You may be able to establish an education individual retirement account (education IRA or Ed IRA) to finance a child's qualified higher education expenses.

You may be able to contribute up to $500 cash each year to an education IRA for a child under age 18. Contributions to an education IRA are not deductible, but amounts deposited in the account grow tax free until withdrawn.

Any individual (including the child) can contribute to a child's education IRA if his or her income is below a certain amount. There is no limit on the number of education IRAs that can be established designating a child as the beneficiary. However, total contributions for the child during any year cannot be more than $500. See Contributions, later.

If, for a year, withdrawals from an account are not more than a child's qualified higher education expenses at an eligible educational institution, the child will not owe tax on the withdrawals. See Withdrawals, later.

What Is an Education IRA?

Contributions

Rollovers and Other Transfers

Withdrawals

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