Twila E. Palmer's Blog
Going to college can be a very expensive endeavor as a result of the financial requirements and obligations. It requires a lot of financing from textbooks, to housing accommodations, transportation and other miscellaneous expenses. This does not even include the cost of tuition. There are several ways of handling these costs effectively without going broke. Here are a few suggestions to assist in your financial planning. 529 College Plans This is a form of investment that allows parents to set aside some money towards their kid’s education, allowing it to appreciate in value tax free. This implies that when you withdraw from your savings, as long as the funds are used for the purpose of your child’s education, you will not be taxed. Irrespective of your income, and other family members can contribute to a 529 account. Coverdell Education Saving Accounts (ESA) This account functions like an IRA. But in this case, it is for education and not retirement. With this form of savings, you can make contributions up to $2000 with post tax dollars and allow the money to grow tax free. When you withdraw, you are not taxed on the money or interest as long as it is used for the purpose of education. IRA and Roth IRA Accounts Basically, these accounts are investment accounts used to save money for college or retirement with no significant taxes. They come as deductible and non deductible accounts. In order to qualify for this type of accounts, your income as well as an existing retirement plan is taken into consideration. With a deductible IRA, tax is deducted from your annual contributions. When you make withdrawals, you will be taxed based on your contributions and earnings. Roth IRA, contributions are not tax deductible and your earnings are also tax free if your withdraws after a five year period are used for an appropriate expenses like college tuition.