Education IRA
Education or Coverdell IRA
The option helps clients prepare for tuition payments.
Contributions
- Contributions are made with after-tax dollars, so they are not deductible.
- Annual contributions from one or multiple donors, such as parents and grandparents, are limited to $2,000 starting.
- Contributions will be phased out as the contributor’s adjusted gross income increases from $190,000 to $220,000 for married couples filing jointly, and from $95,000 to $110,000 for single filers.
- Contributions cannot be made once the beneficiary turns 18.
Earnings
- Earnings used for college expenses occurring in that year are not taxable.
Distributions
- Qualified distributions from the account are
not taxable.
(To qualify, the distribution must be used for the child’s college-level educational expenses. The child does not have to attend the eligible institution full time.) - Distributions are paid proportionately from contributions and earnings.
- Distributions from earnings incur taxes and penalties if they exceed the education expenses for that year.
- Before the beneficiary reaches age 30, the
account balance must be:
- distributed to the beneficiary as taxable income, and thus is subject to a 10% penalty tax; or
- transferred to an Education IRA for a qualifying family member. The transfer generally is tax-free to both the transferring and receiving beneficiaries.
- Rollovers to other IRAs are not allowed.
Benefits to the taxpayer
- Provides a convenient way to help finance a child’s higher education.
- Qualified distributions are tax-free.
Should you wish to schedule a free introductory appointment, contact us.
More information on College planning and family issues:
- Education Funding
- Section 529 plans
- Coverdell Education IRAs
- When should I start saving?
- Insurance issues for parents
- http://www.ed.gov/thinkcollege/
For the latest information on 529 plans, reflecting the new Bush tax law changes, check out our presentations put together in association with the three 529 plan managers. Note: large files.
- College America 529
- Education Planning & EDPLAN 529
- The College Bound Fund 529
- The GIFT 529
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