Question: How did the 2001 Tax Act affect education savings plans?
Answer: The 2001 Tax Act included several enhancements to education savings plans, including state-sponsored 529 Plans and Coverdell Education Savings Accounts (formerly known as Education IRAs).
Here's a brief overview of some of the changes to 529 Plans and Coverdell ESAs. These changes became effective in January 2002.*
529 Plans
The earnings portion of qualified withdrawals will be free from federal income tax. Consult your tax advisor for state tax rules.
A rollover between 529 Plans can be made without a change of beneficiary once every 12 months. Rollovers with a change of beneficiary still may happen at any time.
Contributions may be made to a 529 Plan account and a Coverdell ESA in the same year.
Coverdell ESAs
The annual contribution limit increases to $2,000 from $500.
The contribution deadline changes from Dec. 31 to April 15.
Qualified withdrawals may be made for elementary and secondary school expenses, in addition to college expenses.
Contributions may be made to a 529 Plan account and a Coverdell ESA in the same year. Learn more about the provisions of the 2001 Tax Act.
*Note: Changes resulting from the 2001 Tax Act are effective through Dec. 31, 2010, and may be extended past that date if Congress takes further action.
