Tax Debt Help – Qualified Tuition Plans

February 8, 2008 at 4:24 pm (tax advocacy, tax debt help, tax help) (, , , , , , )

Qualified Tuition Plans
Qualified Tuition Plans (QTPs), or Section 529 plans, offer two different ways to help defray the cost of college: College Savings Plans that allow students of all ages to save for college costs or Prepaid Tuition Plans that lock in today’s tuition rates at any of a state’s eligible public colleges or universities.
QTPs are sponsored by your state, or their agencies or institutions. Also, as of 2001, private eligible education institutions, including religious schools, can offer QTPs in the form of prepaid tuition credits.
Just like an ESA, your QTP savings plan grows tax-deferred, you can take distributions from a QTP tax-free for qualified education expenses, and you can change beneficiaries to another family member at any time. Plus, with a QTP account, you’re allowed to roll savings from one QTP to another without penalty, one time during a one-year period.
Anyone can establish a QTP, including your child’s grandparents, other relatives or non-relatives. (You can even set one up for yourself.) A QTP account takes cash contributions only, not stocks or mutual funds.
The account holder controls funds in the account, not the beneficiary. And, for most plans, the beneficiary does not have to attend a school in the same state in which the QTP was set up.
Contributions to a QTP are not tax deductible at the federal level, but some states allow tax deductions for contributions to their own plans.
Unlike other education provisions, QTP contributions and tax-exempt distributions are not subject to any income limitations.
If you’re applying for financial aid, distributions from prepaid tuition accounts are treated as the student’s income.
S. Raines, Sr. Financial Advisor/Tax Preparer

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Tax Debt Help – Education Funding

February 8, 2008 at 4:23 pm (tax advocacy, tax debt help, tax help) (, , , )

Additional Ways to Fund Education

Financial aid helps meet the expenses of a college education, including tuition fees, books, housing, food and transportation. Financial aid is available through campus work programs, loans and scholarships. Contact the financial aid office at the college of your choice for more information about university-sponsored programs and scholarships.

Federal grants and loans

Low-interest loans and outright grants are available to help defray the costs of higher education. You and your child can apply for federal loans and grants beginning on January 1 of the year in which your child will start college. After your application has been processed, the college will review the results and inform you of your loan eligibility. But keep in mind that most student loans must be repaid.

Scholarships

Grants and scholarships are forms of financial aid that don’t need to be repaid. They are available from a variety of sources, including federal and state governments. They are also available from private sources, such as employers, professional associations and educational institutions. Some grants and scholarships are based on financial needs, but may be based on achievement.

Ask for gifts that last

As you save, enlist all of your available resources. Ask grandparents, godparents, aunts and uncles to give your children dollars for education instead of toys at holidays. Or join an investment club that focuses on saving for higher education. Small steps can make a big difference.

EE savings bonds

You can buy EE government bonds through any bank. EE bonds pay a variable interest rate, equal to 85% of what’s offered by 5-year Treasury notes. Their earnings are exempt from state and federal income taxes if you use the withdrawals to meet higher education costs. But your income must fall within certain limits ($55,750 for single parents and $83,650 for joint filers in 2001: $57,600 for single parents and $86,400 for joint filers in 2002) in the year you redeem the bonds, or tax advantage diminishes. The low earnings of EE bonds and potential loss of the tax advantage typically make them an unattractive investment for all but the most conservative investors.

S. Raines, Sr. Financial Advisor/Tax Preparer

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