Education IRAs

Last month, I briefly explained the difference between the various Individual Retirement Accounts. This time, I have another IRA to tell you about. It is the Education IRA. Education IRAs, for those under age 18, are quite different from other IRAs. For one thing, $500 is the total maximum that can be contributed to an Education IRA. This is in addition to any other IRAs you may have (recall that $2000 is the total that can be contributed to any other IRA or combination of IRAs). A person can also contribute to an Education IRA even if he/she does not have earned income. However, it should be noted that the $500 maximum contribution can be made only if the contributior’s AGI (adjusted gross income) is less than $95,000 for single people or $150,000 for joint filers. Furthermore, the ability to contribute to an Education IRA is completely lost if a single person’s AGI is above $110,000, or $160,000 for joint filers. The contribution is phased out in between those ranges.

As long as the Education IRA’s beneficiary’s higher education expenses (books, supplies, equipment, fees and tuition, and part of room and board if enrolled half time or more) are equal to or more than the Education IRA distribution for the current year, the distributions are tax free. In most cases,a 10% tax is tacked on if the distributions are greater than the qualified expenses. In addition, the beneficiary has 30 days after turning age 30 to use the Education IRA funds.

Obviously, there are other requirements and details which cannot fully be explained here. If you think an Education IRA sounds like something you’d like to invest in, your own research will prove invaluable. Two good places to start are at Kiplinger ( and the Motley Fool ( Good luck!