College Savings & Planning
A college savings plan is a type of qualified tuition program established under Section 529 of the Internal Revenue Code. College savings plans are established by states and typically managed by an experienced financial institution designated by the state. A college savings plan lets you save money for a child's college or graduate school education in an individual investment account. Although the details of college savings plans vary by state, the basics include the ability to offer tax deferred growth. Also, withdrawals used for the beneficiary's qualified education expenses are income tax free at the federal level. A Coverdell education savings account is a tax-advantaged educational savings account that you can establish for any child under the age of 18 (this age limit does not apply to beneficiaries with special needs). Contributions to a Coverdell ESA can total up to $2,000 each year. Contributions are made with after-tax dollars, but distributions used to pay qualified education expenses are income tax free at the federal level. States may also exempt such distributions from state income tax. Note: The provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 increased the annual contribution limit for Coverdell ESAs to $2,000, and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended this contribution limit through 2012. |