Let"s assume that you would like to begin saving for your children"s education fund. At the end of each year, for the next 8 years, you will contribute $2,000 into a Coverdell Education Savings Account (Education IRA), using your after-tax dollars. The money grows tax-free, and neither the contribution nor the interest is taxed when you make a withdrawal, as long as you use it for education purposes.
By the end of 17 years, your Education IRA will have accumulated to just over $86,000. Contrast this with your fully taxable non-IRA account which would have grown to only $50,000. That is a $36,000 difference!
Today, the average 4-year cost of education at a public college in the country is around $38,000. In 18 years it is projected to be close to $86,000. Costs for private education are even higher.
This example illustrates that, by funding your child"s education using an Education IRA earning 14% with after-tax contributions of $2,000 in each of the first 8 years of your child"s life, you can put an extra $36,000 into your child"s future rather than Uncle Sam"s pocket!
There would be enough in the IRA account to pay for the entire projected 4-year education costs.
Now, when your child begins their college education, as you draw from the account each year to pay for expenses, and re-invest the remaining funds, at the end of your child"s 4th year of college, an extra $27,000 would remain in the IRA that can be transferred to another child"s account.
If you have a fully taxable Non-IRA account, you"d have to come out of pocket in your child"s 3rd year of college because the account didn"t have enough to cover the entire education cost.
By using a Tax-Free Education IRA account, this allows the contributions to accumulate at a much fast rate than the fully taxable investment vehicle.
Brian Gray is a full time real estate investor and web developer. You can visit his website to learn how to Earn 14% Per Year in your IRA. It is a very safe investment.
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