Advantages And Disadvantages Of An Education IRA Coverdell Account
Saving for a child's education can be done in a variety of different ways. One of these is the Education IRA. These Education Ira Coverdell
Accounts have some advantages and some disadvantages. Before you start one of these accounts you should be sure to do your research to make sure that this type of plan is right for you and your child.
One of the advantages of an Education Ira Coverdell Account is that it can grow tax free. As long as the money in the account is only used by the beneficiary for approved educational expenses before he or she turns thirty, taxes never need to be paid on the money that is earned by this type of account. This could save a good deal of money, depending on how much is invested in the account and how long the account is left to grow.
There are also flexible contributions to these accounts. Anyone can contribute toward a child's Education Ira Coverdell Account up until the maximum contribution has been reached. This is great for those who can't afford to contribute the maximum but have a lot of friends and relatives that would like to help out.
However, one of the disadvantages of these accounts is that there are limits to how much money can be put into these accounts. Each account can only have $500 contributions per year, and a total of $2,000 is all that can be invested in these accounts per child. This means that although anyone can open one to save for your child's education, only $2,000 total in all accounts can be contributed by interested parties. Individuals may contribute up to $500 per year depending on their income. Those with incomes above $110,000 adjusted gross annual income ($160,000 for married couples filing jointly) cannot make any contributions to these accounts, and some people may only be allowed to contribute a portion of the $500 maximum if they have incomes approaching these maximums.
Another disadvantage of Coverdell Education Saving Accounts is that contributions are not tax deductible. You still need to pay taxes on the money that you contribute to these savings accounts.
Using money from an Education IRA might also limit your eligibility for other tax credits and savings programs, so be sure to consider this disadvantage when you are deciding whether or not to start one of these accounts. You need to decide whether you would get a better benefit through participating in this program.
One final advantage to the Education Ira Coverdell Account is that if it is not used by the child it was intended for, it can be rolled over into another child's account for their use.
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