[bauchtanz]

We will be paying off a car with the tax return we are getting. We would like to put that which we normally spend each month in a college savings plan for each kid. Are there tax benifits to doing this?

Are any plans better than the other?

 

[D&S Mom]

Are you in Canada or the US? I can only speak for Canada.

There is no tax deduction for putting money away in an RESP. But there are government grants that match a percentage of the amount you put in.

As for where to go to do this, there's a lot of places. Do you currently have a financial advisor (for life insurance, retirement savings, etc?). Otherwise I would ask around to see who is happy with the plan they have.

 

[zinemama]

There is a state tax deduction for using your state's 529 plan. Basically, you deduct from your taxable income the amount you contribute to the state plan.

Look very carefully at your state's 529 plan before investing. Some are not doing very well. You are allowed to invest in the 429 plan of any state. However, you only get the tax write-off for investing in your home state's plan.

 

[sunflower.mama]

Quote:

Originally Posted by zinemama There is a state tax deduction for using your state's 529 plan. Basically, you deduct from your taxable income the amount you contribute to the state plan. Look very carefully at your state's 529 plan before investing. Some are not doing very well. You are allowed to invest in the 429 plan of any state. However, you only get the tax write-off for investing in your home state's plan.

This is partly true. However not all states allow you to deduct contributions to 529 plans. I live in MA, and we don't get any deductions. So we are using the Utah plan, which from what I have read has steady returns and low fees. If I did live in a state that permitted deductions, I'd use my state plan though.

 

[Pinoikoi]

Quote:

Originally Posted by bauchtanz Are there tax benifits to doing this? Are any plans better than the other?

Yes, there are tax benefits in doing this. Our college accounts are tax deferred, which means that as long as the money is sitting in the account, there is no tax on it. If we take it out, then there is a tax penalty. It has lowered our tax liability a little, but not alot. For example, this year, we would have had to pay $250 per kid as our kids made money last year (dividends, etc) but putting even half their money in their accounts left us with $500 tax liability total (4 kids). That's 50% shaved off our kids' tax bill (which we would have paid for). Frankly I think the money should stay in the kids' accounts until they turn 18, and then they can pay the tax on it when the take it out themselves.. their money, so I think they should pay the tax on it, and not me.

We use T. Rowe price (through our state plan). We lock in current credit rates. We think they will skyrocket in the future. I think there are better plans out there though. I know a family (dad is an economist) that buys cds for thier kids.. he told me the return on them is better, but then he doesn't get the tax deferment on the principal.

 

[sunflower.mama]

Quote:

Originally Posted by Pinoikoi Yes, there are tax benefits in doing this. Our college accounts are tax deferred, which means that as long as the money is sitting in the account, there is no tax on it. If we take it out, then there is a tax penalty. It has lowered our tax liability a little, but not alot. For example, this year, we would have had to pay $250 per kid as our kids made money last year (dividends, etc) but putting even half their money in their accounts left us with $500 tax liability total (4 kids). That's 50% shaved off our kids' tax bill (which we would have paid for). Frankly I think the money should stay in the kids' accounts until they turn 18, and then they can pay the tax on it when the take it out themselves.. their money, so I think they should pay the tax on it, and not me. We use T. Rowe price (through our state plan). We lock in current credit rates. We think they will skyrocket in the future. I think there are better plans out there though. I know a family (dad is an economist) that buys cds for thier kids.. he told me the return on them is better, but then he doesn't get the tax deferment on the principal.

I don't think the accounts you describe are 529 savings plans. When you put $ into a 529, you can use your contributions and the gains for educational purposes (postsecondary) without having to pay any taxes on the gains. There is no deferral of taxation - you avoid it entirely (provided you leave the $ in in the accounts of course). Also, you as a parent (or other interested adult) continue to own and control the account. You name a beneficiary of the account but can change that beneficiary as you like. The post quoted above is describing a totally different entity - some sort of tax deferred account containing monies owned directly by the children. Since that poster is in alaska - I wonder if she is talking about oil dividends payable to her children which would otherwise be subject to taxation? Regardless - for parents saving their own money for their children's education, 529s offer a way to avoid tax entirely on the gains of your investment, and depending on what state you live in, a deduction on your state income tax as well. And there is no federal income tax deduction on contributions no matter where you live - the federal income tax benefits come when you are ready to withdraw the funds and pay for educational expenses (provided Congress continues to permit the plans down the road - and who knows about that one!)

 

[Pinoikoi]

Quote:

Originally Posted by sunflower.mama I don't think the accounts you describe are 529 savings plans. When you put $ into a 529, you can use your contributions and the gains for educational purposes (postsecondary) without having to pay any taxes on the gains.

I don't believe I mentioned 529s at all. And neither did the OP.

Quote:

Originally Posted by sunflower.mama Since that poster is in alaska - I wonder if she is talking about oil dividends payable to her children which would otherwise be subject to taxation?

Any child under the age of 18, that has their own INCOME is liable for taxation. Yes, my kids' money comes mainly from dividends from the State of Alaska, but the IRS would gladly take a whole lot more of it if I did not stick it in their college accounts. If children make income, it is taxed- but they are my dependents on my tax return, so I end up being the one responsible for their tax bill.

 

[sunflower.mama]

Quote:

Originally Posted by Pinoikoi I don't believe I mentioned 529s at all. And neither did the OP. Any child under the age of 18, that has their own INCOME is liable for taxation.

So now she knows about several different college investment vehicles. How great! However, I do think that she was talking about tax advantages to her, for saving her money, not her children's income. Hence my distinction.