Liz Norfleet, Agent
New York Life Insurance Company
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Saving for college education can be an intimidating undertaking for many parents who may be inexperienced with tax laws, and unsure how to balance their own financial goals, such as saving for retirement and the financial needs of their children. There are many options available to finance a child’s education, and which one or more options to choose requires consideration of many important factors.
One consideration is whether the parents wish for the child to pay for any portion of his/her own education such as by obtaining student loans. Doing so would allow a child to become a stakeholder in his/her education.
Note: Congress may change the treatment of assets for financial aid eligibility and thus any comments below are subject to change, and a determination of financial aid eligibility should be corroborated with a professional with knowledge in this area.
A second consideration is what expenses are eligible with respect to each option. Some education savings vehicles can be used only for college tuition, while others can be used for books, fees, room and board, equipment, and other education-related expenses. Still other plans allow funds to be used for primary or secondary education in addition to college and university education.
Another consideration is the tax implications of saving and paying for a child’s education. This consideration includes review of applicable federal and state income, gift, estate, and generation skipping taxes.
Note: There may be tax deductions and credits at both the federal and state levels that are beyond the scope of this information.
Also worthy of consideration, especially for parents with only one child, is what happens to the funds allocated to an education plan if that child does not attend college. Another very important consideration is the parents’ other financial goals, including saving for retirement and paying for life insurance protection, and the potential of dual use of allocated funds.
Perhaps the most substantial consideration of all is timing. If the child is very young and college is far away, then the parents have time to systematically accumulate and invest money, which allows for growth of the assets. If college is right around the corner, then other options should be considered, such as borrowing against existing assets.
This tax-related discussion reflects an understanding of generally applicable rules and was prepared to assist in the promotion or marketing of the transactions or matters addressed. It is not intended (and cannot be used by any taxpayer) for the purpose of avoiding any IRS penalties that may be imposed upon the taxpayer. New York Life Insurance Company, its agents and employees may not provide legal, tax or accounting advice. Individuals should consult their own professional advisors before implementing any planning strategies.
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Liz Norfleet, Agent