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.

1. The trustee or custodian must be a bank or an entity approved by the IRS.
2. The document must provide that the trustee or custodian can only accept a contribution if it:
   1. Is in cash,
   2. Is made before the beneficiary reaches age 18, and
   3. Will not result in total contributions for the year (not including rollover contributions) being more than $500.
3. Money in the account cannot be invested in life insurance contracts.
4. Money in the account cannot be combined with other property except in a common trust fund or common investment fund.
5. The balance in the account generally must be withdrawn within 30 days after the earlier of the following events.
   1. The beneficiary reaches age 30.
   2. 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   See When Assets Must Be Withdrawn, later.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.

1. Tuition and fees.
2. The cost of books, supplies, and equipment.
3. Amounts contributed to a qualified state tuition program. (See State Tuition Programs, in Publication 970.)
4. 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.

1. The school's posted room and board charge for students living on campus.
2. $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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