Date: September 16, 2022
Savvy Tax Tips to Help Pay for Your Kids College
Inflation has the cost of everything at sky high levels – and your kid (or grandkid’s) college tuition is no exception. If you figure the inflation rate as 6% per year, then it would cost about $262,000 to send your toddler to a public, in-state college for four years in the next 12-15 years. If you want a private college – then that amount doubles! Since inflation and costs keep rising, here is a smart way to save for your child’s future while also earning a significant tax benefit. The answer is a 529 College Plan, which will help your child (or grandchild) to offset the high cost of education years from now AND help reduce your tax liability this year. These plans have a high contribution limit, and withdrawals are free from income tax (as long as they are used for qualified education expenses). Many students may also receive other types of financial support to fund their education like grants, loans, and savings.
Take advantage of all that the 529 College plan has to offer – not only is it free from federal income tax, but in case your child decides not to go to college when the time comes, it has you covered! Luckily, there is flexibility – you can change the account beneficiary without any tax implications if certain conditions are met (the new beneficiary has to be in the same family and a lower generation or a higher generation.)
For most families, a mix of grants, savings, financial aid and contributions to a college plan from the parents and grandparents help compose the means to send their child to college. Parents that are business owners – you may be familiar with the importance of setting aside retirement funds, so it is a good idea to not pull funds from your retirement plan to pay for your child’s college.
You may not realize this, but if you plan on retiring at 65 and living for 20 more years, making 100,000 per year – you would need over 3 MILLION saved for retirement! Having a College Savings Plan is a smart move to make to invest in your child’s future while also protecting your own retirement. A huge way to be proactive and stay ahead in your business is to make sure you are not overpaying in taxes, and that you have a tax plan in place. Up to 93% of business owners end up overpaying their taxes every year! Our Tax Strategists can analyze your current business and personal situation and then implement legal, strategic plans that will help reduce or even eliminate your tax obligations. You can reinvest those tax savings in your business and add to your retirement, as well as contribute to your child’s future.
If you think you may be one of the many that end up overpaying in taxes and feel like a tax plan is something worth exploring, contact one of our tax strategists here for a complimentary assessment.