Pay for College -- and Avoid the Tax Man
Paying for a college education may be the greatest gift you can give. However, it may also be the most costly.
It's no secret that college expenses have been rising at an alarming rate. According to The College Board's report, "Trends in College Pricing," tuition has increased at twice the rate of inflation over the past 20 years (2001). This means that in another 18 years, parents can anticipate paying approximately $115,000 for total expenses at a 4-year public college, or about $250,000 at a private institution.
What you can do now to help with the rising costs of a higher education in the future? Consider the 529 College Savings Plan. Named for a section of the Internal Revenue Code that permits very favorable tax treatment, this state-sponsored college savings plan can be withdrawn completely tax-free if the money is spent on qualified educational costs. Account owners can generally write off up to $55,000 ($110,000 for married couples) per beneficiary, per five-year period, without incurring a federal gift tax. For example, an affluent couple can potentially send their four grandchildren to college and immediately eliminate $440,000 (4 x $110,000) from their taxable estate. Besides the tax incentives, there are some additional features that make 529s a logical choice for college funding. There are no age or income limitations, and the contribution limits are high, some reaching $268,000. Also, account owners keep control of the assets. If for any reason the owner must close the account, a penalty of 10 percent will be assessed on the earnings and the balance may be used at the owner's discretion.