Created by the Taxpayer Relief Act of 1997, Education IRAs are investment vehicles through which US investors may save for the higher education expenses of a minor.

The fact that it is referred to as an Education IRA has struck some as being a little odd, as the assets in these accounts may not be used for retirement income. However, Education IRAs do share much in common with (especially) Roth IRAs. Education IRAs have the following features:

So there you go: it's a nice option, but the truth is that $500 per year is not going to pay for anyone's college education, though you may use it to pay for pretty much any course of higher learning. Legislation to increase the Education IRA contribution limit to $2,000 or even $5,000 have been introduced before the 107th Congress (H.R. 676, which proposes a multiyear phase in to $2,000 is probably the one to watch), but it will be some time before any such reform is enacted.

One caveat: no contributions to an Education IRA are allowed in any year when someone makes a contribution in the beneficiary's name to a qualified state tuition program. These are becoming more popular, so make sure not to double up your college savings in this way.

More comprehensive information on Education IRAs can be found in IRS Publication 590: Indvidual Retirement Arrangements at www.irs.gov.

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