As college tuition continues to skyrocket, it’s becoming more important than ever to know how the various savings plans work. This handy reference outlines the latest rules on the most popular college savings programs, and how to use them to save money on your children’s education.
Aside from retirement, saving for a child’s college education is one of the biggest expenses a physician encounters. And with college savings vehicles multiplying all the time and tax laws changing, the landscape of college education funding rules can be downright bewildering.
In deciding how much to contribute to college savings accounts, when to contribute, and where to invest those contributions, physicians will need to remain aware of all their options and the accompanying rules. Hence, this handy guide.
College savings plans
The biggest college savings plans are the Qualified Tuition Programs (QTPs) or Section 529 plans, education savings accounts (ESAs) or Coverdell savings accounts, and the Education Savings Bond program.
As the cost of college continues to climb, these college savings vehicles keep gathering assets. The College Savings Plan Network reported in March 2013 that 529 savings plan assets grew by 15.7% to $190 billion in 2012. Fiscal Cliff legislation enacted in January permanently extended what were previous temporary enhancements to Coverdell Savings Accounts. Parents and grandparents can continue to contribute $2,000 a year to a Coverdell account and use those funds for kindergarten through 12 grade expenses.
Education tax credits
Fiscal cliff legislation extended the American Opportunity Tax Credit for an additional five years. Eligible taxpayers can claim only one of these credits in a given tax year for a single student. However, if a taxpayer claims two eligible students on a return, one credit can be claimed for each student.
Credits can be selected on a per-student, per-year basis, which means taxpayers can switch between the American Opportunity Credit and the Lifetime Learning Credit for their children in different tax years, if they desire to do so. The HOPE Credit still exists, but only applies to 2008 and earlier tax years.
The article above is for informational purposes only. It is not intended to be specific tax advice and is not a recommendation, as everyone’s financial situation is unique. You should contact your tax advisor to discuss your specific financial situation before taking any action.
Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide tax advice or services. Please consult the appropriate professional regarding your tax planning needs.