College costs continue to climb, and many parents and students find themselves unable to afford their children’s educations because of this. Costs of education, both public and private. What choices do you have when it comes to funding your education?
After-tax monies can be put into a 529 plan, allowing for tax-free growth. When used to pay for eligible educational expenditures, withdrawals from an IRA are free of federal income tax. Savings plans similar to an IRA can be used to pay for a student’s college education at the school of his or her choice. Prepaid plans, on the other hand, allow you to pay for a portion or the entire cost of an in-state public college education in advance.
The cash value of some types of life insurance can also be used as a death bonus if the policyholder dies. When the child is old enough to go to college, you can cash in on the value you’ve built up over the years. Keep in mind that cashing out the policy’s cash value could impair the policy’s death payout.
Although student loans might be useful, the student must remember that they will likely be responsible for repaying them in the future. Other financial objectives could be achieved with these funds. If borrowing is necessary, parents can deduct the interest on a home equity loan when filing their taxes.
For the 2017 tax year, parents and grandparents can give up to $14,000 to each of their children without incurring a gift tax.
Full-time students are eligible for the American Opportunity Tax Credit and the Lifetime Learning Credit. Be careful to visit the IRS website to discover which choice is best for your family based on the household income guidelines.
Parents, guardians, and other qualified individuals can make annual contributions of up to $2,000 on behalf of their eligible minor children in an Education Savings Account (ESA). There are no taxes to be paid on education-related withdrawals from an IRA. There are 30 days from the participant’s 30th birthday to disperse all of their funds.