Education Funding Flashcards
What are ABLE accounts?
Achieving a Better Life Experience
Provides ability to fund tax-preferred savings account to pay for qualified disability-related expenses that is not included in AGI. This allows disabled persons to afford disability related expenses AND still be able to take advantage of state benefits programs such as Medicare/Medicade, SSI, food stamps, etc.
Contribution limits is the same as annual gift tax exemption
ABLE beneficiaries can claim savers credits
529 distributions can be rolled over into ABLE accounts so long as contribution limits aren’t reached.
What is the American Opportunity tax credit?
Reduces dollar for dollar, 100% of ed expenses for 1st $2000 and 25% of next $2000. Total credit can be $2500 per child. Subject to student being 1/2 time or more, listed on parents taxes, phase out AGI.
Can be applied per student in the first 4 years post secondary school - all on one tax return
What is the Coverdell education savings account (CESA)?
Education trust or custodial account
Cannot contribute more than $2000 per year
Contributions subject to income phaseout
All funds must be disbursed by age 30 otherwise they will be distributed with taxes and penalties
What are custodial accounts?
Savings accounts established in the child’s name, but managed by the guardian until the minor was of age. A way of income shifting from parental income to child asset’s potentially reducing the EFC
How do you calculate expected family contribution (EFC)?
An index number that colleges use to determine the amount of family-paid annual college costs.
Parental income: 22 - 47% (minus protected amount)
Parental assets: 5 - 5.64%
Student income: 50% (minus protected amount)
Student assets: 20%
What is the federal supplementary education opportunity grant (FSESOG)?
Need-based, full, half, or part-time, undergraduate student only grants ranging from $100 to $4000
What is the federal work-study program?
Based on financial need, employment to full or part-time undergraduate or graduate students which may be used to reduce college expenses
What is the lifelong learning credit?
Unlike the American Opportunity Tax credit, there is no requirement of being enrolled in a degree program or being enrolled at least 1/2 time. The amount allowed is 20% of the 1st $10,000 of tuition expense paid per tax payer, per year. There are income phaseout limits.
Can only be applied once over the entire tax return
What is the parent loan for undergraduate students (PLUS)?
Loans that parents can get, unlimited amounts except up to the total cost of the education. They have a fixed rate with payments due 60 days after disbursement.
What are Pell Grants?
Substantial need-based, full, half, or part-time, undergraduate grants.
What are Perkins Loans?
Low interest, need-based, student loans funded by the government, but administered by the school. Borrowers will not be charged interest until 9 months after their school or become less than half time.
What are prepaid tuition plans?
State plans where parents can pre-pay tuition at today’s rates. Usually requires child to attend college in the same state as the QTP. Becoming more rare
What are section 529 plans?
AKA Qualified Tuition Program - a tax advantaged college savings account
Contribution limits range from $100-250k based on the state.
Elementary/Secondary school - $10k distro each year. If above, part contribution and part earnings disbursed.
In college, no limits to distro as long as it is a qualified expense.
The owner is usually the contributor and does not change control at age 18
Can be rolled over to any family member
What are Stafford loans?
Direct subsidized (need-based; government pays interest while in school) and unsubsidized loans (not need based) - a common type of college loan program
There are usually limits on these loan amounts based on the cost of the student’s education less any other grants or loans.
What are UGMA 529 accounts?
A QTP which allowed an UGMA to be rolled over into a 529 account
