topic Re: Closing Educational IRA in Get your taxes done using TurboTax

Closing Educational IRA

Lizyx211 — Tue, 24 Feb 2026 06:55:23 GMT

My husband opened an educational IRA for his granddaughter 20 years ago. It has about $4000. She is not going to college and has cut off all contact with him over 5 years ago. He would like to close the account and do something else with the money. If the account is closed, is it subject to ordinary income tax plus 10% penalty? Does he simply need to contact the bank where the account is held, and then receive a tax form at the end of the year?

Re: Closing Educational IRA

Critter-3 — Fri, 21 Jul 2023 00:54:59 GMT

Contact the IRA custodian to make a closing distribution.

Re: Closing Educational IRA

xmasbaby0 — Fri, 21 Jul 2023 04:04:24 GMT

You have not told us how old you are -- if you are younger than 59 1/2 there is a 10% early withdrawal penalty as well as ordinary income tax on the distribution from the retirement account. They will send you a 1099R in late January or early February, which must be entered on your tax return.

Go to Federal> Wages and Income>Retirement Plans and Social Security>IRA 401 k) Pension Plan Withdrawals to enter your 1099R.

Re: Closing Educational IRA

Lizyx211 — Fri, 21 Jul 2023 04:06:48 GMT

My husband is 72, I am 57.

Re: Closing Educational IRA

xmasbaby0 — Fri, 21 Jul 2023 04:09:27 GMT

Only one of your names can be on an IRA. If it is in your husband's name he will not be subject to the 10% penalty, but it will be taxable along with your other income.

Re: Closing Educational IRA

Hal_Al — Fri, 21 Jul 2023 12:12:58 GMT

An "education IRA" is a tax-advantaged investment account for higher education, now more formally known as a Coverdell Education Savings Account (ESA).

Despite the "IRA" name, an ESA is not an IRA when it comes to distributions (and other rules). That is, being over 59-1/2 does not get you out of the 10% penalty. The penalty applies, since it will be a non-qualified distribution (it was not used for educational expenses of the beneficiary).

Another option is to change the beneficiary to another grandchild. For full rules, see

https://fairmark.com/kids-and-college/coverdell-accounts/changing-the-beneficiary/

In particular, note that the beneficiary's siblings and first cousins (your other grandchildren) are qualified persons for a beneficiary change. They must be under 30 years of age, for an ESA beneficiary change.