Not Impossible: Saving for College
- This plan allows for large contributions if desired, or modest monthly contributions that can be done via payroll or debited from your bank account.
- There are no income restrictions and a 529 can be funded by anyone. This includes parents, grandparents, friends or other family members.
- All contributions to a State of Wisconsin plan are tax deductible on your state taxes up to the annual limit and earnings in the account will grow tax deferred.
- Distributions are also tax free as long as they are used for a qualified college expense.
- Unlike other college savings programs, the account owner remains in control of the account until the funds are fully distributed.
- If a beneficiary does not attend college, or a portion remains unused, the owner can change the beneficiary to another person, including themselves.
- Any distribution for a non-qualified reason will likely have a 10% penalty imposed on the earnings and incur income tax.
- For 2017, a new contribution into a Wisconsin 529 plan will reduce your taxable income on your state taxes by up to $3,100 per eligible family member as long as you are a Wisconsin resident. You can also make a large one time contribution and have the excess carried over for future tax years until the amount is used up. Contributions can also be funded for the prior year until the tax filing due date of April 15th of the following year.
Another commonly used education savings plan is the Coverdell Education Savings Account (CESA).
- One advantage of a CESA is that they can be used for Primary Education in addition to Post-Secondary education.
- Unfortunately, it does not offer any tax deductions, but it does offer tax deferral and the distributions are tax free for qualified distributions.
CESA’s have a limit on the annual contribution and the parent’s income determines eligibility.
- Many individuals will also fund a Roth IRA for themselves with the intention to use the funds for college expenses. This strategy allows the parent to be the owner and have full control of any distributions and often is more favorable when you complete your student’s Free Application for Federal Student Aid (FAFSA).