If I buy an annuity to be used to fund my grandchild's education (he's 3 months old now), can I withdraw funds tax-free for his education when needed?

ANSWER

Expert Thomas Graham iii's Answer:

Annuities are not normally recommended as a college education fund. I'd assume you are talking about buying the annuity in your name. This is mandatory if you are going to choose this option. If you put it in the child's name they will have to pay income taxes (at their normal rate) + a 10% penalty for an early withdrawal (prior to 59.5 years old). If you have access to a Coverdell savings accounts, 529 plan, IRAs you might want to check into these other options. They offer similar tax deferred growth but also you won't have to worry about paying a penalty for early withdrawals assuming the money is used for educational expenses.

Thomas Graham iii, CPA, CFE

Oklahoma

7 yrs experience

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