The cost of sending a child to college is higher now than ever before. If you are concerned that there will not be enough money for college when the time comes, you can turn their college fund around by investing in an education IRA.

What Is an Education IRA?

And education IRA is simply an account that serves a parent’s financial needs if they are planning to pay for their child’s college education. The earlier you begin investing in one, the more money there will be when your child graduates from high school.

What Are the Contribution Limits?

If your son or daughter is under the age of 18, you are allowed to make a maximum yearly deposit of $500. Even though members of your immediately family are allowed to deposit additional funds, your personal contribution is capped.

But remember, the more money you make, the less amount you are allowed to contribute. For a single parent who has a gross income of $96,000 per year, the yearly contribution limit is $450 each year, per child. A single parent who makes over $110,000 per year is completely restricted from using an education IRA.

Are There Any Tax Penalties?

Your child’s education IRA will be taxed; however, if the money is used to cover eligible educational expenses like books, room and board, and tuition, the earnings will not be taxable. Check with a financial planner or the IRS as to any possible fees you may incur.

What if My Child Decides Against College?

If your child decides college is not for him or her, their IRA can be rolled over to any other children you have, all without being taxed. But if your son or daughter decides to withdraw the entire amount, there is a 10 percent tax they must pay.

Who Can I Contact for More Information?

The IRS is the ideal source for accurate education IRA information. Even though the tax rules surrounding an IRA are complex, investing in one is easy and straightforward. Talk to an IRS agent before deciding to invest.