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  • Education Savings Accounts at Risk in 2011, Unless Congress Acts

    Coverdale Education Accounts Could be Downsized

    Coverdell Education Savings Accounts were created in 2001 to empower parents with greater options for their children’s education, but unless Congress takes action, those accounts could change in 2011.

    Currently, parents who send their children to private schools because they’re not satisfied with the public school quality or culture have to pay twice: once in taxes for public schools, and a second time for their private school tuition. Coverdell accounts are one small way to help lift some of this burden by letting parents save for these education costs in tax-free accounts.

    The accounts allow parents to keep more of their own money to be used for paying educational expenses for children in grades Kindergarten through 12th grade. They may also be used for college expenses without being hit with a tax on the money that’s been saved for those expenses.

    If Congress fails to act, parents will no longer be able to use the tax-deferred savings they have accumulated for pre-college expenses. If this happens, then expiration will violate President Obama’s pledge not to raise taxes on people making less than $250,000 a year because, as it stands, Coverdell accounts are exempt from capital gains taxes when used for primary or secondary expenses such as private school tuition, a new computer, or school supplies.

    The extra revenue brought into the federal government by prohibiting Coverdells from being used for all educational expenses is miniscule; but to prohibit it, to change the rules of the game after savers have been investing their $2,000 Coverdell contributions per year tax-free for up to ten years, is unreasonable and unfair. Perhaps members of Congress have such an ax to grind against the American people sending their children to private schools that they will allow the rules regarding Coverdell accounts to be altered, but that would be a big mistake.

    For one thing, to do so, would be to chip away at a rock that is the American Dream. These accounts only allow a parent or guardian to contribute $2000 per child per year. That contribution, however, may be invested in stocks, bonds, mutual funds, exchange traded funds and notes, and a variety of other investment options. The choices of what investments to make are up to the Coverdell Education Account owner. For small time investors–the ones who didn’t reap the vast payouts from the bailout of Wall Street’s giant investment banks–this is a carrot the Federal Government has no business taking away. Politicians should not penalize Main Street due to a proverbial ax they have to grind against individuals who wish to save and invest.

    If the Coverdell Educational Savings account is allowed to expire, then a penny saved will no longer be a penny earned towards investing in a better education in 2011.

    Posted in Education [slideshow_deploy]

    9 Responses to Education Savings Accounts at Risk in 2011, Unless Congress Acts

    1. kirsten@surroundinc. says:

      Hi Darling Kirsten,

      I just heard about this on the radio, [Clark Howard ].

      A woman caller trying to put her kids through private schools

      asked what saving plans she might use to defray taxes for

      their education. This is a little known benefit. Thought you

      and Mark would like to hear about it.

      Have a great Valentines Day!

      Love, Dad.

    2. Doug says:

      Why in the world would someone write a law that would expire in 10 years?

    3. Pingback: Ed is Watching » Will Congress Sit By and Limit the Uses of Your Education Savings Account?

    4. Trent says:

      This is extremely disappointing but not surprising when we have a bunch of socialist dems running the country. I have 2 ESA accounts and 2 Roth accounts, I suppose Roth is next!

      This is a record year for me when it comes to writing to my so called moderate Sentors in ND. And now I can add another topic to the list!

    5. Dave says:

      Doug and Trent, the law was written with a sunset provision so that the people passing this legislation could pretend that the impact on the deficit was lower than it actually would be if it were carried into perpetuity. It was part of a bunch of changes in the tax codes which were enacted under GWB and all scheduled to expire after GWB left office. Call it fake fiscal conservatism. Nine years later, another party controls congress and the whitehouse and they are dammed if they do and dammed if they don't. If they extend the tax break, the deficit does go up. It might be miniscule, but it is real, and like they say: a billion here, a billion there, and pretty soon, you are talking real money. If they let the tax break expire, then they are a bunch of heartless socialist commies.

      For the record, I am very in favor of extending the tax break. It is a modest one that primarily affects middle class earners, and it won't cost the government (read taxpayers) very much in lost revenues.

    6. Alex says:

      I don't see why there would be any point in ending these accounts, though as someone looking into trying to afford private school if I ever have children I don't see much point in opening one, either. Private school is so expensive that if all you're putting into an account for it is $2,000/month it's hardly worth the trouble. A lot of the private schools around here want almost $20k/year.

      So I opened up a Roth IRA, am looking for a new job, and when I have a job any funds I can squeeze out will be saved for a mixture of retirement and hypothetical future children that may or may not ever exist. But I think that accounts meant to include private school tuition from k-12 should allow an annual deposit of the full tuition cost for the highest possible tuition cost in the state a student will go to private school in. Maybe that's too idealistic but if someone has the foresight and need to open an account as soon as they have a child they probably need to be able to put more money aside than $2000. Obviously if I were going into a career that was going to make $120k+ annually I probably wouldn't even worry about the benefits (or not) of opening an account to save for college or private school in the future if I ever had kids.

    7. Mike Cothern, Swamps says:

      What is the update towards the Coverdale Education Plan look like?

    8. Barbara Westerlund C says:


      We should write our Congressmen and urge them to do something to keep this Education Plan alive. I did.

    9. Margery Harrison, Go says:

      Do I write to my current Democratic congresswoman or to the Republican congressman who is to replace her in January?

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