Financial Planning for College – What is a 529 Plan and How Does it Work‏?

529 PlansIn 1996 the Internal Revenue Code was modified to include Section 529, creating an education savings benefit for higher education. While contributions to the Plan are not tax deductible, the earnings on the Plan are; making the 529 College Savings Plan an excellent saving tool when you are doing your financial planning for college for your children. With changes to tax code going into effect this year, the Plan becomes even more attractive.

A financial planner can help you enroll in a 529 College Savings Plan

In 2013, couples earning over $450,000, and singles earning over $400,000, will face higher taxes and lower deductions; while all Americans will see greater withholding from their paychecks. In addition, it is highly likely that we will see significant cuts to Federal Financial Aid even as colleges and universities continue to increase tuition and fees. By beginning to save for college now, your financial planning for college will be much more likely to be successful in covering your child’s tuition and expenses later. (more…)

Transferring Assets to a 529 Plan

529_planBy now most Americans who are saving and investing to pay for college costs have probably heard that so-called 529 college savings plans allow tax-free distributions for qualified education expenses, potentially making them even more attractive and effective than in the past, when they were only tax deferred. Add that tax benefit to other benefits of 529 plans, including high contribution limits, and many families may want to consider taking advantage of the plans. (more…)

Can’t We Talk About Something More Pleasant? Cartoonist Roz Chast Takes on her Aging Parents

mom-son-planning-togetherI expected a book of cartoons to be laugh-out-loud funny. But I didn’t expect that a story told in sketches would also make me cringe at its honesty or break my heart.

In Can’t We Talk About Something More Pleasant?, Roz Chast bares the painful decisions adult children often have to make as their parents’ health declines. She offers an unsparing look at how she handles—and mishandles—their falls, forgetfulness, stubbornness, dementia, abhorrence of nursing homes and dependence. I know it sounds grim, but leave it to Chast, a longtime New Yorker cartoonist, to mine the humor in their decline and her efforts to help. (more…)

The Real Cost of College: Crunching the Numbers

calculator-moneySo who can afford to pay $60,000 a year for a college education? Harvard College has disclosed that the full cost of attending the venerable institution, including tuition, room and board, and fees for the 2014-2015 academic year will be $58,607, up 3.9% from the $56,407 charged last year. Yale announced similar increases to its price tag for the coming academic year — a 4% jump to $59,800.1

Elite schools aside, the sticker-shock of attending college is still very real. Nationwide, the total average cost of a year at a private four-year college was $40,917 for the 2013-2014 academic year, while four-year public colleges came in at $18,391.2 (more…)

529 Plans: Taking Distributions

Parents looking to take advantage of the many benefits of saving for college with a 529 plan will want to know the full details on which educational expenses qualify for tax-free distribution status — and which do not.1 In Publication 970, the IRS gives detailed guidance on qualified expenses. Here are a few important points.

What’s Covered

  • Tuition and fees are covered in full.
  • Room and board, if the student is enrolled at least half time. But such expense must be not more than the greater of (1) the allowance for room and board, as determined by the school, that was included in the cost of attendance; or (2) the actual amount charged if the student is residing in housing owned or operated by the school.
  • Food. If you spend a certain amount for a meal plan, that entire amount can be deducted, even if used for coffee or ice cream and not a full meal. Weekend meals can also be included if the dining halls are not open.
  • Books and supplies. Any fees associated with purchasing school textbooks are considered qualified, as are required equipment or supplies such as notebooks and writing tools.
  • Computers/laptops, but only if required by the school. If required, Internet fees and PDAs or “smartphones” may also qualify. The Savings Enhancement for Education in College Act (H.R. 529) that is currently being considered by Congress would expand this definition to apply to all computer technology used by the student.
  • Special needs services required by special-needs students that are incurred in connection with enrollment or attendance at school.

What’s Not Covered

  • Student loans. Interest on or repayment of student loans is not considered a qualified expense by the IRS.
  • Insurance, sports or club activity fees, and many other types of fees that may be charged to students but are not required as a condition of enrollment.
  • Transportation to and from school.
  • Concert tickets or other entertainment costs, unless attendance is requisite to a course or curriculum.
  • Note that expenses must apply to a qualified college, university, or vocational school for post-secondary educational expenses. Also keep in mind that taxes and a possible 10% additional federal tax will apply to all distributions that are not considered qualified educational expenses by the IRS, so be sure to check first.

Source/Disclaimer:

1By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state’s plan. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.

Required Attribution

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Prepping for the College Savings Test

If you’re saving for a child or grandchild’s college education, brace yourself. The annual cost at the typical private university now exceeds $38,000, and the annual cost at the typical public college is greater than $17,000.1 Multiply those figures by four, and you might wonder if it’s worth it to send Junior to college. In most cases, the answer is yes. Fortunately, there are ways to make your college savings work harder for you. (more…)