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Educating your children or grandchildren isn’t just an expense: The Internal Revenue Service sees it as a gift.
There is also a tax-advantaged way to invest to fund future college or graduate school expenses: a Section 529 plan.
Contributions to a 529 plan may cover a much wider array of expenses, including tuition, fees, books, supplies and equipment, and special-needs services required for enrollment or attendance at an eligible educational institution, as well as room and board, for students attending at least half-time. Individuals can make gifts of up to $14,000 (married couples, up to $28,000) per year to a 529 account for the benefit of any number of individuals.
Front-loading a 529 plan can be a great way to avoid income taxes on the future growth of funds earmarked for higher-education expenses.
A Coverdell Education Savings Account can be used to pay for K-12 as well as higher education. The views expressed herein do not constitute and should not be considered to be, legal or tax advice.
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Conditions:  You must be a candidate for a degree at any educational institution that has a regular faculty or in attendance at an accredited institution that is authorized to award a bachelor’s degree or higher or that provides training for gainful employment in a recognized occupation.
Form 1040:  line 7  and Schedule SE (funds received as an independent contractor such as a fellowship). Conditions:  This is a recent tax credit that provides tax relief for certain qualifying expenses for yourself or your student.  Remember, a tax credit will reduce on a dollar-for-dollar basis the amount of taxes you must pay!
May be used for the first four years of college (or any post-secondary education that offers a degree). 40% may be refundable.  This means that if the refundable portion of your credit is more than your tax, the excess will be refundable to you.
The student must be enrolled at least half time for a minimum of one academic period (semester, trimester, quarter) during the year.  You can use the credit even if the student withdraws when there is no refund by the college. You may not use the American Opportunity Credit if you are claiming other educational tax credits or deductions for the same student. Limitations:  Can be used for any number of years but may not exceed $2,000 per year per family. The credit can be used for all post-secondary qualified education expenses paid for all students enrolled in an eligible educational institution during 2011 and the first three months of 2012. The student does not have to be enrolled in a degree or certificate (credentialing) program.
The Credit can be used for a very wide array of courses and is valid even if the education expenses are paid with borrowed money. You may not use the credit if you are also claiming the American Opportunity Credit or any other education tax benefit for the same student. Phaseout:  $50,000 to $60,000 or more as a single taxpayer and $100,000 to $120,000 or more as a joint filer.
STUDENT LOAN INTEREST DEDUCTION:  Students and sometimes their parents can lower taxable income using this deduction. Under certain conditions, you can reduce your taxable income by a maximum of $2,500 annually. Parents can deduct qualified education loans used for their student dependent if the parent is in any way legally obligated to pay for the loan. The Student:  Can be you, your spouse or a dependent enrolled at least half-time in a degree program. TUITION AND FEES DEDUCTION:  This allows the taxpayer to lower the taxable income by up to $4,000 annually through an adjustment (before the MAGI is calculated). Limitations:  You cannot claim this deduction if you are also claiming other education tax credits for the same student.
You may claim the deduction even if the payment was made with borrowed funds and you can claim he deduction even if the student withdraws from the school if the fee was not reimbursed.
There are various other conditions that disallow the deduction when paid by certain financial tools such as Coverdell Educational Savings Accounts, savings bonds and tax-free instruments.
IRS Forms:  IRS Form 8917, Form 1040, line 34 (Domestic production activities deduction), 1040A, line 19. Conditions:   These plans while not likely to be huge advantages in terms of paying for college are very flexible. The ESA must be distributed to the beneficiary by age 30 unless used for a special needs beneficiary.  Contributions cannot be made after the beneficiary reaches the age of 18 unless there is a special needs beneficiary. If there are more than one Coverdell naming the same beneficiary, the total aggregate contribution to all those Coverdell ESAs may not exceed $2,000 a year.


Phaseout:  MAGI (Modified Adjusted Gross Income) for single taxpayers $95,000-$110,000 and joint filers $190,000-$220,000.
