101-10 Education Planning Flashcards
Education Savings Bond Program
Permits the exclusion from income at the time of redemption any amount used to pay for qualified higher education expenses
Must be registered in name of parent when using to fund child’s education
Qualified expenses include tuition and fees
Subject to a phaseout during the years when the bonds are redeemed and tuition is paid
2018:
119,550$-149,550 for married filing jointly and 79,700$-94,700 of MAGI for single taxpayers
Must be purchased after 1989 to be eligible for special tax treatment
Coverdell Education Savings Account (CESA)
$2k limit per child
After tax contributions
Earnings accumulate income tax free when used for qualified education expenses
CESA’s are established as a trust or as a custodial account on behalf of the student
All funds must be used before the student reaches age 30
Section 529 Plan
Aka qualified tuition program (QTP)
If withdrawals are not used for qualified education expenses, the income portion is included in the gross income of the beneficiary and 10% penalty
Federal gift tax is favorable- one $75k contribution per 5 years or 15k per year
Contributions removed from the contributors gross estate
2 types:
- Prepaid tuition plan
- College savings plan
Prepaid tuition plan
Permits contributors (usually parents) to prepay future tuition at today’s tuition rates or purchase tuition credits (Units) to apply future tuition costs
Inflation-based performance Suitable for risk-averse investor May offer state-guaranteed return on assets Usually restricted enrollment options May restrict out-of-state tuition costs Covers tuition and mandatory fees
College savings plans
Offered only by states, state-sponsored organizations, and eligible educational institutions
Market-based performance
Suitable for risk-tolerant investor
No state-guaranteed return on assets
Open enrollment
Available for out-of-state tuition costs without any refund difference
Covers tuition, books, supplies, room and board
ABLE account
Provides individuals with disabilities and their families the ability to fund a tax-preferred savings account to pay for qualified disability related expenses
Annual contribution limit = amount of annual gift tax exclusion ($15k in 2018)
Can roll 529 monies into ABLE account, this does count towards contribution
Expected Family Contribution (EFC)
An index number that colleges use to determine how much financial aid students would receive if they attend that school
Factors in:
- Parental income
- Parental assets
- Student income
- Student assets
Term is used on the Free Application for Federal Student Aid (FAFSA)
Major types of Federal Direct Student Loans
- Subsidized Stanford Loan
- unsubsidized Stafford Loan
- Parents loan for undergraduate students (PLUS)
Major campus-based loan = Perkins loan
Subsidized Stafford Loan
Need-based Loan
U.S. Dept. Of Ed. Pays the accrued interest while student is in school and during any deferment periods
Unsubsidized Stafford Loan
Non-need-based Loan
Interest begins to accrue as soon as funds are disbursed
Parental loan for undergraduate students (PLUS)
Non-need-based-Loan available to parents of dependent undergraduate students
Perkins Loan
Federal loan
The institution determines whether the student needs the loan
Low interest rate and longer deferral period than Stafford loans
Grants
Most popular
Pell Grant: federal grant. Available only to undergrads. Family EFC must be below specified amount
Major campus-based grants:
-Supplemental Educational Opportunity Grant (SEOGs): federal grants given to students
-Federal Work-Study Programs: provide students with part-time jobs while attending college
2 major credits and one deduction for higher education costs
- American Opportunity Tax Credit
- Lifetime Learning Credit
- Student loan interest deduction
American Opportunity Tax Credit
Intended to help families pay for post-secondary education for their children
Max credit of $2,500 per student
100% of first 2k and 25% of next 2k
