HOW TO SAVE FOR A CHILD'S COLLEGE EDUCATION

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Tax Relief R Us
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HOW TO SAVE FOR A CHILD'S COLLEGE EDUCATION
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• Article Highlights
• Planning for a Childs College Education 
• Tax-Favored Plans 
• Tax-Free Earnings 
• Coverdell Accounts 
• Qualified Tuition Plans 
• Have Others Contribute 
• Gift Tax Issues 
• A frequently asked question is, How might I save
  for a childs college education? The answer
  depends on how much the education is expected to
  cost and how much time is left until the child
  heads off to college or university.

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• The amount of funds that will be required will
  depend upon whether your child will be attending
  a local college, attending a local college and
  then transferring into a university, or going
  straight to the university. If attending college
  locally, you generally only need to be concerned
  about tuition, and the child can live at home,
  whereas attending a university, unless it is
  local, will add the cost of housing and food on
  top of substantially higher university tuition.
  Another factor is whether the student will leave
  school after obtaining a bachelors degree or
  will be doing graduate studies for an advanced
  degree.
• When the time comes, your child may qualify for a
  scholarship or grant, but you cant depend on
  that when working out a college savings plan.
• The federal tax code has two beneficial savings
  plans that can be used. In both plans, there is
  no tax benefit to making any contributions. The
  benefit is that growth due to appreciation in
  investments, if any, and earnings (dividends and
  interest) are tax-free when withdrawn for
  qualified education expenses. Thus, the sooner
  the plan is started, the better, because it will
  have more years to grow in value.

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• More tax benefit is gained by front-loading the
  contributions and thus having a larger amount on
  which to compound the growth and earnings. You
  should also be aware that anyone, not just you,
  can make a contribution to the childs college
  savings plans. So if your child has any
  well-heeled grandparents, other relatives or
  friends who would like to help, they can also
  contribute.
• The two savings plans currently available for
  college savings are the Coverdell Education
  Savings Account and the Qualified Tuition Plan,
  most commonly referred to as a Sec. 529 Plan (529
  denotes the section of the tax law code that
  governs it).
• Coverdell Education Savings Account This plan
  only allows up to 2,000 in contributions per
  year, and although it allows withdraws for
  kindergarten education and above, the
  contribution limitations generally rule it out as
  a practical method for college savings.

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• Sec. 529 plans allow taxpayers to put away larger
  amounts of money, limited only by the
  contributors gift tax concerns and the
  contribution limits of the intended plan. There
  are no limits on the number of contributors, and
  there are no income or age limitations. The
  maximum amount that can be contributed per
  beneficiary (the intended student) is based on
  the projected cost of college education and will
  vary between the states plans. Some states base
  their maximum on an in-state four-year education,
  but others use the cost of the most expensive
  schools in the U.S., including graduate studies.
  Most have limits in excess of 200,000, with some
  topping 370,000. Generally, additional
  contributions cannot be made once an account
  reaches that level, but that doesnt prevent the
  account from continuing to grow.

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• When the time comes for college, the
  distributions will be part earnings/growth in
  value and part contributions. The contribution
  part is never taxable, and the earnings part is
  tax free if used to pay for qualified college
  expenses. In addition, the portion of the
  distribution that represents the return on the
  contributions and is used for qualified education
  expenses qualifies for the American Opportunity
  Tax Credit, which can be as much as 2,500,
  provided your income level does not phase it out.
• For additional details or assistance in planning
  for a childs higher education, please give this
  office a call.

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  ve-for-a-childs-college-education/42932