WomensFinance.com

GET STARTED
Banking & Savings
Financial Planning
Estate Planning
Insurance

CREDIT & DEBT
Manage Debt
Create a Budget
Credit Basics
Repair Credit
Protect Credit

MONEY MATTERS
Buying a Car
Paying for College
Buying a Home
Healthcare
Taxes

LIFE EVENTS
Marriage
Divorce
Widowhood
Children
Retirement

INVESTING
Get Started
Stocks
Bonds
Mutual Funds
IRA
401(k)
Glossary

CAREER
Find a Job
Back to Work
Choose a Career
The Workplace
Working Mom

Email this page  E-mail this page



 Money Matters :  Paying for College

Education IRA

Paying for College
The Education IRA

The Taxpayer Relief Act of 1997 created a special IRA that allows you to invest up $500 per child each year to pay for the costs of higher education. As long as you meet certain requirements, the beneficiary can be your child, grandchild, or any other designated individual under the age 18. Although an Education IRA is held in a child's name, a parent or guardian is actually in control of the account -- maintaining responsibility until all assets have been dispersed.

Contributions

Contributions made to an Education IRA are phased out for donors with modified adjusted gross incomes (AGI) that meet the following schedule:

 

Full

Partial

None

Single

$95,000

$95,000-$110,000

$110,000

Married

$150,000

$150,000-$160,000

$160,000

Withdrawals

While contributions to an Education IRA are not tax deductible, distributions are tax-free as long as you use the money to pay for qualified higher education expenses (for a beneficiary still under age 30). Tuition, books, fees, and other supplies generally count as education expenses.

If the money is not used for educational purposes within 30 days of the beneficiaries' 30th birthday, all earnings in the account will be dispersed, taxed as ordinary income, and subject to a 10% tax penalty. If the beneficiary doesn't attend college, assets of the account may be transferred directly to another family member.

Advantages

  • You can contribute up to $500 a year for each beneficiary.

  • Earnings grow tax-deferred.

  • Withdrawals are tax-free as long as you use the money to pay for higher education expenses.


MORE

    Back to Top


Copyright © 1999-2012 WomensFinance.com. All Rights Reserved. Privacy Policy
By accessing and using this page, you agree to the Terms of Service.