Q. I have an education IRA that I started a long time ago, and I haven’t added to it in forever. How can I use the money? My oldest is a high school senior.
— Saver

A. An education IRA, also known as a Coverdell Education Savings Account (ESA), can be used to cover qualified private schooling for children grades K through 12 and for qualified higher education expenses for college.

The key for any withdrawals is that the funds must be used for “qualified” expenses. 

The rules are a bit different than 529 plans.

“The funds can be used for tuition, books and supplies and equipment, room and board, tutoring in high school,” said Reed Fraasa, a certified financial planner with Highland Financial in Riverdale.

If you don’t use the funds for qualified expenses, the child will pay income taxes and a 10 percent penalty on the withdrawal amount, Fraasa said.

But as long as you stick to using the funds for qualified expenses, the distributions will be tax-free.

That’s a nice benefit, especially if the gains are substantial, said Bryan Smalley, a certified financial planner with RegentAtlantic Capital in Morrison.

You’ve got some years to go, but Smalley said the funds in the ESA need to be used by the time the beneficiary of the account is 30 years old.

You have the flexibility of changing the beneficiary of the account to one of your other children who may be able to use it, Smalley said.

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Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.