August is back to school month and we start thinking about the costs of sending children to college. Whether you have a recent high school graduate heading out to university or your child is beginning kindergarten this year, you may have questions about the best way to fund your child’s college education. We are big fans of the 529 College Savings Plans. This vehicle to save for college has been around since the year my daughter was born (1996) and in order to get the best benefit you should start saving while your child is young.
College 529 Savings plans are different for each state but you will see a benefit on your both your federal and state tax return. The tax benefit is that your investment grows tax-free and withdrawals are tax free as long as you use funds to pay for higher education (and starting in 2018 this includes private-school tuition and books from elementary through high school) You get to control your account and then name a child, grandchild, nephew, niece or yourself as beneficiary. Each state has its own plans that may offer a tax deduction at the state level. In Oregon , the choice is the Oregon College Savings Plan or MFS Oregon 529 Plans which are managed by investment advisors. There is an Oregon subtraction of up to $4,750 of your contributions in 2018 from your Oregon taxable income. This amounts to a savings of approximately $400 on your 2018 Oregon return.
http://barrettcustommarine.com/?p=417 Parents of Small Children: The biggest benefit to contributing to a 529 Plan is time. If you start when you child is young, you have plenty of years for the contributions to earn income. When you do withdrawal the money and it is used for qualified educational purposes the earnings are tax free for both the federal and state return.
http://disneymousecalls.com/?mcsf_action=main_css Parents of Children in High School and College: It is still beneficial to use a 529 Plan even if your children are close to or in college. You can benefit from the Oregon tax subtraction and the earnings on the account are tax free when used for qualified education expenses which include tuition, fees, books, computers, internet access, software and printers as well as room and board for students that are enrolled at least half time.
follow url Grandparents: Grandparents can also open 529 Plans and benefit from the Oregon tax subtraction. They can change the beneficiaries on the account as needed to provide funds for more than one grandchild.
What happens if the child doesn’t go to college? The funds can be transferred to another relative tax free or a withdrawal can be taken. Nonqualified withdrawals will pay regular income tax and a 10% penalty on the account earnings.
What happens if the child receives a scholarship? The amount of the scholarship funds can be withdrawn without incurring the 10% penalty but you do have to pay regular income tax on the earnings. However, 529 funds can be used to pay for room and board so if your child’s college tuition is covered by scholarship, you can still use funds to cover living expenses.
For more details, please contact Sherwood Tax and Accounting at 503-925-4558.
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