You may not spend more on educational expenses than the actual allowable expenses at a given institution.  Over payments (on non-qualifying expenses) will result in a taxable event. As stated above, you can also use the benefits of a QTP and a Coverdell during the same year but you should consult your tax professional or IRS Publication 970.
EDUCATIONAL EXCEPTION TO ADDITIONAL TAX ON EARLY IRA DISTRIBUTIONS:  Under certain conditions, if you use your IRA distribution before you are 59? to pay educational expenses, you won’t have to pay the 10% additional tax on early-withdrawal. The exception can be used for any family member attending an institution eligible to participate in the U.S. The exception is determined after you have applied any other tax-free funds used to pay educational expenses.  The remaining costs covered by the IRA withdrawal will represent your benefit. EDUCATIONAL SAVINGS BOND PROGRAM:  There are a limited number of savings bonds that provide for tax-free interest if used for qualified educational expenses and contributions to 529 plans and Coverdell ESAs. Conditions:  Only series EE bonds purchased after 1989 or series I bonds can be used to qualify for this tax benefit. The program can be used for expenses at any post-secondary institution that qualifies for participation in the student aid program administered by the U.S. Limitations:  The expenses must be used for certain education expenses such as tuition and fees other than room and board and contributions to Coverdells and 529 plans. The amount of qualifying expenses may be reduced by any grants, employer contributions to help with the education expenses and other factors that reduce the amount of qualified education expenses. Expenses that are used for equipment or supplies that can be used after the education program are normally excluded. Employer-provided funds in excess of $5,250 will be taxable UNLESS the benefit is also a working condition fringe benefit which is any education expense that you could otherwise deduct as an employee business expense.  In that case, the employer can omit that excess expense on the W-2. Limitations:  The employee assistance plan must be a formal, written program consistent with certain elements that makes it a qualified program under this part of the IRS code. The plan provides that up to $5,250 of employer contributions to the education expenses of the employee can be excluded as income for tax purposes and will not be included in box 1 on your W-2. BUSINESS DEDUCTIONS FOR WORK-RELATED EDUCATION:  This can be used to deduct certain out-of-pocket education expenses related to your job. The total education expenses must exceed 2% of your adjusted gross income to claim the deduction. You can claim this deduction along with other education deductions as long as you use different expenses to claim each tax benefit.
You may not claim this deduction if you used tax-free funds to pay for the education (529 plan, Coverdell, tax-exempt savings bonds). Limitations:  The education must be required by your employer or the law in order to keep your present salary or job or the education must improve skills needed in your present work. The education does not qualify it is used to meet the minimum requirements of the job or to prepare you for another job.
Deductions may be limited if your adjusted gross income is more than $156,400 for joint filers or $78,200 if filing separately.
A new survey by online brokerage TD Ameritrade says college is the top reasons teens save their money. Other options include a Coverdell education savings account, which is similar to a Roth IRA in which taxes are paid up front but the savings grows tax-free and are taken out with no taxes due. Custodial savings accounts are also available, which typically help families set aside money for additional expenses not covered in the other plans such as sorority dues or music lessons. Earlier this summer Nevada made national headlines by introducing its Education Savings Account (ESA) plan.
This was one of the arguments Keller used when teachers’ unions in Arizona filled a lawsuit (and ultimately lost) against a similar program in their state back in 2011.
In other words, such a program is meant to help parents choose what education system is best for their children.
Keller actually helped Nevada legislators write the ESA legislation to make sure it respects the state’s constitution.
There is chance that the ACLU lawsuit against Nevada’s ESA will fail since the savings accounts in question are administered by parents and not the state.
