Education Relief.

• Author: Josephs, Stuart R.
• Position: Brief Article

Highlights from the 2001 Tax Act

Following are highlights of the educational incentives in the 2001 Tax Act, which will not apply to tax years beginning after 2010.

EDUCATION IRAs

Annual Contribution Limit: For tax years beginning after 2001, the annual contribution limit to education IRAs (Coverdall Education Savings Accounts) for a particular beneficiary will increase from $500 to $2,000.

Qualified Education Expenses: The definition of qualified education expenses that may be paid tax-free from an education IRA is expanded to include qualified elementary and secondary school expenses which are:

* Tuition, fees, academic tutoring, special need services, books, supplies and other equipment incurred in connection with the beneficiary's enrollment or attendance at a public, private or religious school;

* Room and board, uniforms, transportation and supplementary items or services (including extended day programs) required or provided by such a school in connection with the beneficiary's enrollment or attendance; and

* The purchase of any computer technology or equipment or Internet access and related services, if such technology, equipment or services are to be used by beneficiaries and their families during any of the years the beneficiary is in school. Computer software primarily involving sports, games or hobbies is not considered a qualified expense unless the software is predominantly educational.

Phase-out of Contribution Limit: The phase-out range for married taxpayers filing jointly will be $190,000 to $220,000 of modified AGI (twice the range for single taxpayers).

Contributions by Entities: Corporations and other entities, including tax-exempt organizations, can contribute to education IRAs, regardless of their income during the contribution year.

Contribution Deadline: An individual will be deemed to have made an education IRA contribution on the last day of the preceding tax year if the contribution is made on account of that year and made not later than the due date, excluding extensions, for filing the individual's federal income tax return for that year.

Coordination with Education Credits: A taxpayer can claim a HOPE or Lifetime Learning credit for a tax year and exclude from gross income distributions (both the contribution and earnings portions) from an education IRA on behalf of the same student, as long as the distribution is not used for the same educational expenses for which these credits were claimed.

Coordination with...