Saving soon and often for your or your children's college education is critical.
But just as important as putting away higher education money is knowing when to take out that college fund cash.
529 plan benefits, possible pitfalls: This is especially true of the tax-favored 529 plans that states offer.
Your deposits to a 529 plan are not tax deductible, but the funds grow tax-free. And when you or your child withdraws the money, there's no tax bill as long as you use the funds to pay for qualifying college costs.
Withdrawing 529 money, however, is not as simple as it sounds.
Joseph Hurley, higher-education funding guru and founder of Savingforcollege.com, says there are some mistakes that folks too often make when taking money out of a 529 plan. They are:
- Taking too much money.
- Taking too little money.
- Taking the money in the wrong year.
- Requesting payment be made directly to the school.
- Taking the money from the wrong 529 account.
- Failing to coordinate with other family members.
Check out Hurley's article for details on how to avoid these 529 withdrawal traps.
More college cost help from Uncle Sam: Popular 529 plans are just one way that the federal tax code helps educate our kids.
Today's featured Weekly Tax Tip looks at the other tax-favored options that students and their parents can use to cover not only university expenses, but in some cases elementary and secondary school costs, too.
The six tax-friendly ways to pay educational expenses that I examine over at Bankrate include:
- 529 plans,
- Coverdell Education Savings Accounts,
- Educational tax credits,
- Tuition and fees deduction,
- Student loan interest deduction, and
- Savings bonds.
Check out my article for details on these tax breaks for college (and more!) costs.
And enjoy these last few days of summer before your kids head back to class. Despite the craziness of these last few months, you know you'll miss having your sons and daughters around so much of the time.
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