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When Must Education IRA Assets Be Distributed?

This is the internet’s source for information on Retirement Accounts.  The following information covers traditional IRAs, roth IRAs, 401(k)s, 401(k) rollovers, SIMPLE IRAs, SEP IRAs, 403(b)s, SARSEPs, Keoghs, Pension Plans.

The following pages define the Education IRA.   

                               

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Generally, any assets remaining in the education IRA must be withdrawn or distributed when either one of the following two events occurs.

  1. The designated beneficiary reaches age 30.  In this case, the designated beneficiary must withdraw the remaining assets within 30 days after he or she reaches age 30.
  2. The designated beneficiary dies before reaching age 30.  In this case, the remaining assets must generally be distributed.  The assets must be distributed to the estate or  the designated beneficiary (if no beneficiary is named) or to the beneficiary named by the designated beneficiary (if not a spouse or other family member) within 30 days after the date of death.

When distribution is required because of one of these events, any balance remaining at the close of the 30-day period is deemed to be distributed at that time and the earnings portion of the distribution is includable in the beneficiary's gross income.  For distributions made because the designated beneficiary reaches age 30, the designated beneficiary may be subject to an additional 10% tax on the portion of the amount withdrawn that represents earnings if the designated beneficiary does not have any qualified higher education expenses in the same taxable year he or she makes the withdrawal.  To determine the earnings on the amount withdrawn, use the following two steps.

  1. Multiply the amount withdrawn by a fraction.  The numerator is the total contributions in the account and the denominator is the total balance in the account before the withdrawal(s).
  2. Subtract the amount figured in (1) from the total amount withdrawn during the year.   The result is the amount of earnings included in the withdrawal.  The beneficiary must include this amount in income.

        Exception for transfer to surviving spouse or family member.  There are no income tax consequences if amounts that are required to be distributed are transferred or rolled over tin the following situations.

  1. Before a designated beneficiary reaches age 30, the remaining balance in his or her education IRA may be transferred or rolled over to another education IRA for a member of the designated beneficiary's family .  The new designated beneficiary must be under age 30 at the time of the transfer or rollover.
  2. In the event of a designated beneficiary's death, a spouse or family member acquires the former designated beneficiary's interest in an education IRA as a result of the death of the designated beneficiary.  The spouse or family member can treat the education IRA as his or her own.

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