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Types Of IRAs

Coverdell ESA (formerly known as an Education IRA)

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A Coverdell ESA (Education Savings Account) is a custodial account or a trust created for the purpose of paying the qualified education expenses of the designated beneficiary of the account. It allows you to save money on a tax deferred basis for education expenses for a child under 18 or a special needs beneficiary.

You can not deduct the money you contribute from your taxable income when you deposit it.

Your child will not have to pay taxes on the money's growth and earnings if he or she has qualified higher educational expenses in the year of withdrawal, up to the amount withdrawn.

The maximum contribution that can be made in 2015 to a child's account is $2,000 per year, provided that your modified adjusted gross income, as defined by the IRS, is less than $110,000 if you are single and $220,000 if you're married and filing a joint tax return. After income reaches the limits, the right to contribute to a child's account phases out very quickly.

Anyone can contribute to a child's educational IRA, but the combined contributions of all contributors still cannot be more than $2,000 per year. Unlike other IRAs, the deadline for making contributions is the end of the tax year (December 31 for most taxpayers), not the filing deadline.

The money contributed to a Coverdell does not count against the amount you can contribute to a traditional or Roth IRA.

For more information about educational IRAs, see

                                                                                                  Edited by: Peg Downey, CFP, NAPFA

                                                                                                                     Money Plans
                                                                                                                     Silver Spring, MD

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