Long-Term Strategies For Paying For College

$937.

To save as early as possible and as regularly as possible.

At a top rate of 5.65%.

Families have been turning to state schools in greater numbers.

$50,770.

$22,180.

3.5% for private universities and 3% for public universities.

Whether to put the fund in your name or the child’s name.

It may disqualify them from financial aid due to their assets will be assessed up to 20% vs parents’ assets only assessed up to 5.65%.

$15,000.

Uniform Gift to Minor Act or Uniform Transfer to Minor Act.

Until the age of 21 or 18 in some states.

There will be no income tax at all.

The excess over $1,100 will be taxed at the child’s rate (0% to 10% depending on the type of unearned income).

The excess will be taxed at the parent’s higher rate and can be as high as 37% excluding State and local taxes.

The same rule applies to a child under the age of 18.

Note: Kiddie tax still applies.

The same rule applies to a child under the age of 18.

Note: Kiddie tax still applies.

The same rule applies to a child under the age of 18.

Note: Kiddie tax still applies.

The child has earned income that exceeds half of their support.

Have the investments generate a little less than $2,000 in income per year, and the remaining funds allocated to investments that generate little or no income.

Income will be assessed up to 47% and assets will be assessed up to 5.65%.

Income will be assessed up to 50% and assets will be assessed up to 20%.

EE savings bonds.

• Income up to $83,000 for a single parent.
• Income up to $154,800 for married filing jointly.

Note: any income above the limits will not be eligible for any tax break.

Advantages

• Safe investment due to issued by the federal government.
• It can be purchased in small denominations without paying any sales commission.

Disadvantages

• low rate of return on its investments.
• Hard to predict in advance the income level when people cash in the bonds.
• If the income has risen past the cutoff level for the tax break, the effective rate of return on the bonds just plunges into the low single digits,
• IRS adds the interest from the bonds to the income before determining the qualification of the tax break.
• Colleges will consider this as income whether it is tax-free or not in assessing for financial aid like other income.

• They are initially expensive to set up.
• Costly to maintain.
• Very difficult to change.
• Jeopardize the chance of qualifying for financial aid.

Note or be aware: In the reading, it also stated trust of any size may very well nix the chance for the family has of receiving aid.

Tuition prepayment plan and tuition saving accounts.

Wyoming and District of Columbia.

• They are flexible and let the family take money out of state or to a private university in the state.
• Peace of mind for knowing that no matter how much tuition inflation there is, families have already paid for a certain number of course credits.
• No federal taxes involve the funds are used to cover qualified higher education expenses at a federally accredited school.

Examples of education expenses include tuition and fees and allowances for room and board.

• Earning in the account grows tax-deferred from a federal standpoint.
• Withdrawal from these accounts for qualified educational expenses is free of federal income taxes.
• A number of states do not consider part or all of the earnings as income on a resident beneficiary’s state tax return.
• Most of these accounts offer the choice of an age-based asset allocation model to determine how the funds will be invested.

Most prepaid plans and tuition-saving plans.

A person can contribute up to $75,000 in one lump sum to anyone beneficiary’s plan, provided a person does not make any further gifts to that person for the next five years.

Coverdell ESAs.

The withdrawal will be totally tax-free but the contributions are not deductible.

$2,000.

The U.S Department of Education currently views such accounts to be the student if the student is the owner of the account and also an independent student.

The benefits phase out between $190,000 and $220,000 for married couples filing jointly.

Note: The law does not specify that the contribution must be made by the beneficiary’s parent. Therefore, the phase-out contribution amount for others is between $95,000 and $110,000.

The fund will become student-owned.

The current tax laws permit tax-free withdrawal to cover certain qualified expenses from kindergarten through senior year of high school.

Any funds paid for that child’s tuition for purpose of claiming the credit cannot be coming from a Coverdell, a 529 plan, or other tax-advantaged funds used to pay for college.

That’s because the dollar value of the tuition credits redeemed was considered a resource that reduce the aid eligibility dollar-for-dollar.

Assets of the student in all cases.

The value of and/or distribution from 529s and Coverdells owned by other individuals.

The portion of the distribution that represents investment earnings will be taxed at the contributor’s rate plus a 10% penalty.

When the beneficiary dies or receives a scholarship for college.

Retirement provisions such as Individual Retirement Accounts, 401K plans, Keoghs, tax-deferred annuities, and etc.

• It recommends people invest about 75% of the fund in the high-risk investment and the remaining 25% in investments that lock in a reliable rate of return.
• As college years get closer, start transferring out-of-stock funds into something less subject to temporary setbacks.
• Invest large amounts in the early years to take advantage of compounding.

• As college years get closer, transfer out-of-stock funds into something less subject to temporary setbacks.
• Save as much as possible in the first several years when compounding interest help the most.
• It recommends people invest about 70% of the fund in the high-risk investment and the remaining 30% in investments that lock in a reliable rate of return.

It recommends people invest about 50% of the fund in the high-risk investment, 30% in the limited-risk fixed rate of return financial instruments in investments, and 20% in liquid accounts that are completely insured.

• Stay away from high-risk investments that may suffer a temporary or permanent setback.
• Sit down with the child and explain that because college gives preferential packaging to good students, every tenth of a point they add to their grade point average may save him thousands of dollars in loans they won’t have to pay back later.
• Find a good test preparation course to raise your score on the SAT.
• Possibly start a business on the side because businesses usually result in loss during their first few years of operation. Therefore, possible to obtain more financial aid because of the assessment of income in a loss.