Education financing options
As the cost of higher education continues to rise, many parents and youth struggle with how to cover the cost of a college education. Expenses in public and private schools. What are your options when planning education financing?
529 Plan: These types of plans allow you to contribute after-tax dollars that grow tax-free. Qualified withdrawals from the plan are not taxable when used for qualified education expenses. You can choose a savings plan that works similar to an IRA, allowing the student to attend the school of their choice. Or you can choose a prepaid plan that allows you to prepay some or all of the costs of a state public college education.
Life insurance – Some types of life insurance build up cash value and also provide a death benefit. If properly funded, you can access the cash value by the time the child attends college. Please note that accessing the cash value could 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 have to divert funds in the future to pay off loans. These are funds that could be used to achieve other financial goals. If borrowing becomes a necessity, parents can also take out a home equity loan and deduct the interest on the loan at tax time.
Transfer of funds to children: Beginning in fiscal year 2017, parents and grandparents can donate up to $ 14,000 to each child without the consequences of gift tax.
Tax Credits: The American Opportunity Tax Credit and the Lifetime Learning Credit are tax credits available to full-time students. Family income guidelines apply, so be sure to check the IRS website to see which option might work best for your family.
Education Savings Account – Parents, guardians, or other qualified individuals can contribute up to $ 2,000 per year on behalf of eligible students under the age of 18. Withdrawals from the account are not taxable if used for qualified education expenses. All funds must be distributed within 30 days of the participant’s 30th birthday.
The cost of financing higher education can be overwhelming! It is important to consider many options when thinking about how to finance the cost. All of the above options are various mechanisms available to do so. It is also important to consider what types of grants may be available when selecting educational financing options.