhaul (AP Via Yahoo! News)
Greek taxi drivers and many gas station owners are striking against a proposed overhaul of tax laws under the government's efforts to overcome its debt crisis.
Convicted Embezzler Given Tax Break, Then Arrested (AP Via Yahoo! News)
A convicted embezzler who snagged a $9.1 million business tax credit from the state of Michigan was arrested Wednesday on a parole violation, a day after he appeared on stage with Gov. Jennifer Granholm...

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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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Index of Articles about Taxes

What Other Authors say about Taxes

Doing Your Taxes by Carl LaFresnaye

When an individual is younger, it is much easier to do taxes at the end of the year since there usually is not anyone to claim other than the individual him or herself, as well as the fact that not many...

Why Do We Pay Taxes? by Carl LaFresnaye

As Benjamin Franklin famously said, nothing is certain except death and taxes. But where do taxes come from, and do we really need them? A History of Taxes The first recorded use of taxation was...

Child Tax Credit by Tony Robinson

Now, here's a real savings to the individual taxpayer with children. The child tax credit is a direct tax credit that is available to provide credit to taxpayers with income below certain established levels....

Do You Know When To File A Tax Return? by Ken Snowie

Every year, millions of Americans dread the inevitable; they have to gather all of their receipts and records and get ready to file their Federal Income Tax Returns. When was tax season first initiated?...

Tax Accounting by Sumit Sehghal

Accounting is the recording, interpretation and reporting of financial transactions. Each and every business must keep proper record of all such transactions. There are several branches of accounting such...

Consumer Energy Tax Incentives by

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