An Educational IRA is a trust or custodial
account that is created for the purpose of paying the qualified
higher education expenses of the designated beneficiary of the
account. The account must be designated as an Education IRA when
it is created in order to be treated as an Education IRA for tax
An Educational IRA may be established for the benefit of any child
under age 18. Contributions will not be accepted after the child
reaches his/her 18th birthday.
Parents, grandparents, other family member, friends, and a child
himself/herself may contribute to the child's Educational IRA,
provided that the total contribution for the child during the
taxable year does not exceed the $2,000 limit. Contributions do
not count against the the limits for IRAs.
Contributions are not tax-deductible.
Amounts deposited in the account grow tax-free until distributed,
and the child will not owe tax on any withdrawal from the account
if the child's qualified higher education expenses in a taxable
year at an eligible educational institution for the year equal
or exceed the amount of the withdrawal.
Generally, the withdrawals are tax-free to the designated beneficiary
to the extent the amount of the withdrawal does not exceed the
designated beneficiaries qualified higher education expenses.
"Qualified higher education expenses" mean expenses
for tuition, fees, books, supplies, room and board (generally
the school posted room and board charges, or $2,500 per year for
students living off-campus and not at home) and equipment required
for the enrollment or attendance of the designated beneficiary
at an eligible educational institution.
If there are assets remaining in an educational
IRA after the designated beneficiary finishes his/ her post-secondary
education, the amount left in the account may be withdrawn by
the designated beneficiary. The designated beneficiary will be
subject to income tax and an additional 10% tax on the portion
of the amount withdrawn that represents earnings. Alternatively,
if the designated beneficiary's Educational IRA is rolled over
to another Educational IRA for the benefit of a member of the
designated beneficiary's family, the amount rolled over will not