Scottsdale, Arizona – With tax season here, parents of college-bound high school students have plenty on their mind as they plan ahead for college expenses. Fortunately there are several financial strategies that can be used both this year and in the future to increase tax savings. According to local college planning service Arizona College Solutions, these five ideas will help families get on the right track.
1. Start a state-sponsored 529 plan. This popular option allows families to deduct all or a large portion of contributions on their state income tax return. The earnings on a plan are also allowed to grow on a tax deferred basis. Additionally, as the funds are used to pay for college, the earnings may be tax free at the state and federal level.
2. Establish a Coverdell ESA. This is a useful strategy as contributions to a beneficiary account can total up to $2,000 per year. While not tax deductable, contributions to a Coverdell ESA the beneficiary is not taxed on the distributions as long as qualified education expenses are equal to or greater than the distributions.
3. Consider the Uniform Gift to Minor Act (UGMA) as another way to fund the expenses of a soon-to-be college student. Donors are allowed to contribute up to $12,000 per year without any gift tax considerations.
4. Take advantage of the child tax credit of $1,000 which also is available for children under the age of 17. This can reduce tax payments, freeing those funds to be set aside for college savings.
5. Plan ahead to claim the American Opportunity Tax Credit. This $2,500 tax credit will be available on qualified tuition expenses incurred during 2009 and 2010.
With careful planning, these strategies should provide the foundation for an effective college funding plan. However, it’s important to work with a tax advisor as tax laws credit criteria change each year.
AZ College Solutions aids families in the college selection and financing process. Free college planning education classes will be held in Scottsdale on February 18th and 20th and in the West Valley on February 25th and 27th. To register, visit www.azcollegesolutions.com. For more information please e-mail info@azcollegesolutions.com or call 480-993-1920.
