As the cost of higher education continues to rise, many parents and young people are struggling to cover the cost of higher education. Costs for state and private schools. What options do you have when planning the financing of education?
529 Plan – These types of plans allow you to contribute after-tax dollars that grow tax-free. Qualifying withdrawals from the plan are not taxed when used for qualifying educational expenses. You can choose a savings plan that works similar to an IRA and allows the student to attend a school of their choice. Or you can choose a prepaid plan, which allows you to prepay some or all of the cost of a state public college education.
Life Insurance – Some types of life insurance build a cash value and also provide a death benefit. With proper funding, you can access the cash value at the time the child enters college. Keep in mind that access to Cash Value may also affect the death benefit provided under the policy.
Student Loans – Student loans can be helpful, but it’s important to remember that students may need to redirect funds to pay off loans in the future. These are funds that could be used to achieve other financial goals. If borrowing becomes necessary, parents can also take out a home equity loan and deduct the interest on the loan at tax time.
Sending Funds to Children – Beginning with tax year 2017, parents and grandparents can give each child up to $14,000 with no gift tax consequences.
Tax Credits – The American Opportunity Tax Credit and Lifetime Learning Credit are tax credits available to full-time students. Household income guidelines apply, so check the IRS website to see which option is better for your family.
Education Savings Account – Parents, guardians, or other qualified individuals may deposit up to $2,000 per year on behalf of eligible students under the age of 18. Withdrawals from the account are not taxable when used for qualifying educational expenses. All funds must be distributed within 30 days of the participant’s 30th birthday.
The cost of funding higher education can be daunting! It’s important to consider many options when thinking about financing the expenses. All the above options are different mechanisms available for this. It’s also important to consider what types of grants might be available when choosing education funding options.