When the owner dies, the IRA minimum distribution rules apply. If the designated beneficiary is young, minimum distributions will occur over the beneficiary's lengthy life expectancy, thus extending the life of the Roth IRA and its ability to accumulate, then distribute earnings and profits tax-free. The beneficiary, of course, may withdraw more than the minimum at any time without tax or penalty. Investors with existing IRAs may convert them to Roth IRAs. If the conversion is completed prior to the end of 1998, the taxpayer is treated as receiving gross income in four equal annual distributions.
Married taxpayers filing separately are ineligible for the rollover.
These IRAs are created for post-secondary tuition, fees, books, supplies, equipment, and certain room and board expenses, but not elementary or secondary school expenses. Earnings in the IRA and distributions to the beneficiary are tax-free, provided the distribution does not exceed the qualified higher education expenses incurred by the beneficiary. The HOPE credit or the Lifetime Learning Credit cannot be used in the same year that an Education IRA is distributed to a beneficiary. Eligible students must be enrolled at least half-time in a degree certificate undergraduate or graduate program at an eligible educational institution. Also, the student cannot have a felony conviction for possession or distribution of a controlled substance.