FAX 1-800-547-3366





An index and links to our previous months' newsletters can be found at oldnews.html

Looking for a Tax-Efficient Way to Save For Your Child's College Education?

If you have young children, you have probably already tried to get a sense of the projected cost of a college education for the year that your child will turn 18. Once the sticker shock wears off, you probably realized the following:

  1. You need to begin saving for your child's college education as early as possible.

  2. Unless you set aside a certain amount of money on a monthly basis, you won't have nearly enough money saved when it's time to pay for your child's college education.

  3. You will have the best chance of meeting your savings goal by segregating the money earmarked for college from your other savings accounts.

Education IRAs Offer TAX-FREE Growth

Parents of children who have not yet attended college are entitled to have $500 per year contributed to an Education IRA on behalf of each of their children. Amounts contributed will grow TAX-FREE as long as the distributions from the Education IRA are used to pay for qualified post-secondary education expenses; which includes tuition, fees, and required books.

Income Limitation: Unfortunately, high income taxpayers will not be eligible to contribute to Educations IRAs. No contributions are allowed by single taxpayers whose adjusted gross income (AGI) exceeds $110,000 and married couples whose AGI exceeds $160,000. Partial contributions are allowed for single taxpayers whose AGI exceeds $95,000 and for married couples whose AGI exceeds $150,000.

Planning Opportunity: Amounts contributed into an Education IRA do not need to be made by the child's parents. If your income exceeds the threshold indicated above, you may want to ask somebody else, such as a grandparent, aunt or uncle, or friend, to contribute $500 into an education IRA on behalf of each of your children.

Don't Overlook the New "529" Plans

Recently, a new type of college saving opportunity became available. These programs, known as 529 Plans, are sponsored by individual states. The Massachusetts program is administered by Fidelity Investments and is called the U.Fund, the New York program is administered by TIAA-CREF and is called New York's College Savings Program, the Maine program is administered by Merrill Lynch, and the New Hampshire program is called the Unique Plan and is also administered by Fidelity. These programs all offer the following benefits:

  1. Unlike Education IRAs, there is no income limitation in connection with these college savings plans.

  2. These plans allows an annual contribution of up to $50,000 per child. If you contribute $50,000 in one year, however, you need to wait at least five years before making additional contributions to the plan.

  3. The money invested grows tax-deferred.

  4. When distributions are made from the plan to pay for the child's education, the earnings are subject to income taxes at the child's tax rate, who will generally be in the lowest tax bracket.

  5. If you pay taxes to New York State, up to $10,000 per year contributed to the New York's College Savings Program is tax deductible and grows tax-free for state purposes. Other states may follow New York's lead and allow for the contributions made into the college savings plan to be state tax deductible.

There is a downside to these college savings programs. The first is that the amount of financial aid that you will be eligible for might be impacted. The second is that you have no control over how the money is invested. You need to determine whether Fidelity, TIAA-CREF, or Merrill Lynch will be investing your child's college money aggressively enough for you. Thirdly, contributions cannot be made to an Education IRA and a 529 Plan on behalf of any one child in the same year.

High income taxpayers should not overlook these plans as a way to save for a child's education. For more information on Fidelity's U.Fund, call (800) 544-2776 and on the New York's College Savings Program, call 1-877-NY-SAVES.




Income Taxes

Saving and Investing




  • Personal income tax returns are due 4/17/00

  • Request for automatic extension, Form 4868, due 4/17/00

  • 1st Quarter estimates due 4/17/00

  • Due date for funding your 1999 Roth or Traditional IRA is 4/17/00

  • Due date for self-employed individuals to fund their retirement plans is 4/17/00

  • Self-employed individuals who need additional time to fund a retirement plan should file a Form 4868 with the IRS

1999 & 2000 TAX FACTS

  • For 1999, the standard deduction for a single individual is $4,300 and for a married couple is $7,200. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes, real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.

  • For 1999, the personal exemption is $2,750. Individuals will claim a personal deduction for themselves, their spouse, and their dependents.
  • The maximum earnings subject to social security taxes has been increased to $76,200 in 2000 from $72,600 in 1999.
  • The standard mileage rate has been reduced to $.31 per mile as of April 1, 1999 from $.325 per mile previously.
  • The maximum annual contribution to a 401(k) plan or a 403(b) plan has been increased to $10,500 in 2000 from $10,000 for 1999.

Home | Monthly Tax Newsletter | TAX FAQS | Retirement Savings Calculator
Financial APGAR Test | Income Tax Services | Offices | Search Our Site

The MDTAXES Network
(800) 471-0045 ~ fax (800) 547-3366

E-mail us at: cpa@mdtaxes.com