What is an Education IRA?
This IRA is also known as the Coverdell Education Savings Account and is used exclusively to pay education expenses. Similar to the Roth IRA, contributions are nondeductible, earnings accumulate tax-free, and qualified withdrawals are tax-free. The contribution limit is $2,000 per child. For more complete details, click here.
A. The Education IRA is used to help fund college costs. Payments are currently limited to $2,000 per year, per child under age 18 and are not deductible. Additions are allowed for single filers with AGI below $95,000 and joint filers with AGI below $190,000 Earnings grow tax free and are taken out tax free when they are used to pay the child’s college, high school, middle school, and elementary school costs. The new tax law allows simultaneous additions to a 529 plan, effective 1/1/2002.
The term Educational Individual Retirement Account (IRA) has always been a bit of a misnomer. An Education IRA was never intended to be used for retirement, but rather was a place parents could build up funds for their children to draw on when they reached college age. For this reason, the IRS changed the name in 2002. The Education IRA is now called a Coverdell Education Savings Account (ESA). The rules are very similar to an Education IRA with some small but important variations. There are income limits for those who wish to contribute to an ESA. The modified adjusted gross income of a contributor must not exceed $110,000 US Dollars (USD), or $220,000 USD for those filing jointly. The beneficiary may also contribute to the account up until the age of 18. Teens who have part-time jobs and plan to attend college find this to be a nice feature. The maximum contribution that parents can make per child under the age of 18 is $2,000 USD per year. This amount was raised from the $500 USD li
An Education IRA is also called a Coverdell ESA account and is used for the education of minors, and established under guidelines that are established by the Federal government. The amount that can be contributed into this account cannot be in excess of $2,000 per year, per beneficiary. A beneficiary is defined as someone who is under the age of 18. One of the special considerations of this Education IRA is that there are income limitations for those that are contributing to the account. Contributions can be made into this account for each tax year until the taxpayer files their annual return. This type of education account is not as widely used as other more recently added accounts, as the contributions to this account are not tax deductible. The funds once they have been deposited into this account will grow tax deferred until they are withdrawn. If the funds inside of the Education IRA are used for qualified higher education expenses, the beneficiary will not owe any taxes on the wi
