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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----------------------------------------------

Let Bush Tax Cuts End, Economists Say (Fox News)
NABE economist said Congress should let the Bush tax cuts expire.

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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----------------------------------------------

NY Governor Rejects Reimposing Stock Transfer Tax (Reuters Via Yahoo! News)
New York state should not reimpose a stock transfer tax as this would make Wall Street firms move to other cities such as New Jersey's Newark, or other states like Connecticut, Governor David Paterson...
Let Bush Tax Cuts End, Economists Say (Fox News)
NABE economist said Congress should let the Bush tax cuts expire.

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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.

What Other Authors say about Taxes

Health Savings Accounts and Taxes by Kurt Stammberger

HSAs have a "triple" tax advantage from a federal tax standpoint. Individuals receive full tax advantages for HSAs on their Federal Income Tax return (or through a salary reduction program in certain employer-sponsored...

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Who are the CPA Moms?      Your Tax Professional Forever!!!!

“CPA Moms - Tax Moms - EA Moms" are trade names given to Accounting and Tax Professionals who chose to work in an “relaxed” environment. Some "Moms" work from home, other work from personal offices. Not all are Moms, there are some Dads. We call them Mr. Tax Moms. CPA Dads or Enrolled Agents Dads.
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Since the “Moms” do taxes and accounting of all complexities, there is always a Mom available for every level of work. Since each Mom has a private 800 number, you are just a phone call away, regardless of where you live.
For reliability and dependability of Tax Net, Inc, the parent company of the “Moms” organization click on the Better Business Bureau (BBB) icon.

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Index of Articles about Taxes

What Other Authors say about Taxes

Health Savings Accounts and Taxes by Kurt Stammberger

HSAs have a "triple" tax advantage from a federal tax standpoint. Individuals receive full tax advantages for HSAs on their Federal Income Tax return (or through a salary reduction program in certain employer-sponsored...

Social Security Tax by Hans Hasselfors

You should be able to find several indispensable facts about social security tax in the following paragraphs. If there's at least one fact you didn't know before, imagine the difference it might make....

Is The RRSP The Most Effective Plan For Your Retirement? by Yvonne Finn

For many years Canadians have been relying on the income from their RRSP, which was instituted in 1957, to fund their retirement years.Now, however, the small rates of return, taxes and inflation are threatening...

Sources Of Free Tax Help by Carl LaFresnaye

Taxes are complicated! Everyone knows it – and most of us wish it were much more simple and easy to understand. But it isn't likely that the tax code will be simplified that much anytime soon – so we soldier...

Does IRS have a Refund or Stimulus Check for you by

The Internal Revenue Service is trying to find 279,000 recipients for more than $163 million in undelivered economic stimulus payments, according to the government. The average undelivered check is worth...

Tips For Preparing Your Taxes from the Internet by Cal Golden

When it comes to preparing our taxes, many of us could use some help. The following websites offer guidance and information that may assist you in learning about how to get the most out of filing your...

The Tax Gifts Keep On Coming by Jeffrey Voudrie, CFP

<p>Capital gains tax must be paid when you sell an asset for a profit. For instance, if you buy a stock at $10 per share and sell it two years later for $15 per share, there is a $5 per share gain...

So you've never heard of a Roth Ira by Elizabeth Gough

Well I think this is one of the best retirement savings options allowed by the tax department. It is especially beneficial to middle income Americans, specifically those earning less than $95,000 per year.This...

Last-Minute Tax Help by David C Skul

Even if in most cases people don't want to hear about the word "taxes" until March, preparing early and staying organized will give you no headaches later. But, for most of the people, the deadline is...