Now, when it comes to saving plans initiated for funding college degrees, it is essential that you choose the right plan catering to your interests and financial state of affairs. Well, a number of saving plans like, 529 Plan, Roth IRA, and Traditional IRA stands at your disposal when funding for college takes priority. If you seem to get confused about choosing the right plan, here is a brief introductory note of each plan that will surely make your choice easier –
1. The 529 Plan
The 529 plan is often referred to as a qualified tuition program (QTP) is a college funding program that is designed to help you prepay or make contribution to a specific account. All that needs to be taken into consideration is that you are building up the savings for pursuing a degree from a qualified educational institution for catering to the expenses of qualified education. The amount that you save with this particular plan is tax free, which implies that your earnings are free of any tax cuts while being withdrawn for college expenses.
The 529 plan embraces the cost of tuition, other college fees, books, educational supplies, and other required costs bearing the enrollment at qualified educational institutes. However, you need to remember that computer and computer software no longer falls within the purview of the saving plan, as they do not eligible as qualified costs of education. Presently, two types of 529 plans are available for the students that include the college savings plan and prepaid tuition plan.
2. Traditional IRA
Another prospective savings plan, this is often overlooked by most parents though it offers many advantages over the usual college savings program like deductible contributions. You can set up an IRA for your child at any age provided he or she has some kind of earned income. Usually, earned income is referred to a W-2 from a job, but often includes income gained from self-employment. Now, a W-2 doesn’t really feature under a child’s name until 14 or 15.
Deposit amount to this account can go up to $5,000, which is liable for tax deductions. However, you must remember to deposit the amount by April 15 of the next year. The amount when is withdrawn from the IRA to cover the expenses of college costs is susceptible to income tax. Since, children most often do not seem to have any income, the tax amount tends to be significantly less.
3. Roth IRA
Roth IRA is often considered to be another potential college savings plan that functions in a much similar way to that of the traditional IRAs. However, some difference tends to exist between the two IRAs. The contributions that you make to the Roth IRA account do not fall under the deductible category. Furthermore, the withdrawals are not taxable. You can use the earning for catering to the educational expenses without any penalty, provided one Roth IRA has been opened for minimum five years.
Similar to traditional IRAs, you can open a Roth IRA at any age and must have an earned income under your name. The limit of deposit is same as the traditional IRA. Furthermore, you can transfer the Roth IRA under the name of other members present in the family.
Therefore, if you wish to enroll your child into a prestigious college, grad school, or MBA program offered by an internationally recognized institute, you must consider relying upon any of these prospective savings plan that are available in the present age. Give your children the wings to fly high offering the right financial support towards his or her education. Invest in profitable savings plan and paying for traditional college or covering the expenses will no longer remain a burden.
About The Author: This education related article is written by author Melissa Spears. In this article, the author focuses on some of the prospective savings plans that can help a student pursue higher studies, preferably an MBA programs at ease without any financial burden.