What is a Coverdell Educational IRA | Mark J Kohler

Hi, Mark Kohler here with another two minute tax and legal tip. Let's talk about the Education or Coverdell ira. These are amazing little tools that can be used to save for your child's education. Now, you're going to see a lot of commercials out there for the 529 or 529 plan and they're touted as being the best for college savings because you can put large contributions in there. But I love the Coverdell or educational IRA because of their flexibility. Let's talk about five benefits of the education ira. Number one, I don't know if we want to call it a benefit, but let's go through the rules here is that you can only contribute $2,000. Now, that's not a bad thing, but it's a start. You can put away $2,000 per child per year. Now, that's not a tax deductible contribution, but it's an account that grows tax per and comes out tax free for your child's educational expenses. Number two, you need to be aware of income limitations. If you make too much money, you can't contribute to one of these IRA accounts for your kids. Now, it starts if you're single at modified adjusted gross income of 95,000 and phases out at 110. If you're married, it starts at 190,000 and phases out at a 220,000. Now, the cool part here is that's your income if you want to contribute to your child's ira. But you can also get around this. First, you can gift money to your children and they can create their own covered L ira. I don't like that as much because you may want to have control of the IRA to appoint a different beneficiary. So if your kid doesn't use the money for college, you can change the beneficiary if you create the account. But it is an option. Also, you can give money to the grandparents or other family members can contribute to an IRA for your child a covered LRA if their income limits meet these boundaries. So you want to maybe have your grandparents, your parents, the child's grandparents, make the contribution to create the covered lira. That could be a way to get around the income limits. Number three, don't worry about the deadline. You have until April 15th to contribute for the last year. Now, again, you don't get a tax deduction for contributing, but you have up until April 15 to contribute for the prior year. And you could still make this year's contribution at the same time. So you could put $4,000 in there. And I'm going to come to an important reason why you may want to get that money in there right away. Number four, the reason why I want you to get that money in there right away is so that you can start investing it. And here's the beauty of the covered IRA compared to the 529 you can self direct your IRA now. If you don't understand the concept of self directing, please look at some of my other videos below and check out the links to my partner's website and book and my videos and articles on this topic. Self directing is the ability to invest your Coverdale IRA for your child in whatever you know best. For example, I just had a client the other day take their IRA and buy super bowl tickets to the new Los Angeles Ramsay Stadium that's going to be built. You can buy tickets to seats now and he bought those in the name of his ira. So when he stubhubs them and sells those tickets, the profits from reselling those tickets go back into his ira. That's called self directing. You can buy real estate, do notes, invest in equipment and lease it. Who knows? You can invest the IRA the best you know how to make money. So with the Coverdell ira, don't feel like you're going to be stuck with Wall street tools of stocks, bonds and mutual funds. Learn about self directing and you can increase that IRA for your kids education faster than you ever imagined. 5. Finally, keep in mind that the money has to come out by the time the child turns age 30. Now it comes out for tuition and school fees and all that good stuff to pay for college and tuition costs are going up if you didn't notice. So you're going to need that money. I got three kids in college myself, so I wish I would have started these CoverDel IRAs 15, 20 years ago. But anyway, get started now and make sure the child pulls that money out tax free for college before age 30. If they don't use the money since you open the account, you can change the beneficiary to another child. Anyway, there are some basics on the Coverdell or Education ira, which is an exciting topic. And if you found this amazing and your CPA isn't talking to you about this kind of stuff, look at the information below and listen for a little bit more of how you can work with us and learn more about saving taxes and build a wealth. Thanks for watching and if you love that video, I've got a lot more. Please subscribe to my channel and I shoot weekly videos that can help you in your business, personal life and better live your American dream. Also, check out my newsletter. Free newsletter every week with blog articles, tips, strategies, tax deadlines. You'd love it. Also, if you like social media, please please follow me on social media with some daily tips. And if you like to connect that way, it could be a lot of fun. But finally, please check out my tax and legal Library. I have 50 plus videos on these topics and more where I pull out a whiteboard and break them down. Hours and hours of helpful information that can better help you live the American Dream.