If you have planned ahead for your retirement by contributing to a traditional IRA you have taken a vital step in ensuring a stress free and financially secure future. Another equally important decision is planning for your children’s education. With the continued rise in the cost of college, most parents are caught off-guard by the enormous expense associated with college and university. Since withdrawing funds from a traditional IRA, even for an accredited college, will incur penalties, an education IRA is a logical choice.
As parents we want to give our children the best start possible in life and being able to provide them with a solid education is one of the best ways to do exactly that. It is possible to give them the gift of a debt free education by starting an education IRA while they are still in their early years. Most people take out education IRA’s for their children but in fact almost anyone can start an education plan to help cover the costs of higher education.
An education IRA can help pay the tuition fees for elementary school, high school or university. Since there is a limit as to the amount one can contribute to such a plan it is important to do your research now. Take some time to research the rules that govern education IRA’s as compared to a traditional IRA so you will have enough information to make the choices that will best suit your family’s needs. Any member of the family can make contributions to an education IRA provided they fall within the allowable limits within any given year.
Unlike a traditional IRA an education IRA is an account that is nondeductible and has the advantage of tax-free withdrawals for the specific purpose of the child’s education related expenses. It is important to take some time now to do your research and understand the differences between an education and traditional IRA. Some of the advantages of an education plan are that distributions are tax-free and penalty free as long as you follow the guidelines of the plan.
While there are eligibility factors to consider the advantages will usually surpass any penalties that would be incurred in regards to withdrawals from a traditional IRA for educational purposes. One of the advantages to an education IRA is that you are not required to have an earned income or that you as a contributor be under a specified age. The best time to start an education plan is of course while your children are still quite young. It also appears that you can have a plan for as many children as needed and that you can contribute up to the maximum allowable for each individual child.
The single most important thing you can do right now is invest a little of your time to finding all the information you can and understanding eligibility and laws governing the definition of a child according to the plan. Knowing your rights and the requirements you will need to follow will allow you to make the best decisions on behalf of your children’s future. The decision you have made in planning to save for your retirement by starting a traditional IRA to ensure a financially stress free retirement shows that you understand how important it is to plan ahead both for yourself and for your children.