Planning For College Costs

First, the bad news: Over the last 20 years, college tuition costs have increased at more than double the rate of inflation. The good news is that several tax-wise planning techniques exist to help you save.

With college tuition skyrocketing, many parents and grandparents are interested in learning more about saving and paying for college. So whether a child is still in diapers or already looking at potential colleges, get out your pencil and take note of these money-saving strategies.

Coverdell Education Savings Accounts

• This type of account is managed by you on behalf of a designated beneficiary.
• Earnings are nontaxable and distributions are tax free as long as the funds are used for qualified education expenses.
• The annual contribution limit is $2,000 per beneficiary.
• Contributions are phased out at certain income levels. No contributions are allowed if your Modified Adjusted Gross Income exceeds $110,000 ($220,000 for joint filers).

529 Plans

• With these state-sponsored plans, no income limits apply for participation.
• Substantial contributions are allowed.
• Contributions are considered completed gifts to the beneficiary for tax purposes.
• Normally, gifts of more than $12,000 to a single individual or $24,000 for married couples in one year are potentially subject to federal gift tax. However, you may be able to contribute up to $60,000 in one year ($120,000 for married couples who elect to split gifts) without incurring gift-tax consequences. Thus, parents and grandparents who set up 529 plans can reduce their taxable estates and still retain control of disbursements.

Find out more

There are a lot of considerations when choosing how to fund a child’s future education. I’m here to help make that decision easier. No matter where you’re starting from, I’ll give you a tangible plan that will give you the guidance you need to reach this important financial goal. Let’s get together soon to discuss creating your plan.