Tax Incentives For Saving For Education By Richard Chapo At Isnare.com Ezine Articles

Recent statistics show Americans are simply not saving money for the future. To encourage savings, the government has come up with tax incentives.

Tax Incentives for Saving for Education

Higher education in America is an expensive proposition. If you have a child in college, I hardly need to tell you this. While every parent is proud of a child pursuing education, the glorious event can make for some sleepless night when thinking about how to pay for it. If you have young children, the government has taken steps to make saving for college attractive from a tax perspective.

There are a number of different tax incentives to promote saving for education. One such program is known as the Coverdell.

A Coverdell account is designed to promote education savings by removing part of the tax penalty of doing so. The basic idea is that any money distributed from the account will not be taxed so long as distributions don’t exceed the expenses of pursuing education. Here is how it works.

An account is set up for a beneficiary – the child. You can open one account per child and contribute up to $2,000 a year. The beneficiary must be under 18. Obviously, this is a long-term strategy since contribution amounts are limited. Nonetheless, here are some key things to understand:

1. Distributions are not taxed, but must be used for education costs such as tuition, books and so on.

2. The school can be public, private or religious and the money can be used as early as elementary school, to wit, this particular platform is not just for college.

3. You can use this strategy in addition to the hope and lifetime learning strategies, i.e., they don’t cancel each other out.

4. If distributions do not go to education expenses or are more than said costs, the beneficiary is taxed like income tax and a ten percent penalty is added.

5. If the beneficiary completes school or does not go, the account may be rolled over to another family member.

All and all, the Coverdell plan is definitely a long-term strategy. Start one now for your young child, however, and you will be happy you did when the tuition bills start arriving.

Published At: Isnare Free Articles Directory http://www.isnare.com
Permanent Link: http://www.isnare.com/?aid=43472&ca=Education

Important Notice DISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at Isnare.com without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at Isnare.com do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute Isnare.com's support or sponsorship for this article. Isnare.com is an article publishing service. Please read our Terms of Service for more information.