ESA (Coverdell savings account) changes!

[Nika]

ESA (Coverdell savings account) changes!

I was listening to a WSJ podcast, and it was talking about the changes as a done deal.

$500 maximum instead of $2,000 and additional restrictions on the use of the money.
So this year is the last year to get 2k into it.

However, I'm not able to find info about the change on the IRS website.

I so hope this is not true!
$500 a year is ridiculous. That does not even cover textbooks for one semester.
This would impact the middle class the most. This administration is supposed to be pro college affordability!

I was having a tough time finding a good discount brokerage firm that even offers them anymore (it is not worth it to them, with such low minimums).
Optionshouse does not offer them anymore, neither is TrowePrice, where I opened one in 2011. I was not even allowed to add money to an already existent account as they are trying to phase them out.

[creditcardfree]

I believe this is true. The limits are changing to only $500 per year. I have yet to decide what we will do next year.

[kv968]

This is yet another thing that's lumped into the "fiscal cliff". I think, if they ever get around to addressing it, they'll keep the maximum at $2000. I don't think it would look good if they didn't since it's people saving for their kids' education but you never know.

As far as providers, you might want to check out Schwab. They have a $1000 minimum to open (I guess $500 if it does go down to that) or $100/month automatic investment, no fees and you can use their commission-free ETF's which aren't too bad.

[Nika]

Anyone knows what happened? Was it in the new budget deal?

I can't find any recent information on this, all the articles I see have been written months ago and are just speculations.

[MonkeyMama]

I haven't heard specifically either way, but I did not see ESA contribution limits listed as an extended tax break. I am pretty sure it is $500 for 2013.

I have never contributed to an ESA, because like a decade ago Congress said they were killing them. They have since drug their feet and not done much, but essentially when 529 plans were introduced, they were expected to replace ESAs for the long haul. Many financial institutions have stopped offering new accounts, etc., in recent years. ESAs are largely on the way out. This is just the final nail in the coffin.

{I personally feel silly for ignoring the ESA because I probably could have contributed for literally 10 years. Never expected ESAs to still be so prevalent in the year 2012}.

[MonkeyMama]

I am changing my answer to "wko knows?"

Just got a professional update that mentioned a bajillion tax extensions - ESAs were not mentioned, but am starting to think it was maybe extended.

[MonkeyMama]

Good news - 2,000 per year is "permanent."

Education Incentives Survive Fiscal Cliff

[creditcardfree]

Thanks for finding this, MM!I was looking around a couple days ago and only could find the $500 info. Actually, on Vanguard it showed $500 available for 2013. I just now checked and it is back to the $2K limit.

This will help me plan. We have been investing in them since 2006. They have each accumulated over $10K. We haven't consistently done $2K by the way. We had UTMA accounts originally and still own those. These are better for financial aid, as they are considered parental assets, rather than students assets. I think it just helps to have some sort of vehicle that is for college, otherwise to easy to mix in with other cash and not make it a priority.

[sandrark]

Yep, it was extended permanently. My brother and his three kids are very pleased.

[FrugalTexan75]

MonkeyMama,

Do you know if the $250 teacher credit was extended or not? I've tried finding anything about it online, but haven't been successful yet.

[MonkeyMama]

Yes - the $250 teacher deduction was extended - for 2013 only.

[FrugalTexan75]

Yes - the $250 teacher deduction was extended - for 2013 only.

Thanks!