Education IRA Accounts

Start an IRA for education today in order to pay for future education costs
By Shannon Tani Through an account such as an education IRA (EIRA), people are able to save money to pay for qualified educational expenses. As the costs of education continue to rise, it's becoming increasingly necessary to save money to cover the costs.
 

Parents are typically the people to start education IRA accounts for their children, but anyone can start the plan for a child. When it's time to use the money in the educational IRA account, the money is tax-free as long as you use it for qualified educational expenses.

Some important facts about education IRA accounts:

1. You can an educational IRA to pay for tuition costs at elementary or high schools as well as colleges.

2. There is a limit to how much money you can contribute to an EIRA account. Check with the government to learn the educational IRA limits for any particular year.

3. Anyone in the family can make an education IRA contribution as long as the total amount isn't above the year's maximum contribution limit.

Understand the education IRA rules to avoid penalties

You shouldn't always rely on Internet searches to give you the current information about educational IRA accounts. Sometimes, the information on web pages is outdated by several years. If you want accurate information, you should always look direct to the source.
Try: The U.S. government regulates educational savings funds that are tax-free. This means that you should always visit the IRS website for the most current rules and regulations. Read up on the Coverdell Education Savings Account (formerly called the "Education IRA") and other tax benefits for education.

Decide if an IRA for education is the right way to invest your money

An education IRA isn't the only want that you can save money for educational expenses tax-free. You may also be interested in a 529 savings plan or simple gift giving at the time. It's best to research all of your options before deciding what's best.
Try: Denver Tax Software offers a program that analyzes your financial situation and makes a recommendation for the best way for you to save for educational costs. Smart Money offers an extensive comparison of the various ways of saving for education.

Start an education IRA with your bank or investment firm

Once you've decided that the education IRA or Coverdell Education Savings Account is the right choice, you won't have to go far to start an account. Many banks and investment firms offer this type of account, so you can simply use your current bank.
Try: Wells Fargo allows current customers to open an education IRA online. If you prefer to keep your investments in one place, check with an investment firm, such as Charles Schwab, to open your account.

• An individual must use the funds in their education IRA accounts before they turn 30 years old. If you cannot use the funds, you should rollover the money into a younger family member's account. This will give them a large head start on their college fund.