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The Education IRA was designed to provide a tax-advantaged
investment dedicated to help with education expenses for both higher
education and K-12.
In order to be considered a Coverdell ESA, the plan must be so
designated at the time it is established.
Contributions to the education IRA must be made in cash, this
cannot be made after the Beneficiary attains the age of 18 and cannot
exceed in aggregate $2,000.00 for a taxable year, with the exception of
rollover contributions.
Distributions from an Education IRA are tax free up to the amount
of qualified education expenses. If the distributions exceed the qualified
education expenses, the portion that represents earnings that have
accumulated tax deferred in the account becomes taxable; it is also subject
to the 10% early withdrawal penalty.
Education IRAs may accept rollovers from other Education IRAs.
Contributions to an Education IRA can be made from multiple sources,
although there is a limit of $2,000.00 per Beneficiary. Contributions can
come from various people.
At the time the Beneficiary attains the age of 30, the
balance of the account must be distributed within 30 days and it is subject
to income taxes.
The responsible individual may be able to change the beneficiary of
the Education IRA to another member of the designated beneficiary’s family,
some limitations may apply.
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