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Students and their parents can capitalize on a number of new education benefits enacted, or made more liberal, by the 2001 Tax Act. For example, Coverdell Education Savings Accounts (formerly Education IRAs) have a new limit. The amount that can be contributed to this type of account each year is $2,000. Any family member with adjusted gross income below $150,000 in a joint return or $95,000 in a single return can contribute to a Coverdell account, where the contribution will grow, tax-deferred, until withdrawn for any of a liberal list of education costs - - even private elementary and secondary tuition.
Hope and Lifetime Learning credits are still available and several funding sources can be coordinated in order to pay as many costs as possible with tax favored dollars. A brand new deduction, for up to $3,000 of education expenses that are not paid from a Section 529 plan or a Coverdell Account and don't qualify for the Hope or Lifetime credit, has been added for taxpayers with modest incomes. That deduction is available whether the taxpayer itemizes deductions or not, but phases out at adjusted gross income of $65,000 ($130,000 on a joint return) in 2002 and 2003.
State sponsored prepaid tuition plans (Section 529 plans) are more attractive. Sponsoring such plans has been extended to private institutions, who may now sponsor tuition savings plans. Funds withdrawn from Section 529 plans are free from federal income tax if they are used to pay qualified higher education expenses.
Planning education funding for yourself, your
children, or your grandchildren may involve
coordinating five tax law provisions . . . six,
if you count the tax free redemption of Series E
bonds to pay higher education costs . . . and
you might want some help. We have studied these
provisions and we're prepared to assist you.
Just give us a call to arrange an appointment.
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