|
|
Features & Tools
|
How will you pay for your child's college education?
A little planning now can make the cost a lot more manageable.
With college costs rising at more than twice the rate of inflation, the easiest way to secure the necessary sums of money is to start early and let compounded earnings work to help you reach your goal. It's important to realize that there are many college savings options available to you. And since state and federal tax laws can be complex, it's best to consult your tax advisor about which options are right for you.
Two popular tax-advantaged college savings options are:
|
1. Coverdell Educational Savings Accounts
Formerly known as "Education IRAs", Coverdell Accounts let you contribute up to $2,000 per year for each student under the age of 18. Your contributions are not tax-deductible, but the money, including earnings, can be withdrawn from the account tax free for qualified K-12 and higher education expenses. Given the amounts you must save, however, $2,000 a year may not be enough to reach your goals.
2. 529 College Plans
Recent tax-related changes to 529 College Plans have made them one of the more attractive ways to save for college today. With 529 Plans, all investment earnings are federal tax-free, provided that they are used for qualified education expenses. ** You should also note that some states offer favorable state tax treatment for their residents that participate in the state's own Qualified Tuition Program. 529 Plans also offer flexibility and control over how you save. Lifetime contributions limits vary from state to state, but often exceed $100,000. Additionally, you can save for your own education, a spouse's or a relative's. And any money left over in the account can be transferred to a sibling of the same generation without triggering federal gift or federal income taxes. These tax-advantage savings remain under your control, ensuring that the money is spent as you intended. However, keep in mind that if you use these funds for non-qualified purposes, you will pay tax on the earnings, as well as an additional penalty.
** Under a sunset provision, the tax exemption for earnings on qualified withdrawals is scheduled to expire on December 31, 2010, unless extended by Congress.
Again given the complexities around these options, you should consult with your financial or tax advisor before participating in any college investment program.
|
|
|
|
|
|
|
|
