Coverdale Education Accounts Could be Downsized

Coverdell Education Savings Accounts were created in 2001 to empower parents with greater options for their children’s education, but unless Congress takes action, those accounts could change in 2011.

Currently, parents who send their children to private schools because they’re not satisfied with the public school quality or culture have to pay twice: once in taxes for public schools, and a second time for their private school tuition. Coverdell accounts are one small way to help lift some of this burden by letting parents save for these education costs in tax-free accounts.

The accounts allow parents to keep more of their own money to be used for paying educational expenses for children in grades Kindergarten through 12th grade. They may also be used for college expenses without being hit with a tax on the money that’s been saved for those expenses.

If Congress fails to act, parents will no longer be able to use the tax-deferred savings they have accumulated for pre-college expenses. If this happens, then expiration will violate President Obama’s pledge not to raise taxes on people making less than $250,000 a year because, as it stands, Coverdell accounts are exempt from capital gains taxes when used for primary or secondary expenses such as private school tuition, a new computer, or school supplies.

The extra revenue brought into the federal government by prohibiting Coverdells from being used for all educational expenses is miniscule; but to prohibit it, to change the rules of the game after savers have been investing their $2,000 Coverdell contributions per year tax-free for up to ten years, is unreasonable and unfair. Perhaps members of Congress have such an ax to grind against the American people sending their children to private schools that they will allow the rules regarding Coverdell accounts to be altered, but that would be a big mistake.

For one thing, to do so, would be to chip away at a rock that is the American Dream. These accounts only allow a parent or guardian to contribute $2000 per child per year. That contribution, however, may be invested in stocks, bonds, mutual funds, exchange traded funds and notes, and a variety of other investment options. The choices of what investments to make are up to the Coverdell Education Account owner. For small time investors–the ones who didn’t reap the vast payouts from the bailout of Wall Street’s giant investment banks–this is a carrot the Federal Government has no business taking away. Politicians should not penalize Main Street due to a proverbial ax they have to grind against individuals who wish to save and invest.

If the Coverdell Educational Savings account is allowed to expire, then a penny saved will no longer be a penny earned towards investing in a better education in 2011.