Publication 590 |
2000 Tax Year |
What Is an Education IRA?
An education IRA is a trust or custodial account created or
organized in the United States only for the purpose of paying the
qualified higher education expenses (defined later) of the designated
beneficiary of the account. When the account is established, the
designated beneficiary must be a child under age 18. To be treated as
an education IRA, the account must be designated as an education IRA
when it is created.
Education IRAs at a Glance
Creating Document Requirements
The document creating and governing the account must be in writing
and must satisfy the following requirements.
- The trustee or custodian must be a bank or an entity
approved by the IRS.
- The document must provide that the trustee or custodian can
only accept a contribution if it:
- Is in cash,
- Is made before the beneficiary reaches age 18, and
- Will not result in total contributions for the year (not
including rollover contributions) being more than $500.
- Money in the account cannot be invested in life insurance
contracts.
- Money in the account cannot be combined with other property
except in a common trust fund or common investment fund.
- The balance in the account generally must be withdrawn
within 30 days after the earlier of the following events.
- The beneficiary reaches age 30.
- The beneficiary's death.
See When Assets Must Be Withdrawn, later.
Designated Beneficiary
The individual named in the document creating the trust or
custodial account to receive the benefit of the funds in the account
is the designated beneficiary.
Qualified Higher Education Expenses
These are expenses required for the enrollment or attendance of the
designated beneficiary at an eligible educational institution. They
include only the following items.
- Tuition and fees.
- The cost of books, supplies, and equipment.
- Amounts contributed to a qualified state tuition program.
(See State Tuition Programs, in Publication 970.)
- In some situations, the cost of room and board.
The cost of room and board is a qualified higher education expense
if the designated beneficiary is at least a half-time student at an
eligible educational institution.
The expense for room and board is limited to one of the following
two amounts.
- The school's posted room and board charge for students
living on campus.
- $2,500 each year for students living off campus and not at
home.
Half-time student.
A student is enrolled "at least half-time" if he or she is
enrolled for at least half the full-time academic work load for the
course of study the student is pursuing as determined under the
standards of the school where the student is enrolled.
Eligible educational institution.
An eligible educational institution is any college, university,
vocational school, or other postsecondary educational institution
eligible to participate in a student aid program administered by the
Department of Education. It includes virtually all accredited, public,
nonprofit, and proprietary (privately owned profit-making)
postsecondary institutions. The educational institution should be able
to tell you if it is an eligible educational institution.
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