The costs of education for children and grandchildren can be staggering and are seemingly always on the rise. Education is often one of the largest expenses families incur. Today, education savings vehicles are plentiful and diverse, with a broad range of tax benefits and consequences, financial aid implications, contribution limits, and asset flexibility. Whether the child in your life is 13 years old, 10 months old, or due any day, it's never too soon to start planning.
A 529 plan79 is an investment plan operated by a state, designed to help families save for future college costs. One of the key advantages of a 529 plan is the income tax breaks on the non-deductible contributions. Any earnings grow tax-deferred for as long as the money stays in the plan. And when the plan makes a distribution to pay for the beneficiary's college costs, the distribution is federal tax-free as long as it is used for qualified expenses. Another major advantage is that the account holder stays in control of the assets in a 529 account. The named beneficiary has no rights to the funds.
COVERDELL EDUCATION SAVINGS ACCOUNT
A Coverdell Education Savings Account is a trust account especially designed for education costs. This custodial account enables you to contribute up to $2,000 per beneficiary per year of earned income after tax. Income limitations apply. Earnings may be withdrawn tax-free for qualified educational expenses, from elementary school through college provided distributions aren't more than the beneficiary's adjusted qualified education expenses for the year. The investor chooses the investment options. This type of account is an ideal savings tool for primary and secondary education in private schools.