Third, Congress created Education IRAs. Taken as a whole, these three pieces of the legislation dramatically expand the application and opportunity for increasing tax-favored individual savings through the use of IRAs. Qualified higher-education expenses include tuition, fees, books, supplies, room and board, and equipment expenses. This exception is available for the first-time homebuyer expenses of the individual, spouse, child, grandchild, or ancestor of such individual or spouse. No tax deduction is allowed for contributions to the account.
Income accumulates tax-free in the account.
Qualified distributions from the account are not included in income. The maximum contribution is coordinated with the deductible IRA and is limited annually to the maximum IRA contribution allowed for that individual. Distributions are only required upon death. An Education IRA is a trust or custodial account that exists as a separate IRA account and has the intended purpose of providing funds for the attendance of a program of higher education. This account may be established for paying the qualified higher-education expenses of a designated beneficiary.