Paying for a child’s education is certainly one of the greatest gifts you can give. But
the costs of higher education have been rising at a shocking rate. With in-state
expenses at a public school averaging just below $20,000 per year, you may be
wondering what you can do. Shamrck has a solution.
One excellent solution to ease the financial challenge of paying for college is the 529
College Savings Plan.
These are state sponsored savings plans that allow for tax-free
earnings. Contributions are not deductible for federal income tax purposes, but are
deductible in many instances for state tax purposes.
To open a plan, Shamrck has you covered with some basics you’ll need to know:
- Tax write offs can be huge.
Every five years, account holders can write off up to
$55,000
from their estate per beneficiary without having to pay federal gift tax. For married couples, the limit is $110,000.
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- As an example, a wealthy couple with 5 grandchildren could deposit $550,000 ($110,000 x 5) towards their grandchildren’s education and eliminate that amount from their estate. They could do that every 5 years until the maximum is reached ($300,000+ per beneficiary in many instances).
- You maintain control of the assets.
If you decided to close the account, you
would have to pay a 10% penalty and income tax on any earnings. The balance is yours to do with as you wish.
- The beneficiary can be changed.
If your son decides that he’s not going to
college, the account can be reassigned to someone else. The account must be transferred to an eligible individual within the same family.
- Different states, different plans.
Each state has its own plan(s), and some are
much better than others. But you can invest in nearly every other state’s plans.
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- In theory, you could be an Arizona resident, invest in a Connecticut 529 plan, and send your child to school in Florida. A lot of flexibility is available, so be sure to shop around before you open an account.
The fees associated with the various plans are also important to consider. Some will
be much higher than others. In fact, many experts consider the extra charges to be
the most important criteria when choosing a plan.
Some fees are incurred when
opening the account; there are also annual maintenance charges.
If you know for certain where you want to send your child to school, many
universities offer prepaid 529 plans. This would allow you to lock in the cost of future
credit hours at the current rate. Unfortunately, there are penalties should you decide
to later send your child somewhere else. So if you choose this option, be very sure
where you’ll be sending your kid to college.
On the down side, investment options are rather narrow, and the ability to switch
between available investment options is also limited. The tax code currently curtails
changes to once per calendar year.
Like any investment, 529 plans may or not be right for you. Shamrck encourages you to explore the fact that there are numerous other options to finance a college education, each with their own benefits and limitations.
However,
if you’ve evaluated your investment options thoroughly, you may find that a
529 plan is an excellent option to ease the burden of paying for a college education.
The
tax benefits are considerable, and you always maintain control of your account. With
the rising cost of college, your kids will thank you for investing in their futures.
Go to the Shamrck Dashboard
today for a personalized career plan and access to local opportunities that will help set you on the path for success.