Publication 590 |
2000 Tax Year |
Contributions
Any individual (including the child for whose benefit the account
is established) can contribute to an education IRA if the individual's
modified adjusted gross income (defined below) for the year
is less than $110,000 ($160,000 in the case of a joint return).
Contributions must be in cash, and cannot be made after the
beneficiary reaches age 18.
No contributions can be made to an education IRA on behalf of a
child if any amount is contributed during the year to a qualified
state tuition program on behalf of the same child.
Modified adjusted gross income.
For most taxpayers, modified adjusted gross income will be their
adjusted gross income (AGI) as figured on their federal income tax
return. On Form 1040, AGI is line 34. On Form 1040A, AGI is line 19.
However, you must make adjustments to your AGI if you excluded income
earned abroad or from certain U.S. territories or possessions. If this
applies to you, increase your AGI by the following amounts you
excluded from your income.
- Foreign earned income of U.S. citizens or residents living
abroad.
- Housing costs of U.S. citizens or residents living
abroad.
- Income from sources within Puerto Rico, Guam, American
Samoa, or the northern Mariana Islands.
Contributions can be made to one or several education IRAs for the
same child provided that the total contributions are not more than the
contribution limit (defined later) for a year.
Contribution Limits
There are two yearly limits, one on the total amount that can be
contributed for each designated beneficiary (child) in any year and
one on the amount that any individual can contribute for any one child
for a year.
Limit for each child.
The total of all contributions to all education IRAs set up for the
benefit of any one designated beneficiary (child) cannot be more than
$500 in a year. This includes contributions (other than rollovers) to
all the child's education IRAs from all sources. Rollovers are
discussed under Rollovers and Other Transfers, later.
Limit for each contributor.
You can contribute up to $500 for each child for any year. This is
the most you can contribute for the benefit of any one child for any
year, regardless of the number of education IRAs set up for the child.
However, this limit may be reduced as explained next.
If your modified adjusted gross income (defined earlier)
is between $95,000 and $110,000 (between $150,000 and $160,000 if
filing a joint return), the $500 limit for each child is gradually
reduced. (See Figuring the limit, next.) If your modified
adjusted gross income is $110,000 or more ($160,000 or more if filing
a joint return), you cannot contribute to anyone's education IRA.
Education IRA Contributions at a Glance
Figuring the limit.
To figure the limit on the amount you can contribute for each
child, multiply $500 by a fraction. The numerator (top number) is your
modified adjusted gross income minus $95,000 ($150,000 if filing a
joint return). The denominator (bottom number) is $15,000 ($10,000 if
filing a joint return). Subtract the result from $500. This is the
amount you can contribute for each child.
Example.
Paul, who is single, had modified adjusted gross income of $96,500
for the year. Paul, can contribute up to $450 for each child, figured
as follows.
- $96,500 - $95,000 = $1,500
- $1,500 x $15,000 = 10%
- 10% x $500 = $50
- $500 - $50 = $450
Additional Tax on Excess Contributions
A 6% excise tax applies each year to excess contributions that are
in an education IRA at the end of the year. Excess contributions are
the total of the following three amounts.
- Contributions to any child's education IRA for the year that
are more than $500 (or, if less, the total of each contributor's limit
for the year, as discussed earlier).
- All contributions to a child's education IRA for the year if
any amount is also contributed during the year to a qualified state
tuition program on behalf of the same child.
- Excess contributions for the preceding year, reduced by the
total of the following two amounts:
- Withdrawals (other than those rolled over, as discussed
later) made during the year, and
- The contribution limit for the current year minus the amount
contributed for the current year.
Exceptions.
The excise tax does not apply if the excess contributions (and any
earnings on them) are withdrawn before the due date of the
beneficiary's tax return (including extensions). If the beneficiary
does not have to file a return, the tax does not apply if the excess
contributions (and the earnings) are withdrawn by April 15 of the year
following the year the contributions are made. The withdrawn earnings
must be included in the beneficiary's income for the year in which the
excess contribution is made.
The excise tax also does not apply to any rollover contribution.
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