||Ask Dr. Don
Coverdell Education Savings
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
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