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Strategic Educational Funding for the Next Generation

Strategic Educational Funding for the Next Generation

Strategic Educational Funding for the Next Generation

A degree from a higher education institution is a must for anyone hoping to pursue

at least a middle-class lifestyle. As parents and grandparents, we want children to

succeed, but there may be concern about how and by whom

funding for education will be provided. As the cost of getting a degree is high, those who can afford it often take the initiative to pay for education. Whether parents or grandparents, there are many

ways to save and pay for education

and those who think about it should be aware of the different options available to them.

The most common policies include 529 plans, custodial accounts, a direct reward for the

individual, and a direct reward for the educational institution.

529 plans

Strategic Educational Funding for the Next Generation

The 529 plan is an education savings plan where investment tax is deferred and

distributions used for eligible post-

secondary education is tax-free. This type of savings plan allows the owner to easily change the

beneficiary and

investment when they choose and to offer a variety of funding options. In addition,

34 states grant at least partial tax

deduction for all contributions made to the 529 employer plan. The employer can contribute

to the 529 plan as a gift

without penalty by taking advantage of the annual federal reward limits.

One of the benefits of these plans is that 529

Strategic Educational Funding for the Next Generation

can be funded with tax-free gifts worth 5 years in the future. If the donation to

529 is a completed gift (and funds are withdrawn from the estate), the owner

will have access to the funds, but any withdrawal of income if the money is

not used will be taxed and a 10% penalty will be paid for education. Those who buy these plans should also be aware

that most plans have high fees and limited investment options.

Preservation accounts

Strategic Educational Funding for the Next Generation

Another way to consider college pay is with a custodial account (UTMA / UGMA).

This account is similar to a

personal investment account, but the rewards are kept trustworthy until the trust

decides the age (age 18 or 21

depending on the type of account and how it is maintained). There are several errors

associated with this type of

account. Assets in a custodial account are considered students and can be counted

against them if they apply for

college financial aid. Investment income generated by the custodial account must

be reported on the child’s taxable

income and taxed at the parental rate. Finally, it is important that the funds in the foster

care account be considered

non-refundable and that once the child reaches adulthood they will be free to spend the

funds as they choose.

Direct payments

Strategic Educational Funding for the Next Generation

Strategic Educational Funding for the Next Generation
Strategic Educational Funding for the Next Generation

As of 2014, federal gifting rules allow parents or grandparents to give up to $ 14,000 a year as a direct gift to anyone

without paying gift taxes. This entire lifetime federal gift and estate tax are not deductible and an individual can make

gifts of $ 14,000 or less as appropriate. Married couples can give $ 28,000 to each recipient of the gift without tax

restrictions, however, they must report the gifts to the IRS. If the funds are paid directly to a qualified educational

institution, there is no limit to the amount an individual can give. There is no gift tax on this type of direct payment

and nothing is deductible from the deduction amount but it only applies to the part of the gift paid directly to the

company. If the gifter also wants to pay for books or other expenses such as room and board, he must pay separately

and give a regular gift to cover these expenses.

Best strategies for young parents

Strategic Educational Funding for the Next Generation

Strategic Educational Funding for the Next Generation
Strategic Educational Funding for the Next Generation

For parents, saving strategies are essentially family and financial. The disadvantage of

offering a monetary gift in the

form of a custodial account is that it belongs to any child in the account after entering adolescence;

Therefore, young parents need to think about how the child can use the money

when they are young.

For this reason, 529 may now be the best choice for a parent to implement for a young child’s

education savings plan.

Investing in 529 ensures that parents can deduct money from their estate tax and that the

money will be used financially for education.

Strategic Educational Funding for the Next Generation

Strategic Educational Funding for the Next Generation
Strategic Educational Funding for the Next Generation

However, if the child’s grandparents can finance future education, it may be to

the advantage of all parties

involved to open a joint account where parents can allocate money intended for education.

Then if the grandparents

help financially, the money saved is for other priorities. Children can be gifted directly to

finance books or other college expenses such as room and board.

Here are some ways in which parents can save on education with their budget and growing family in mind.

1. Start with the amount of monthly savings you can afford today and continue as your family grows.
2. When looking at 529s, you can start

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