A: These so-called IRAs, more appropriately called education investment accounts by some, have nothing to do with retirement. Therefore, your contributions to these accounts are independent of your regular IRAs, so you can contribute the maximum amounts you're eligible for to both.

Starting in 1998, you can make contributions in your child's name to these accounts of up to $500 per year, per child under age 18. Although contributions aren't tax deductible, withdrawals to pay the costs of qualified higher education expenses are tax free. Qualified higher education expenses include tuition, fees, books, supplies, equipment, and some room and board costs at eligible educational institutions.

A:If you're a married taxpayer who files jointly, with a modified adjusted gross income under $150,000, you qualify for the full $500 contribution. If your income is less than $160,000, you qualify for a partial contribution. If you're a single taxpayer, these limits are $95,000 and $110,000 respectively. If your income is above these thresholds entirely, you aren't allowed to make any contribution at all.

Grandparents, or anyone else who meets the income limits, are eligible to contribute to an education IRA on behalf of a child under age 18. Therefore, a child can have more than one education IRA, but the total contributions in aggregate to all accounts can't exceed $500 a year. Contributions to education IRAs are eligible for the gift tax exclusion.

A:If your child doesn't attend college, you're allowed to roll the account over to another child in your family without triggering taxes or penalties. Otherwise, any money remaining in the account at the time your child turns 30 must be distributed. In that case, because the money wasn't used for educational purposes, the earnings will be includible in your child's gross income and subject to income taxes, as well as a 10% tax penalty. Likewise, if you withdraw money at any time for any purpose other than education, the child has to pay income taxes on the account's earnings, plus a 10% tax penalty.

A: If you withdraw money for college expenses tax free from an education IRA, you're not allowed to take either the HOPE or lifetime learning tax credit for the same child in that same tax year. Likewise, you can't make contributions for a child to both an education IRA and a qualified state tuition program in the same tax year. Besides that, since these accounts are in your child's name, it's uncertain whether the money you accumulate may affect your eligibility for needs-based financial aid. The Department of Education is expected to decide how to assess these accounts for financial aid purposes sometime next year.