Education IRA

College Planning

Education IRAs May Help Ease the Costs of a College Education

The national average cost of just one year of college is currently $10,458 at public four-year institutions and $22,533 at private four-year schools.* As these figures continue to increase, so do the concerns among the parents and grandparents of future coeds. Will you be able to meet the financial challenge of providing your child or grandchild with a quality education? The Education IRA might help you say yes.

You may establish a tax-advantaged Education IRA for any child under age 18, including a grandchild. Contributions to an Education IRA are not deductible. However, withdrawals used for qualified higher education expenses generally are tax-free and are not subject to a 10 percent IRS penalty for early withdrawal.

Qualified higher education expenses include tuition, fees, books, supplies and equipment required for attending an institution of higher learning (e.g., a college, university or vocational school). Room and board expenses also qualify if the child is at least a part-time student.

The maximum Education IRA contribution per child is $500 annually. The contribution limit phases out for contributors as follows: Singles with an Adjusted Gross Income (AGI) between $95,000 and $110,000, and married couples filing jointly with AGI between $150,000 and $160,000. Note: If your AGI prevents you from contributing to your child or grandchild's Education IRA, you may want to consider asking someone else (e.g., a family member) with an AGI below the eligibility threshold to contribute instead.

What if the Child Does Not Attend College?

You may elect a tax-free rollover of funds from one child's Education IRA to the Education IRA of another family member. This feature may be useful if your child or grandchild chooses not to attend college, or if there are funds remaining in the child's account after he or she graduates. Note: The funds in an Education IRA must be distributed, or rolled over to another family member's Education IRA, within 30 days after the child reaches age 30.


*Source: The College Board, a national nonprofit membership organization. Costs reflected in these figures include tuition, fees, room, board, books, supplies, transportation and other expenses for the 1998/99 school year.

For more information or to have us answer any questions you may have, please contact Atlantic Financial, or contact us

Also See: College Planning Steps
College Planning Information
Section 529 College Savings Plan 529 college savings plans