I am currently looking into this. I got a brochure from my bank about Educational IRAs. They HAVE been for saving for college, but it says for this year…….. and I Quote…..
“For 2002 and later years, qualified education expenses may include tuition, fees, books, computer equipment and technology required for elementary, secondary and post-secondary education” AND
“Special-needs beneficiaries can withdraw funds tax-free to pay for qualified education expenses at any age”
So if someone has money in a traditional IRA, or possibly another retirement plan, maybe you could roll it over (limit $2,000 per year) to the Educational IRA and use it for tutoring, education, programs (LMB, Barton, etc.?) Now, I don’t know what they call “qualified education expenses” OR “Special-needs beneficiaries” You would have to talk to a banker, brokers, etc. But if we can use some of our retirement now for the education, I would go for that.
There is a yearly limit of $2,000 per year contribution, and the withdrawls for qualified education expenses are tax-free. You are still using your own money, but not the grocery money!
Anyone have any deeper info on this?
Connie
Re: possible source of money for education
OK, then what about transferring money from other retirement accounts? Even if there would be a penalty. I have small retirement account at a place I used to work that is just sitting there (well, gaining before, losing lately). I know that I can roll it over to an IRA. Why not an Educational IRA if I really needed the money for my child’s edcation now???
I wouldn’t mind losing some of it, (penalties, taxes, etc.) because I never contributed to it anyway, it was all the company contribution, and we have other things for retirement, and I can’t get to it until I’m 59 1/2 y/o or so anyway. I guess it would also depend on how desperate you are to get money to help your dyslexic child, weighing against that the issue of needing money for retirement. And the limit is $2,000/year, not the whole retirement.
And Janis, do you know any of the specifics about being able to use it for elementary and Special needs kids? What “qualified education expenses” are?
I still would hope that this would be an avenue for a few people.
Re: possible source of money for education
Connie,
If you have an extra retirement account and need the money for any reason, then certainly you can take out the money and pay the 10% penalty plus taxes (figure on losing close to half). But you wouldn’t put that money into an Education IRA (ESA now) if you need to use the money soon. The benefit of an ESA is that over a number of years, the earnings can accummulate and then be withdrawn tax-free when used for educational expenses for the child. You might start an ESA when a baby is born, and then use some of the money for private school or tutoring later. Most people use it to save money for college. But there is really no benefit to using it if you plan to withdraw the money right away. Just put it in a regular savings account until you pay for the services.
I’ll have to try to answer the rest of your qusestion later. We are on our way to a high school band concert!
Janis
Re: possible source of money for education
As I promised, here is the rest of my reply!
“Beginning in 2002, you will also be permitted to take tax-free withdrawals from a Coverdell account to pay for certain elementary and secondary school expenses. This includes tuition, fees, tutoring, books, supplies, and equipment incurred in connection with school (grades K through 12). It also includes any room and board, uniforms, transportation and supplementary items which are required or provided by the school. Finally, it includes expenses for the purchase of computer technology or equipment, or Internet access, used by the beneficiary and family during the years the beneficiary is in school.”
This is from a great web-site http://www.savingforcollege.com/learn/eira/4.php
Janis
You could not transfer money from a traditional IRA into the Education IRA. The Education IRA is an account set up in the child’s name. The contributions into the account are with after-tax money. It is the earnings (interest, dividends, or capital gains) that are tax free when withdrawn for a qualified purpose. A withdrawal from a traditional IRA in the parent’s name will trigger all kinds of penalties and taxes! You’d definitely NOT want to fund an Ed. IRA this way. By the way, they are not called Ed. IRA’s now. They are now Coverdell Education Savings Accounts (ESA’s). The ESA’s are a good way to save for future education expenses.
Janis