College Savings

So, your little angel has graduated. The dream has come true. They are finally getting the hell out of your house. Unfortunately, they are still broke, spoiled, mostly stupid children, who aren’t going to last a second out there among the piranhas.

I’m sure you’ll sleep a little easier if you know you can give them a little leg up. To that end,you may want to start a College Savings Account.

Here’s what you need to know.

Planning for college is tricky. Especially where your taxes are concerned.

There are two types of accounts that you can open to help your child graduate without owning their first born child to Memnon, the Lord of Flatulence and Greed. He runs the bank in hell. So, you can rest assured that your banker reports to him. Now there is nothing to worry about if you stay on top of your debt. Not even Memnon can getcha. But your kids are going into the world in a changed economy. You may want to open a Coverdell Education Savings Account or a 529 Plan Account.

COVERDELL EDUCATION SAVINGS ACCOUNTS are set up to cover a child’s secondary education. The growth on your contribution is tax deferred until the funds are spent. If they are spent on education, they are tax-free.

There is no tax deduction for the amount you contribute to a Coverdell, but you have some fantastic investment options and you can opt to selfdirect. The rules are similar to those that cover an IRA.

— There are zero federal state income tax deductions on Coverdell accounts.

— Parents or grandparents can contribute to a Coverdell until your brat – er, beneficiary – reaches the age of 18. Your kid can always contribute gifted funds as well. You don’t need to have earned income to pay into a Coverdell. Of course, your child is more likely to spend their money on something useful, like candy or two hundred dollar sunglasses, but you’ll have done a better job than my parents did if you can convince them to make contributions. I struggled to learn these lessons, and I acquired a lot of debt before I did.

The funds in a Coverdell can be used to cover tuition, books, and equipment for college as well as certain K-12 expenses.

The Coverdell has a 2000.00 annual contribution limit for each of the gremlins in your brood that you hope to civilize.

Contributions grow tax-free and can be withdrawn for education until your beneficiary reaches 30 years old. Unused surplus can be transferred to another family member. The 529 Plan is invested in a state managed fund. IT might be eligible for a state income tax deduction.

The 529 RULES are:

  • Money can be withdrawn for tuition, fees, books, supplies, equipment, special needs, room, and board.
  • There are no federal tax deductions or credits for contributions.
  • Up to $300,000 can be invested per beneficiary by any person.

As stated, one of the big benefits to a 529 is that contributions are tax deductible in 35 states. The drawback is that there are no investment options other than the state run programs.

You can reduce your decision between these account options to two accounts to one question: Do you want control over your investment options or tax-free contributions? Depending on what works better for you, you’ll be able to put your ungrateful goblins through college without bankrupting either one of you.

This has been MONEY MATTERS.

 

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