2009 Tax Information
Families that hope to send children to college, as well as those paying education expenses at the elementary and secondary levels may benefit from the tax provisions outlined below.
Earnings on investments in Coverdell ESAs are not taxed, and withdrawals are free from federal tax as long as they are used for qualified expenses associated with elementary, secondary, or college education. You may contribute $2,000 annually per child under the age of 18, unless the child is a special needs beneficiary. The contribution deadline is, as with traditional and Roth IRAs, your tax return due date, not including extensions. Single taxpayers with modified adjusted gross incomes of more than $110,000 and joint filers with incomes in excess of $220,000 are not eligible to contribute to Coverdell ESAs.1
529 college savings plans permit investors to accumulate aggregate amounts of up to $300,000 for higher education depending on the state in which the plan is established. Withdrawals used to finance qualified education expenses are free from federal tax. There are no income thresholds and, typically, no annual contribution limits, although annual contributions of more than $13,000 in 2009 ($26,000 when made jointly with a spouse) may require filing a federal gift tax form.
The tax benefits outlined below apply to families or individuals that are financing higher education at colleges and other eligible educational institutions. Keep in mind that there are some restrictions. For example, the deduction for education tuition and fees cannot be used in conjunction with the American Opportunity Tax Credit or Lifetime Learning Credit in the same year.
| Tax Incentive | Amount of Credit or Deduction2 | Income Thresholds for Credit or Deduction | Income Thresholds for Partial Credit or Deduction |
|---|---|---|---|
| American Opportunity Tax Credit (formerly called Hope Scholarship Credit) | Maximum credit in 2009 of $2,500 annually per student during the first four years of higher education. | Single filers with MAGI3 up to $80,000 in 2009; couples filing jointly with MAGI up to $160,000 in 2009. | Single filers with MAGI3 between $80,000 and $90,000 in 2009; couples filing jointly with MAGI between $160,000 and $180,000 in 2009 |
| Lifetime Learning Credit | Maximum credit of $2,000 annually for 20% of the first $10,000 of qualifying tuition and related expenses associated with higher education or training at an eligible educational institution to enhance job skills; taxpayers may claim the credit for an unlimited number of years. |
Single filers with MAGI3 up to $50,000 in 2009; couples filing jointly with MAGI up to $100,000 in 2009. |
Single filers with MAGI3 between $50,000 and $60,000 in 2009; couples filing jointly with MAGI between $100,000 and $120,000 in 2009 |
| Tuition and Fees Deduction | The maximum allowable deduction is $4,000 or $2,000, depending on the taxpayer's modified adjusted gross income (MAGI). This deduction was recently extended and is available through Dec. 31, 2009. | Single filers with a MAGI3 up to $65,000 and married couples filing jointly with a MAGI up to $130,000 qualify for a $4,000 deduction. | Single filers with a MAGI3 between $65,000 and $80,000 or couples filing jointly with a MAGI between $130,000 and $160,000 qualify for a $2,000 deduction. |
1 The Economic Growth and Tax Reconciliation Act of 2001 is scheduled to sunset effective December 31, 2010, unless Congress acts to extend it. The sunset will not affect the taxation of distributions for higher education expenses. However, following December 31, 2010, the tax treatment of distributions from Coverdell Education Savings Accounts for K-12 expenses is uncertain. In addition, the $2,000 maximum contribution limit may return to $500 and eligibility to contribute may return to $95,000 or lower modified adjusted gross income (MAGI) for single taxpayers and $190,000 or lower MAGI for joint filers.
2 Applies only for 2009 and 2010 unless Congress extends the credit.
3 MAGI is Modified Adjusted Gross Income.
This information is for use with concurrent or prior delivery of a fund prospectus. Investors should consider the investment objectives, risks, charges and expenses of a mutual fund carefully before investing. To learn more about this and other important information about each fund, download a free prospectus. The prospectus should be read carefully before investing.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
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RiverSource®, Seligman® and Threadneedle® mutual funds are distributed by Columbia Management Investment Distributors, Inc. (formerly known as RiverSource Fund Distributors, Inc.), member FINRA and managed by Columbia Management Investment Advisers, LLC (formerly known as RiverSource Investments, LLC). Threadneedle mutual funds are subadvised by Threadneedle International Limited, an affiliate of Columbia Management. Seligman is an offering brand of Columbia Management.