If your contributions were not tax deductible at the time you made them, then only the earnings on the account are subject to income tax when you transfer them. Education IRA Education IRA's may be established for children under the age of 18 by parents and other interested parties. Contributions to the account will not be tax deductible, but the earnings will be tax-free if used for qualified higher education expenses. Those with higher incomes may qualify for reduced contributions. You aren't eligible to contribute if you make a contribution to a qualified state tuition program during the year.
Careful tracking is important to avoid possible penalties.
Withdrawals from an education IRA are tax and penalty-free provided the child's qualified higher education expenses equal the withdrawals from the education IRA for that year. An education IRA can be a great savings vehicle even if you're not sure whether your child will attend college or vocational school. The funds can be transferred from one child's Education IRA to another child's if that child is a member of the same family.