A Quick Study of College Funding
Options
They grow so fast, don't they? College costs,
that is. For
the 2005–06 school year, tuition costs at four-year
public universities were up an average of 7.1 percent
over the prior year.¹
If you have a
child or grandchild with
college aspirations, there are a number
of tax-advantaged options available to
help fund his or her higher education.
Coverdell Education Savings
Accounts. The tax-favored ESA is a
popular alternative for college savings.
Up to $2,000 can be contributed per
child every year. Funds accumulate tax
deferred and are free of federal tax if used for qualified education
expenses. ESAs also
offer investment flexibility, allowing you to choose your
investments.
Section 529 plans.Section 529 plans are state-sponsored plans that
allow tax-free
withdrawals for approved education-related expenses (tuition, fees,
room and board, and
supplies). Contributions are made
after tax, but any earnings grow tax deferred. Contribution limits
are also higher than
ESAs.
As with other investments, there are generally fees and expenses
associated with
participation in an ESA or a 529 savings plan. In addition, there
are no guarantees
regarding the performance of the underlying investments.
The tax implications of a 529 savings plan should be discussed with
your legal and/or tax
advisors because they can vary significantly from state to state.
Also note that most states
offer their own 529 plans, which may provide advantages and benefits
exclusively for
their residents and taxpayers. The tax-free qualified withdrawal
provision of these plans
is scheduled to expire after December 31, 2010, unless new
legislation is enacted by
Congress.
As college costs continue to climb, these
tax-advantaged investment vehicles may help
you send your child or grandchild to school. Call today for college
funding information.
From: David Waters
Phone: 215.875.8790
1) The College Board, 2005
