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Tax Tip: (December 2007)
Paying for College
You’ve probably heard about the 529 College Savings Plan. But what is it exactly? The 529 College Savings Plan is one of the best savings incentives for college and something you don’t want to miss out on if you have children or grandchildren. This plan is named for Section 529 of the Internal Revenue Code, which was passed into law by Congress in 1997. This plan includes credits, deductions, and savings incentives for education.
The 529 incentive is designed to help families save for the cost associated with future qualified higher education. Contributions to this savings plan are not tax-deductible. However, provisions in the code allow for the earnings to grow tax-deferred until the funds are withdrawn to pay for higher education expenses. The plan allows flexibility in choosing the portfolio that best fits your needs, while simultaneously allowing you to control withdrawals from the account for as long as it is maintained.
As of January 1, 2002, withdrawals from plans used for qualified college expenses are free of federal tax. Family members or friends can make contributions to 529 plans as well as parents. There is a much higher contribution limit for the 529 plan than for other education savings plans. An added bonus is the less binding income restrictions. Most states offering the plan are partnered with mutual fund companies that actually manage the funds.
In addition to the 529 plan, there are other methods to help defray the high cost of college, such as Coverdell Education Savings accounts, education savings bonds, Hope Scholarship Credit, Lifetime Learning Credit, and the education loan interest deduction.
If college plans are in your future, be sure to check out all the different ways your Uncle Sam has established to help you with ever-increasing college expenses.
Let Accounting & Tax Solutions, Inc. help you navigate through the many regulations and nuances of the tax laws, to ensure that you receive the expert advice of a licensed tax practitioner: Contact Form
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