More Ways To Use The Taxation System To Pay College Education Costs
In addition to Education IRAs and federal tax credits there are many other ways to use the taxation system to pay for the high and increasing costs of a college education. You need to consider all of these tax benefits in order to ensure that you can benefit from this form of government support to families who are helping their kids get a higher education.
Some of the other ways to let the taxation system pay for some of your family's college education expenses include deductible expenses, Section 529 plans, regular IRA's, savings bonds, investing on your child's behalf, and putting your child to work for you.
You can deduct up to $4,000 a year in qualified educational expenses but you can't combine a deduction and a tax credit for the same student in the same year. You can however split the deduction and the credit if you have more than one child who qualifies.
Many people also contribute money to Section 529 plans which are named after the section of the IRS code that regulates these plans You can also put money into so-called Section 529 plans. Section 529 plans are regulated by the states that hire an asset management company to look after the business side. You can contribute to these plans for future college education and the earnings added to the funds are tax-free.
You can now also use your regular IRA penalty-free if you want to use some of it pay for qualified educational expenses. You can
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deduct up to $2,500 in interest paid for educational loans as an above-the-line deduction. Like many other deductions these benefits are not available to single, or dual high-income earners.
But perhaps the easiest way to get taxation monies working for your child's college education is through a special U.S. Savings Bond exclusion. You can exclude a portion of the interest that accrues on such bonds if you meet certain qualifiers. Those qualifiers include having paid education expenses in the year of redemption; are not married and filing separately, and if you meet the general base income restrictions.
Still another way to beat the taxman and save money on college education is to make investments in your child's name. Children under 14 face a much lower tax rate and even as their income grows it will likely be at a lower rate than yours. Just make sure that the investment is in your child's name and stay on their good side because ultimately that money is theirs.
The final way to meet your college education needs that works for some people is to hire your kids if you are self-employed. There are some restrictions but once again any monies you give your children should be plowed back into their own or the family college education fund.
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