The news about self-directed IRAs is out and more accounts are being opened now than ever still there seems to be two accounts that people are forgetting about. Coverdell Education Savings Accounts and Health Savings Accounts can be self-directed also. This gives the owners of these accounts the ability to invest in non-traditional assets and the ability to enjoy the benefits of tax-deferral on the profits.
Coverdell Education Savings Accounts
Contributions to a Coverdell Education Savings Account are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.
As of 2013, you can contribute up to $2,000 per year.
Here are some things to remember about Distributions from Coverdell Accounts:
- Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.
- There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution.
- The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell Education Savings Account, as long as the same expenses are not used for both benefits.
- If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.
Health Savings Accounts
A health savings account (HSA) is a tax-exempt account that you set up and use to pay or reimburse certain medical expenses you incur.
Benefits of an HSA include:
- Contributions to your HSA made by your employer (including contributions made through a cafeteria plan) may be excluded from your gross income.
- The contributions remain in your account from year to year until you use them.
- The interest or other earnings on the assets in the account are tax free.
- Distributions may be tax free if you pay qualified medical expenses.
- An HSA stays with you if you change employers or leave the work force.
As of 2013, you can contribute $3,250 each year. Those age 55+ can contribute an additional $1,000 on a tax-deductible basis.
For more information on this or any type of self-directed IRA account, please feel free to contact American IRA, LLC via e-mail [[email protected]] or via phone [1-866-7500-IRA(472)], or visit our website [www.americanira.com].