Know Your Options For College Planning In Tampa
Today’s parents have more options than ever for college savings. This flexibility gives parents more options, but it also means that parents need to do more research in order to find the right strategy for them. Below is a summary of options for college planning in Tampa. A chart will also be provided that allows you to compare the key features and benefits. Before making any decision, it is a good idea to talk with an investment professional about your specific needs. Be aware that 529 plans can have different features from one state to the next.
(ESAs) Or Coverdell Education Savings Accounts
These plans were originally called Education IRAs. However, parents could only set aside $500 annually. These plans have a new name and allow for higher contributions. These accounts allow parents to invest as much as $2,000 annually. These accounts earn no taxes if you withdraw funds to cover qualified college expenses. New rules allow money from these accounts to be used for both college and education expenses for parents of children in grades K-12. ESAs can be converted to 529 plans, without any tax penalty. Students are required to use 35% to pay for college each year when applying for financial assistance. Parents’ assets are subject to a maximum 5.6% assessment. ESAs can be considered assets of the custodian (typically parents) and have a lower impact on financial aid than money in a custodial bank account.
College Savings Plan: 529 Prepaid Tuition Plan
These plans are usually offered by the state (although a group of colleges now offers a pre-paid plan). 529 plans, named after the section of the Internal Revenue Code that regulates them, come with two types college savings plans and prepaid qualified tuition plans. Both types of plans allow for annual tax deferrals on account earnings. If earnings are used to pay qualified education expenses, they are exempt from taxes.
Prepaid tuition plans provide protection from future tuition increases. These plans allow parents to purchase tuition credit at today’s price and can be used many years later when your children have finished college. However, not all states guarantee their prepaid plans.
Although college savings plans do not offer guaranteed investment returns, they are similar to a 401(k) or IRA. Account owners can choose the investment strategy that suits their needs from the various options available under each plan. These plans give parents the opportunity to earn higher returns than the annual tuition inflation rate. This is the effective return that a prepaid plan offers. If parents do not choose to earn on their investments, the savings plan accounts won’t grow.
529 college savings plans are available in 49 states and the District of Columbia. Many plans are available nationwide and can be used by residents of any state. Half of all states offer additional income tax benefits to residents. Even parents who reside in states that offer tax benefits to residents might want to compare all their options. The tax benefits of a college savings plan in another state could be outweighed by potential advantages such as higher investment performance, better plan features, or greater flexibility.
Money in 529 plans, like an ESA, is the account owner’s asset. A 529 plan will not reduce financial aid if a student isn’t the account owner.
Parents should be aware that 529 plans may charge an additional fee than other investments such as custodial or custodial accounts. 529 investments come with investment risks. Before you invest, it is important to consider your financial goals, financial management, and risk tolerance. 529 plans offer unique gifting options and estate tax benefits.
Current rules allow you to gift up to $14,000 per year ($28,000 per married couple), per beneficiary, without any federal gift-tax consequences. 529 plans have a unique feature that allows you to give up to $70,000 (or $140,000 for married couples) to any beneficiary, provided your contribution is not less than $14,000. You spread the money over five years to each beneficiary. Federal gift taxes will not be incurred as long as the beneficiary does not receive any additional gifts for the four years following the year in which the gift was made.
Custodial Accounts
These are the classics in college planning in Tampa. These are also known as UGMAs or UTMAs. They stand for Uniform Gifts to Minors Acts or Uniform Transfers to Minors Acts. Custodial accounts do not allow for the possibility to defer or potentially avoid taxes on investment earnings. They do offer significant tax benefits. All earnings from a custodial account are subject to the child’s lower income tax rate.
The Tax
Custodial accounts can’t defer or potentially avoid taxes on investment earnings. They do offer significant tax benefits. All earnings from a custodial account are subject to the child’s lower income tax rate. Tax treatment of earnings is dependent on the child’s age and the amount of earnings each year. All earnings earned by a child aged 14 and over are subject to tax at the child’s rate. The earnings of a child under 14 years old are subject to tax at the child’s tax rate, up to a limit. After that, the parent’s income tax rates apply. Custodial accounts allow the custodian to choose the investments and trade between different types of investments.
Custodial accounts allow the parent to choose the investments and trade between different types of investments.
Custodial accounts can have a disadvantage in that the account becomes the child’s property once the child reaches adulthood. This could be either 18 or 21 depending upon where you live. The parent cannot stop a child from using the money for any purpose other than college. The money in the accounts, which is considered to be the child’s money, can also reduce financial aid more than money in an ESA or 529 plan. Custodial accounts don’t require a plan fee like many 529 plans.
Contact Us Today
You can achieve your financial goals, as well as college planning in Tampa to ensure financially protecting your family and future by contacting us today to speak to a financial advisor.
Any opinions are those of All Seasons Wealth are not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Past performance may not be indicative of future results.
