Deadline For Making Education Ira Contribution

[Guest Shelton]

Prior to EGTRRA 2001, the last day to make a contribution o an Education IRA, was the day before the beneficiary attained his/her 18th birthday.

Also, before EGTRRA, the deadline for making a contribution to an education IRA was 12/31 of the year for which the contribution was being made.

EGTRRA extended the deadline for making the contribution to the tax filing date of the beneficiary. Although EGTRRA did not address the age 18 issue, with respect to making the last contribution, it would appear that the extension of the deadline,(to tax filing date) would enable an individual to make a contribution, for the year they reach their 18th birthday, up until April 15 of the next year.

Some practitioners seem to think that the April 15 (tax filing deadline) applies only to contributions that are made for ages 17 and lower.

Any opinions on that?

[Gary Lesser]

It would appear that the individual for whom the contribution is made must not be any older than 18. Thus, the contribution must be made on or before the date the individual attains age 18. Even though a prior years' contribution can be made by the tax filing date (not including extensions), and is deemed to have been made on th last day of the preceeding year, Code Section 530(B)(A)(ii) prohibits the trustee/custodian from accepting the contribution after the 18th birthday.

[Guest Shelton]

Thanks Gary

[Appleby]

Gary, your response is logical.

Yet…while the particular clause in the IRC that address the age 18 issue (IRC 530 (B)(1)(A)(ii), has not been stricken or directly changed by EGTRRA 2001, the added clause which addresses "time when contributions Deemed made" permits the education account to be funded "...no later than the time prescribed by law for filing the return of such taxable year"

EGTRRA 2001 made no distinction that would exclude an individual age 18, from benefiting from the new deadline.

Your thoughts…

[Gary Lesser]

I essentially agree and the contribution would relate back. But I do not believe that the trustee is able to accept it. Clearly, this is ripe for a technical correction. Until guidance is issued, it would be best to adhere to the rule that contributions cannot be accepted after age 18, notwithstanding the extended contribution deadline efective next year.

I am more concerned with the 402(h) limits applicable to SEPs regarding the deductibility of 25% and the inclusion of amounts contributed in excess of 15%--have you head of anything in that regard.

[Appleby]

Thanks Gary,

From what I hear, it is expected that a proposal for technical corrections be made by year-end... the passage is another issue, as it may be furter hindered by political bureaucracy .

If I hear anything definitive, I will let you know.