January
5
More Ways To Use The Taxation System To Pay College Education Costs
In addition to Education IRAs and federal tax credits there are
many other ways to use the taxation system to pay for the high
and increasing costs of a college education. You need to
consider all of these tax benefits in order to ensure that you
can benefit from this form of government support to families who
are helping their kids get a higher education.
Some of the other ways to let the taxation system pay for some
of your family’s college education expenses include deductible
expenses, Section 529 plans, regular IRA’s, savings bonds,
investing on your child’s behalf, and putting your child to work
for you.
You can deduct up to $4,000 a year in qualified educational
expenses but you can’t combine a deduction and a tax credit for
the same student in the same year. You can however split the
deduction and the credit if you have more than one child who
qualifies.
Many people also contribute money to Section 529 plans which are
named after the section of the IRS code that regulates these
plans You can also put money into so-called Section 529 plans.
Section 529 plans are regulated by the states that hire an asset
management company to look after the business side. You can
contribute to these plans for future college education and the
earnings added to the funds are tax-free.
You can now also use your regular IRA penalty-free if you want
to use some of it pay for qualified educational expenses. You
can deduct up to $2,500 in interest paid for educational loans
as an above-the-line deduction. Like many other deductions these
benefits are not available to single, or dual high-income
earners.
But perhaps the easiest way to get taxation monies working for
your child’s college education is through a special U.S. Savings
Bond exclusion. You can exclude a portion of the interest that
accrues on such bonds if you meet certain qualifiers. Those
qualifiers include having paid education expenses in the year of
redemption; are not married and filing separately, and if you
meet the general base income restrictions.
Still another way to beat the taxman and save money on college
education is to make investments in your child’s name. Children
under 14 face a much lower tax rate and even as their income
grows it will likely be at a lower rate than yours. Just make
sure that the investment is in your child’s name and stay on
their good side because ultimately that money is theirs.
The final way to meet your college education needs that works
for some people is to hire your kids if you are self-employed.
There are some restrictions but once again any monies you give
your children should be plowed back into their own or the family
college education fund
