Need help choosing between education savings plans with an advantage of tax savings?
Here are the tax benefits for the three basic plans specifically designed for college savings:
1. Qualified Program tuition (529 Plan)
you've probably heard eligible tuition programs, commonly known as 529 plans. It is a popular way to save for college, and you can use it as a savings plan or an education plan prepaid.
You make nondeductible contributions to an account. When it's time to pay for college, you take tax-free withdrawals to pay for tuition and fees.
This means that you never pay tax on interest and other income in the account if you use withdrawals for qualified expenses studies. . If you use the prepaid plan, you use tax-free education loans
Benefits of a qualified tuition program (529 Plan) includes:
- the account is in your own name, not the child. You still have control of the account. You do not have to decide which child it is, and you can even get back the amount you paid for emergencies or for any other reason.
- The contribution limits, which are determined by the state, may be significantly higher than other programs.
- you do not have to worry whether you'll make too much money for the benefit of 529 plans at the appropriate time. These plans are not limited by the level of income.
2. Education Program Savings Bonds
US Savings Bonds are similar to eligible tuition plans that you purchase in your name, and not the child. It can be series EE bonds issued after 1989 or series of obligations I.
You'll want to buy these bonds when the child is young, to give the bonds of time to win a substantial interest.
The bonds earn interest tax-free. When you need bonds for college expenses, you cash bonds. You do not pay tax on interest obligations insofar as the expenditure comply with qualifications.
You might be disappointed, however, if your income when you want to use the bonds is higher than it was when you bought them.
This tax benefit begins to phase out at adjusted gross income modified level $ 72.850 ($ 109,250 if married filing jointly).
If you have changed your mind, you can spend money from US savings bonds to another education savings plan. You can cash them and make contributions to qualified tuition programs or education savings accounts.
3. In Coverdell Education Savings (ESA)
Unlike the two other plans, Coverdell education savings accounts are made at the student's name, not the parent or the benefactor.
With ESA, you make non-deductible contributions to the plan of a child, until the child reaches age 18 (or age for a child with special needs).
Come college time, the child takes distributions to pay for tuition, fees, supplies and equipment, and even room and board if the student attends at least the half the time.
the child does not even need to wait for college if he or she needs money for K-12 education.
another unique feature of the ESA is that you can use distributions for primary and secondary education, if desired.
There is a major limitation to the plans of the ESA. you can only contribute $ 2,000 per year for each child.
If more than one person contributes, for example, if Grandma wants to help, total everybody contributes on behalf of all children may not exceed $ 2,000.
You have to start early if you want to save enough to cover a significant portion of college costs for a child.
you also perhaps bad luck for the tax break if you are in a higher income bracket to when you need to use the money.
The benefit begins to phase out at adjusted gross level adjusted income $ 95,000 ($ 10,000 if married filing jointly).
Do you think teenagers should help save for their college education
photo credit: ileohidalgo
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