The Economic Growth and Tax Relief Reconciliation Act of 2001 provided increased new benefits for families who are investing to fund the future education costs, particularly those of middle and higher income taxpayers.

1. QUALIFIED TUITION PROGRAM (SECTION 529 PLANS) - are state sponsored tuition programs, and   cover private or public educational institutional sponsors, which offer family members a tax-favored means of funding a child's future higher education costs.  These plan provisions  include:

1. Tax deferred earnings on funds accumulating in a qualified tuition plan;
   

2. Tuition plan account cash distributions from qualified state programs are exempt from income taxes on the beneficiary  when used for higher education, including college, university, graduate school, community colleges and vocational technical schools.  Distributions may be used for non-higher education purposes, but earnings are subject to income tax and a 10% penalty;
   

3. Tax free transfers are allowed from one qualified tuition program to another qualified program for the same beneficiary;
   

4. A tuition account beneficiary can be changed to another family member, including a parent and first cousins of the original beneficiary, if the original beneficiary decides not to go to college;
   

5. While contribution amounts to the tuition plans are  annual, individual States have set their own per beneficiary contribution limits.  These amounts are eligible for gift and estate tax exclusions (subject to some limitations). Gifts of up to $120,000 per beneficiary for a married couple, representing a 5 year gift advance may be made;
   

6. There are no "grantor-income" limitations affecting the amount that the grantor may make as a contribution to the tuition plan, and;
   

7. New York State permits an income tax deduction of $5000  ( $10,000  for married  ) for contributions to an N.Y.S. sponsored section 529 plan.

2. COVERDELL EDUCATION SAVINGS ACCOUNTS --

1. A family may contribute non-deductible contributions to Coverdell Education Savings Accounts (ESA) for payment of elementary, secondary and post secondary tuition, fees, books, supplies and equipment for a designated beneficiary and includes the costs of certain room and board, uniforms and computers;
   

2. The annual limit on ESA contributions is $2000 
   for each designated beneficiary;
   

3. Income accumulated in the ESA is tax deferred;
   

4. Distributions from the ESA account which are used for qualified education expenses are excluded from income; 
   

5. The allowable $2000 contribution is phased out for adjusted gross income of joint filers beginning at $190,000 and is eliminated entirely at $220,000;
   
   

6.  Rollovers to an ESA for another beneficiary in the same family is allowed from the remainder balance
   of another beneficiary's ESA.

If you have any questions or need additional information please contact us.