Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Coverdell Education Savings Accounts

Dear Dr. Don,
Can you cancel an Education IRA set up two weeks ago? After receiving all the information, I found out that the contributions are not tax deductible and the fees for maintaining the account appear to be high.
Ann Annulled

Dear Ann,
It's not likely that the firm will agree to cancel the transaction, but there should be no problem closing the account. Since the contributions aren't tax deductible, any taxes and penalties due are based on the account's investment earnings, not the account's value.

There's a difference between closing the account and canceling the transaction. For example, if you bought a mutual fund with a sales load, you may have a hard time getting the salesperson to refund the commissions paid on the sale. Any investment gains or losses would be reflected in your account balance.

A traditional IRA or a Roth IRA can provide you with tax-advantaged ways to save for college, using the early withdrawal provisions for education expenses. IRS Publication 590, Individual Retirement Arrangements, gives all the details on this approach to college savings.

-- Posted: May 1, 2002