Coverdell ESA Provisions in Senate Tax Bills


July 20, 2012 – In the U.S. Senate, both the Democrat-drafted Middle Class Tax Cut Act and the Republican-drafted Tax Relief Act of 2012, which provide a one-year extension of 2001 and 2003 tax cuts, contain provisions affecting Coverdell education savings accounts (ESAs). Both bills would maintain current-law rules associated with ESAs, as modified by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This includes the annual contribution limit increased by EGTRRA from $500 to $2,000, the April 15 deadline for prior year contributions, allowing tax-free distributions for certain elementary and secondary school expenses, permitting contributions after age 18 for certain special needs beneficiaries, etc.

The former Hope education credit, now known as the American Opportunity credit, would also be extended, though both bills still refer to it as the Hope credit.

A major difference between the two bills is the Democrats’ extension of the 2001 and 2003 tax cuts only for families earning $250,000 per year or less. The Republican bill would extend the tax cuts for all. This will be a significant point of contention as the bills are considered.

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