Coverdell Education Savings Accounts at Risk in Tax Debate

Lost in the framework agreement between the Obama Administration and congressional Republicans on extending tax relief is the future of Coverdell IRAs, savings accounts designed to help families pay for K-12 education expenses and tuition. Like their college counterparts, Coverdell IRAs allow parents to save money for K-12 education expenses tax-free.

The Administration has had no problem bailing out special interests in the education industry, passing a $10 billion union assist this past August. Coverdell savings accounts, on the other hand, have provided tax relief for families who want to ensure that their children receive a quality education. They are the only federal tax mechanism empowering parents with more school choice options. Robert Enlow, President and CEO of the Foundation for Education Choice, writes in yesterday’s Washington Times:

Unfortunately, as the lame-duck Congress is at loggerheads over whether to maintain the current tax rates or raise them, adults once again have forgotten the children. Kids will be the losers in a political battle over money. While there have been many impassioned speeches about the need for working Americans to keep more of their salaries, there has been silence about maintaining an education tax break that has made it easier for parents to send their children to better schools.

Financial institutions already have started urging parents with Coverdell IRAs to roll over their funds into tax-free college IRAs if Congress doesn’t fix this problem. Tax breaks for college IRAs will not be affected by the expiration of the Bush tax cuts. Only the Coverdell tax break, which opened the door to a private K-12 education, will expire.

The Coverdell IRAs enable parents to save up to $2,000 per child, per year, tax-free on interest earned, for their children’s educational expenses and private school tuition. The IRAs—the brainchild of the late Senator Paul Coverdell (R–GA)—were vetoed by President Bill Clinton but were enacted by President George Bush as part of his broader tax relief agenda.

Enlow concludes:

If the House and Senate can’t settle their standoff on the Bush tax-cut plan before we slip into 2011, they should at least address this education IRA for kids. A lame-duck Congress will be truly lame if it adjourns with an outcome that hurts children.

Across the country, state leaders are reforming education to incorporate more school choice options for families. State leaders in places like Florida, Arizona, Pennsylvania, and Georgia, to name a few, have provided increased school choice options for students through measures such as tax credit programs to the benefit of families and taxpayers.

Congress should take a cue from state leaders and empower families to keep more of their hard-earned money. In so doing, Congress can be confident that parents will use their savings to search out the best available education options for their children.

Source material can be found at this site.

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