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SAVING FOR YOUR CHILDREN'S EDUCATION
If you have young children, you have probably already tried to get a sense of how much it will cost you to send your kids to college. When putting together a strategy for saving for your child's education, following these three steps will help you reach your goal:
Education Savings Accounts
Under the current rules, you can contribute up to $2,000 per child per year into an Education Savings Account (ESA). Amounts contributed grow tax-free, as long as any money withdrawn from the ESA is used to pay for qualified post-secondary education expenses, or for private elementary school and high school tuition as well.
Income Limitation: Unfortunately, single taxpayers whose adjusted gross income (AGI) exceeds $110,000 and married couples whose AGI exceeds $220,000 aren't eligible to contribute to an ESA. Plus, allowable contributions are limited for single taxpayers whose AGI exceeds $95,000 and for married couples whose AGI exceeds $190,000.
Planning Opportunity: Amounts contributed into an ESA don't need to be made by the child's parents. If your income exceeds the threshold indicated above, ask somebody else, such as a grandparent, sibling, aunt or uncle, or friend, to contribute $2,000 into an ESA on behalf of each of your children.
The New and Improved 529 Plan
Recently, 529 Plans got better. Below is a summary of the current rules for 529 Plans:
What's the downside to 529 Plans? First off, the money you saved in the 529 Plan might reduce the financial aid you'll be eligible to receive. Plus, you have no control over how the money in your child's 529 plan is invested. Before investing in any state's program, make sure to determine whether the financial institution will invest your child's college money as you see fit.
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