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What Is An Education IRA

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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An education IRA ( now called Coverdell education savings accounts) is not a retirement arrangement.  It is a trust or custodial account created only for the purpose of paying the qualified higher education expenses of the designated beneficiary of the account.  To be treated as an education IRA, the account must be designated as an education IRA when it is created.

Account Requirements: The document  creating and governing the account must be in writing and must satisfy the following requirements.

  1. The account must be created or organized in the United States.
  2. The trustee or custodian must be a bank or an entity approved by the IRS.
  3. The document must provide that the trustee or custodian can only accept a contribution that:
    1. Is in cash,
    2. Is made before the beneficiary reaches age 18, and
    3. Would not result in total contributions for the tax year (not including rollover contributions) being more than $500.
  4. Money in the account cannot be invested in life insurance contracts.
  5. Money in the account cannot be combined with other property except in a common   trust fund or common investment fund.
  6. Generally, the balance in the account must be distributed within 30 days after the earlier of the following events.
    1. The beneficiary reaches age 30
    2. The beneficiary's death.

However, distribution is not required if, as the result of the death of the designated beneficiary, the education IRA is transferred to a surviving spouse or other family member under age 30.

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