One might even wonder if the ACLU is not working towards the bureaucratic status quo, “ignoring the fact that Nevada’s traditional public schools have been failing students for years,” to quote Heartland Institute Research Fellow Heather Kays. Don’t miss our newsGet the latest on government waste, fraud, and abuse - directly in your inbox. A Coverdell Education Savings Account (sometimes called an "Education IRA") is a way to invest money for college education so that the money will grow tax free. To make life easy, have Vanguard automatically draft money from your bank account biweekly or monthly.


First things first – if you’re thinking about opening one of these accounts, you deserve a pat on the back.  Planning ahead for your child’s educational expenses is important and these two savings options will give you great features and tax savings you can count on. Assets may be withdrawn for elementary and secondary education expenses, as well as colleges. Lump sum contributions of $65,000 and $130,000 respectively for single and married contributors are allowed annually as a first year contribution. Both types of accounts have great benefits, but the 529 Plans generally win the overall vote for college savings vehicles.  The good news is that you can actually use both types of accounts when saving for your child, so you don’t have to choose!
The important thing is to start saving – whether you choose a Coverdell ESA or 529 Plan, you’re on the right track since you’re saving now. You can pay unlimited current tuition expenses, on behalf of one or more beneficiaries, without incurring gift tax. The 529 program allows you to front-load five years of annual exclusion gifts, and thus give up to $70,000 in one year ($140,000 for a married couple) per beneficiary. The Display below shows the advantages of 10 years of annual or front-loaded contributions to a 529 plan versus taxable savings.
But Total contributions on behalf of any one child are limited to $2,000 a year, no matter how many accounts are established.
The tax rules are complicated, and their impact on a particular individual may differ depending on the individual’s specific circumstances.
We don’t put our interests at odds with your interests, whether you are an investment-management client or a client of our sell-side research unit, Sanford C. The results were a pleasant surprise to educators who are focusing on getting personal finance taught in schools.
The plan allows nearly every parent to send the money the state would normally spend on their child’s public education to whichever learning opportunity they see fit: online classes, private tutors, private schools… A universal school voucher program, if you will. The Nevada chapter of the American Civil Liberties Union filed a lawsuit a few weeks ago challenging the constitutionality of such a program. Those options may include sending a self-proclaimed atheist like Austin, who suffers from Asperger’s syndrome to… a Christian academy! Not only have more than 2,000 families already applied for an ESA, but polls suggest that even progressive-leaning groups like unions and Hispanic give a majority support to the program. After living all over his native country, he settled in Boise, Idaho in 2011, and earned a political economy degree in 2013.
Vanguard, a large low-cost mutual fund company, allows you to open an ESA with no fees and invest in good mutual funds. We have everything you need to make your life easier as you begin your search for the best 529 College Savings Plan.
Bernstein projects that, in aggregate, the taxes avoided over a 10-year savings horizon could pay for a full year of college tuition. A Coverdell account is available only to couples with less than $220,000 and individuals with less than $110,000 in annual income. The survey indicated 78 percent of teens say they want to share the cost of college with their parents.
The first step is for parents and teens to analyze their current situation together, taking into account what they already have saved for college and how long it will be before the first year of school begins. After assessing your financial status and determining what you’ll need, the next step is to compare the benefits of different savings options.
Once a savings plan is established, monitor your progress along the way to ensure your strategy is helping you meet your financial goals.
His writings have been published in the Daily Caller, The Blaze, the Huffington Post Quebec and many more.
State specific 529 plan details, contact information, step-by-step application process, and savings tips to help you achieve your college savings goals. A 529 college savings plan, for example offers a prepaid tuition option, which locks in costs of tuition and mandatory fees or a savings plan, which doesn’t lock in tuition costs but also covers room and board, books and mandatory fees.
Keeping score along the way is an important responsibility that can be shared by both parents and teens. The voucher program violates the Nevada Constitution’s robust protections against the use of public funds for religious education,” said Tod Story, executive director of the ACLU of Nevada in a press release. This includes checking the earnings statements to see how the investments are performing and make adjustments or consult with an adviser about maximizing gains.




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