![]() Only $2,000 can be contributed to an education IRA each year. To begin with, the total allowed contribution amount is relatively low. There are, however, a number of restrictions on how they can be used and who can make contributions. The tax-free growth and tax-free withdrawals for eligible expenses make education IRAs useful tools to pay for a child’s schooling costs. ![]() Withdrawals can be used to pay eligible costs for any level of education, including primary, secondary and college. ![]() The list of eligible expenses includes tuition, books, supplies and equipment that is necessary to enroll and attend an eligible educational institution. Withdrawals are also free of taxes as long as the money is spent on eligible expenses. However, the investment earnings of an education IRA grow tax-free. Unlike traditional IRAs used for retirement savings, contributions to an education IRA are made with after-tax dollars and cannot be deducted from one’s current income. All the funds in the account have to be distributed and the account must be closed after the beneficiary turns 30 unless, again, the beneficiary has special needs. Contributions can be made up until the beneficiary’s 18th birthday, although this also can be extended if the beneficiary has special needs. The account can only be set up for someone who is under age 18 or, if older, has special needs. However, there are income limitations, as well as caps on contributions and restrictions on how the money can be spent.Īn education IRA is a trust or custodial account that names a specific individual as the beneficiary. Anyone, including parents, grandparents and even corporations and trusts, can contribute to education IRAs. These accounts provide tax advantages to people saving for a child’s education expenses. A financial advisor can help you plan for education expenses.Įducation IRA is another name for a Coverdell ESA. The plans have to be set up to benefit specific individuals, who must be under age 18 when the plan is started, and emptied by the time the beneficiary turns 30. Contributions are limited to $2,000 per year and can’t be deducted from taxes, but earnings grow tax-free. Funds in these accounts, which are also known as Coverdell education savings accounts (ESAs), can cover the costs of tuition, books and supplies for students in grade school, high school and college. An education IRA is a tax-advantaged savings account that can be used to pay for education expenses.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |