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Education IRAs
Education IRAs (EIRAs) allow total contributes up to a $500 annual maximum for anyone under the age of 18. Contributions are nondeductible and eligibility is unaffected by any amounts contributed to regular IRAs. EIRA eligibility phases out for donors who are joint filers with AGIs between $150,000 and $160,000 and singles with AGIs between $95,000 and $110,000. Grandparents, godparents or friends who meet the AGI eligibility criteria can make contributions. Gains in EIRAs accumulate tax-free and can be withdrawn tax-free for eligible college expenses. Accounts must be closed when the child turns 30 years of age. Unused funds can be used to pay for the college expenses of any family member. If not, income tax and a 10% penalty will be owed on all withdrawals.
You should note, taking tax-free withdrawals from an EIRA will disqualify you from being able to claim the Hope and Lifetime tax credits for that year.
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