Monday, September 26, 2005
Coverdell portion not worth the time
Discussion over at Home Ed Mag's HE&OS
-- Only the income is tax free. So, unless you’re financially well off (in which case home education expenses are of relatively little concern), funding a Coverdell and then taking the money out a year or two later won’t generate enough interest or capital gains to be worth the trouble. An example– The annual limit for a contribution is $2,000. Let’s say you contributed the maximum for six years and then started making withdrawals so that the money would be exhausted after twelve years of homeschooling (It wouldn’t make any sense to make a withdrawal and a contribution in the same year.) Further, let’s assume you earn a nice safe 3 percent on your money. At the end of the 18th year, you’ll have earned $3,595.92 in interest, or an average of $299.66 per year of homeschooling. At the 30 percent tax bracket, you’ll save an average of $89.90 in federal taxes. Contribute only $1,000 per year and your tax savings drop to $28.95. Yeehah!
More at the link.
-- Only the income is tax free. So, unless you’re financially well off (in which case home education expenses are of relatively little concern), funding a Coverdell and then taking the money out a year or two later won’t generate enough interest or capital gains to be worth the trouble. An example– The annual limit for a contribution is $2,000. Let’s say you contributed the maximum for six years and then started making withdrawals so that the money would be exhausted after twelve years of homeschooling (It wouldn’t make any sense to make a withdrawal and a contribution in the same year.) Further, let’s assume you earn a nice safe 3 percent on your money. At the end of the 18th year, you’ll have earned $3,595.92 in interest, or an average of $299.66 per year of homeschooling. At the 30 percent tax bracket, you’ll save an average of $89.90 in federal taxes. Contribute only $1,000 per year and your tax savings drop to $28.95. Yeehah!
More at the link.
posted by Publius, 6:16 PM
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