Which one of the following statements concerning an education IRA (Coverdell Education Savings Account) is correct?
A. Contributions to an education IRA are not deductible.
B. Contributions can be made to an education IRA on behalf of a beneficiary until the beneficiary reaches age 21.
C. A taxpayer may contribute up to $2,500 to an education IRA (Coverdell Education Savings Account) to pay the costs of the designated beneficiary’s higher education.
D. Eligibility for an education IRA is not subject to income phaseout.
Answer:A
A is corrent. Contributions to an education IRA are not deductible, but withdrawals of earnings will be tax-free if used to pay the qualified education expenses of the designated beneficiary. The maximum annual amount that can be contributed to an education IRA is limited to $2,000, but the annual contribution is phased out for single taxpayers with modified AGI between $95,000 and $110,000, and for married taxpayers with modified AGI between $190,000 and $220,000. Contributions cannot be made to an education IRA after the date on which the designated beneficiary reaches age 18.
B is incorrect. Contributions can be made if the designated beneficiary is under age 18.
C is incorrect. The maximum contribution is $2,000.
D is incorrect. The annual contribution is subject to a limitation based on modified AGI.