Classes cranked up here in Texas this week. After Labor Day, kids everywhere will be back in school.
Parents of college-age students probably already know they can take advantage of tax credits to help pay those ever-increasing education costs.
But there also is some help from the Internal Revenue Service for younger students.
The most direct tax-favored financial assistance for elementary and secondary school students comes from the Coverdell Educational Savings Account. These savings plans were originally known as educational IRAs because when they were created the contribution limit was $2000 dollars a year, the same as with an individual retirement account at that time.
Over the years, the name of this educational account has changed and the ways the money can be spent also have expanded. The two grand limit, though, remains.
Still, when you're looking to pay for your kid's education, every dollar helps.
Under current tax law, Coverdell funds that have been accumulating tax-deferred can be used and no taxes are due on the distribution if the money goes toward qualified education expenses. This includes tuition and fees, required books, supplies and equipment and qualified expenses for room and board. And it applies to enrollment or attendance costs at any public, private or religious school that provides elementary or secondary education as determined under state law.
Coverdell tax-free money also can be used to pay for computers or Internet access as long as the computer and related services are used by the student and his or her family while the youngster is in elementary or secondary school.
Just don't try to write off Madden sports or World of Warcraft games. The IRS is wise to such ploys and specifically notes that unless the software is predominantly educational in nature, it won't qualify as a covered Coverdell expense.
Some other costs, however, that can be paid with Coverdell money include academic tutoring and in some cases school uniforms and transportation.
Of course, there are income limits for opening a Coverdell. And $2,000 per year isn't going to add up to much when it comes to long-term education needs. Plus, the current tax benefits of a Coverdell are only good through 2012. With the current cost-cutting mindset on Capitol Hill, the plan might not be continued, at least not with these benefits.
But if you have a Coverdell, or want to set one up to help pay for some short-term lower-level schooling costs, it's still available.
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