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Ask A CPA - Educational Tax Benefits

What Is An Educational IRA ?

An Educational IRA is a custodial account or a trust set up for the purpose of paying the qualified higher educational expenses of the designated beneficiary of the account. The designated beneficiary must be a child under age 18. In general higher educational expenses include tuition, fees, books, supplies and room and board for at least half-time attendance. You may contribute up to $2,000 each year. The contributions are not tax deductible. For the current year, an individual may contribute to a child’s educational IRA if those individuals Modified Adjusted Gross Income is not more than $ 110,000 ($220,000 for a married filing joint return). There is a phase out if the MAGI is between $95,000 and $110,000 for non-joint filers and between $190,000 and $220,000 for joint filers. Amounts in the account accumulate tax-free until distribution. Distribution of the contribution is always tax-free and the earnings on the contribution are tax free if less than or equal to the years educational expenses. If more than the educational expense then a pro rata calculation is required. The assets in the account must be withdrawn by the age of 30. No contribution amount may be made in any year who also contributes to a qualified state tuition program on behalf of the same beneficiary.

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