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2001 Tax Relief Act Changes Education Planning

If you have looked at the education IRA, you will have noticed that the only thing it has in common with other IRAs is its feature of tax deferral. But that's okay. In an era when tax rates are going down, as they are for 2001–2006, tax deferral is just fine.

The 2001 Tax Relief Act has quadrupled that tax deferral, allowing annual education IRA contributions to rise from $500 in 2001 to $2,000 in 2002. Other 2001 Tax Relief Act changes allow education IRAs for elementary and secondary education, and allow education tax credits along with the tax exclusions for education IRA payouts, among other things.

The 2001 Act also expands "qualified tuition programs," also known as Section 529 Programs and Tuition Assistance Programs (TAP), another tax deferral program in which funds invested for future education grow tax-free. Such programs can now (after 2001) be offered by private institutions as well as state agencies (as before). Qualified tuition program payouts for qualified higher education will be tax-free after 2001.

There's more — in fact there's too much more. No, we don't mean too much tax help for education, but rather too many different tax-favored programs, and too many tax choices, for easy understanding. These include:

· Education IRA (changed by the new law)

· Qualified tuition programs (changed by the new law)

· Hope Credits

· Lifetime Learning Credits

· Withdrawal from traditional and Roth IRAs

· Interest on student loans (changed by the new law)

· Deduction for higher education (new above-the-line deduction added by new law)

· "Education" savings bonds

· Employer-provided education assistance (changed by the new law)

· Scholarship tax exemption

To find your way through this jungle of tax relief, we suggest contacting a Legend financial advisor who is knowledgeable in these areas.

For further information, contact James J. Holtzman, CPA at (412) 635-9210 or

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