The tax bill provided more flexibility for using 529 funds. Illinois has chosen to disallow this flexibility for Brightstart or Bright Directions plans.
education expenses
IRA or 529?
After my post last week (Higher Education Expenses Paid From an IRA) I received a question from a reader: “If it’s possible to pay QHEE from an IRA then why would it be beneficial to contribute to a 529 specifically?” In today’s post I’ll cover the reasons you might choose an IRA or 529 plan. These two types of account will help you prepare for the twin future requirements of retirement and college expenses. As covered in the prior post, an IRA plan can be used in part to pay for college expenses. This is allowed in the Internal Revenue code, §72(t)(2)(E). So why would you choose to place funds in an IRA or 529 plan? Specifically, why would the 529 plan ever be superior to an IRA for this saving activity? Segregation One reason a 529 plan might make sense is to specifically segregate your education saving activities from […]
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Education Tax Benefits
Going to college can be a stressful time for students and parents. Some of the costs of your education can be offset by tax credits and reductions to income. These credits and reductions can be complicated, so it takes a bit of coordination to keep things straight. More than one education tax benefit may be taken in one year, but generally the expenses must be segregated from one another in your reporting. In other words, you couldn’t take two tax benefits based upon the exact same education expenses, with some exceptions. For example, you can use most qualified expenses for the tax credits and apply the expense toward eliminating the 10% penalty on IRA distributions at the same time. Generally though, most tax benefits for education can only be applied once to each expense. Only one of the following credits may be used per student in any given year: American […]
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Education Expense Tax Tips
One way to help ease the bite of the cost of a college education is to use all available tax rules to your advantage. There are several items you can use, including 529 plans, Coverdell ESAs, and various credits for tuition and fee payments. The IRS recently released their Summertime Tax Tip 2013-19: Back-to-School Tax Tips for Students and Parents, providing a valuable overview of a couple of important credits and deductions. The actual text of the Tip follows: Back-to-School Tax Tips for Students and Parents Going to college can be a stressful time for students and parents. The IRS offers these tips about education tax benefits that can help offset some college costs and maybe relieve some of that stress. American Opportunity Tax Credit. This credit can be up to $2,500 per eligible student. The AOTC is available for the first four years of post secondary education. Forty percent of […]
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Student Loan Interest Rates Won’t Increase, For Now
On June 29, 2012, Congress approved legislation to stop the interest rate on federal subsidized Stafford Loans from increasing from the current 3.4% to 6.8% on July 1, 2012, for new college borrowers. The rate had been scheduled to increase under provisions in the College Cost Reduction and Access Act of 2007. The rate freeze is effective for one year – and will (unless extended) increase to 6.8% on July 1, 2013. Under the new legislation: Rates on subsidized Stafford Loans will remain at 3.4% for undergraduates for one more school year, until July 1, 2013. As of July 1, 2013, undergraduate students with a subsidized Stafford Loan will have a maximum of six year of in-school status when the federal government will pay the interest on the loan while the student is in school. Previously, the government paid the interest for as long as it took a student to […]
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Tips for Summer Jobs From the IRS
With summer in full swing, many young folks are working in temporary jobs for the summer. There are a few things that you need to know about these temporary jobs that the IRS (and I!) would like you to know. Recently the IRS produced their Summertime Tax Tip 2012-13, which provides important information for students working in summer jobs. I have added an extra couple of tips after the original IRS text that may be useful to you as well. The original text of the Tip is below: A Lesson from the IRS for Students Starting a Summer Job School’s out, but the IRS has another lesson for students who will be starting summer jobs. Summer jobs represent an opportunity for students to learn about the tax system. Not all of the money they earn will be included in their paychecks because their employer must withhold taxes. Here are six […]
Sterling Raskie, MSFS, CFP®, ChFC®
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