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New tax law extends Coverdell ESA benefits

(December 22, 2010) - The tax and unemployment insurance relief bill signed by President Obama on December 17 extends for two years the improvements made to the Coverdell education savings account by the 2001 Tax Act. These improvements include a $2,000 per year per child contribution cap, the ability to count primary and secondary school expenses ("K-12") as qualified expenses when taking distributions, and the ability to take tax-free distributions from a Coverdell ESA and claim an education tax credit (Hope, American Opportunity, Lifetime Learning) in the same tax year, just not on the same expenses.

So now the expiration of these benefits is December 31, 2012.

The new law also retains the maximum $2,500 American Opportunity Tax Credit, originally scheduled to expire on December 31, 2010, through 2012. However, it apparently does not extend the 2009 change to Section 529 that allowed as qualified expenses the costs of computers and other computer technology for college students and their families. The computer provision thus expires on December 31, 2010.

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