How to Use Funds From an Education IRA

The Education IRA was the original name for tax-deferred savings. The new name is the Coverdale Plan, and it's one form of saving for higher education. The Coverdale Plan has some benefits and some restrictions that no other plan has. If you want to use the funds from your Education IRA, then there are a few steps that you must follow.

Instructions

Difficulty: Moderately Easy

1. Know that you can use the funds for many different educational tuitions. You can withdraw the funds for elementary, high school and post-secondary school tuition.
2. Understand that you can use the funds from a Coverdale Education IRA for public and private schools. The private schools may also be religious schools.
3. Pay for not only tuition and fees but also books and supplies. As long as the monies are used for education, there's no taxation or penalty. Room and board are also included in legitimate uses.
4. Furnish a tutor for your child with the monies in a Coverdale Education IRA. The cost of tutoring is considered to be a legitimate cost of education. If you have a child that needs additional help, this plan works effectively for your child.
5. Remove the funds by contacting the institution that holds them. You have to distribute the funds by the time the child reaches the age of 30. These can be transferred to another member of the family to use.

Tips & Warnings

• Unlike the 529 Plan, which can only be used for college, the Coverdale Education IRA can be used for the lower grades.
• If using a Coverdale Education IRA, make certain that you fall within the income restrictions. You can put away up to $2,000 if your income is less than $220,000 married or $110,000 single. The phase out begins at $190,000 for married people and $95,000 for those that are single.
• If the money is not used for educational purposes, it is taxed and a 10% penalty on the growth could be imposed.

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