10 Things you should know about College tax Savings Plan for?

10 Things you should know about College tax Savings Plan for?

10 Things you should know about College tax Savings Plan for?

College Tax Savings Plan Let’s face it. College and education, in general, are getting expensive. This means that saving for your children’s future can be a daunting task. It is only natural that one looks for as much help as possible.

Should you look at investing in a 529 college savings plan? American parents who have kids, save on an average $18,135 for college. And about 30% of these savings go into a college savings plan. While the average savings in the plan was $2,280 in 2016, it has nearly doubled to $5,441.

General savings account for another 22% for college-related funds. While 14% are investment related savings. More parents are opting to invest in a college savings plan and here are some important facts that you should be aware of.

  1. Anyone can open a 529 college savings plan and invest in one of the instruments.
  2. Though people usually associate a 529 plan with college tuition, it does much more than that.
  3. Amendments to the tax laws recently, allow individuals to withdraw up to $10,000 from a 529 for the purpose of K-12 tuition expenses.
  4. The plan is not limited only for kids or teenagers. You can open an account and start saving for graduation or higher studies.
  5. A single tax filer can contribute as much as $15,000 for a year as tax-free in a 529 plan. For married couples filing jointly, the amount is $30,000.
  6. You also have the option to contribute $75,000 into a 529 plan up front for 5 years. For married couples filing jointly, the amount is $150,000.
  7. 529 plan is similar to mutual funds in some ways, as you have the option to purchase them on your own or take the help of a financial advisor.
  8. You can buy a 529 plan depending on the age of your kid, however, you should also look at the past returns and volatility. Some plans can be very aggressive for you, while others can be quite conservative.
  9. Before you start saving into a 529 plan, it is essential to go through all the terms and conditions. You should be aware of the plan’s ins and outs along with any limits that the provider imposes.
  10. Another crucial aspect that you should not miss at any cost is the enrolment fees of the plan along with any annual fees.

Since there are different 529 plans that you can choose from, it is important to delve into the details. Try to look for a plan that offers state-level tax breaks. You should also look at the expense ratio of the plan. A higher ratio would eat into your profits.

There are some cases where your kids might not need to use the 529 plan. What happens to the fund in such cases? Well, you can always transfer the fund to someone in the family. If that is also not possible, you can withdraw the fund yourself. But keep in mind, that you will have to pay a 10% penalty for not using it for educational purposes.

A fundamental of any investment is the minor fluctuation with the market. And 529 plans aren’t immune to that. Thus, it is important that you look into the assets that a fund is investing it.

If you have a short term in your hands, take four or five years for an example, and you invest it entirely in stocks, that might be a bad idea. A big swing in the market can nullify your funds. Thus, take the duration and risk appetite into consideration before investing.

Information about Educator Expenses

Information about Educator Expenses

Information about Educator Expenses

The Internal Revenue Service or IRS allows individuals to claim expenditure such as classroom supplies and materials as tax deductions. This comes in really handy, as there are enough reports and data to show that schools are inadequately funded. And it translates to teachers ending up paying for these supplies from their pockets. The deductions fall under the category of adjustment to income and you can add these up on line 23 of your Form 1040.

Unlike several other tax deductions, you need to itemize all the items to claim tax deductions, which is a boon, to say the least. It also helps you to bring down your adjusted gross income, which is again essential as a higher adjusted gross income keeps you away from lots of benefits.

Limit on Deductions

Tax rules for the year 2017 allow you to claim deductions up to a maximum of $250. The money must be spent on classroom supplies such as books, software or other materials. You can claim up to $500 as tax deductions if you and your spouse are both educators and opt to file tax together.

How to Qualify?

There are two basic requirements for an individual to qualify for this tax deduction.

  • You should be either one of the following from kindergarten up to grade 12
    • Instructor
    • Counselor
    • Teacher
    • Principal
    • Aide
  • You spend at least 900 hours in one school year.

Expenses that Quality

Educator expenses cover several common and necessary supplies which are essential to the smooth running of schools, such as:

  • Books
  • Supplementary supplies
  • Equipment
  • Computer equipment
  • Computer service and software
  • Supplies related to athletics

Educator expenses also cover expenditure for physical education as long as they are related to athletics. Expenses under personal development can also be claimed under this.

However, you cannot claim for Educator expenses for home schooling and non-athletic related supplies when it comes to physical education.

It is always a good idea to keep a track of your expenses along with receipts for each item. Jotting down the expenses along with receipts will ensure you do not miss out on something while filing your taxes.

Reduce your deductions

If you figure out how much Educator expenses you have, you should deduct the following amount from it, whichever is applicable.

  • Any earnings from state tuition programs that is non-taxable
  • Any earnings from Coverdell education savings program that is non-taxable
  • Earnings from Series EE and I savings bonds, which you have already declared on your Form 8815 and is non-taxable
  • Reimbursements for these expenses, not mentioned in your For W-2, Box 1.

Unreimbursed Employee Expense

There are several instances where your expenses might exceed the $250 cap put on Educator expenses, or you might not qualify for the same. You can still deduct a certain portion of the unreimbursed expenses under Unreimbursed Employee expense. Though this allows you to claim for certain deductions, it is not as convenient as the Educator expenses.

The deductions kick in as long as your miscellaneous itemized deductions are more than 2% of your total adjusted gross income. For an example, if your adjusted gross income is $25000, you can deduct miscellaneous itemized deductions that exceed 2% of $25000 or $500. Assuming your educator expenses are $300 and miscellaneous itemized deductions at $400, the total is $700. But you can claim deductions only on $200, the amount exceeding 2% of AGI or $500 in this example.