Saving for College

Tyler Badgett is on the staff on Adam Shay CPA, PLLC.  Prior to becoming an accountant he was a high school math teacher.  Tyler is always interested in ways parents and other family members can plan ahead for college expenses and has provided us with the following information.

While state income tax rates in North Carolina will drop to 5.8 percent across the board in 2014, the state has eliminated some tax deductions. Unfortunately, one change involves saving for college costs in the NC 529 plan. Parents in North Carolina no longer get a tax deduction for the 529 plan.  Tax advantaged college savings programs are extremely important to prevent heavy debt loads many students have when they graduate from college.

There are things parents and grandparents can do to help with funding college.  Parents should fund IRAs because retirement savings usually don’t count against students for receiving college aid. Also, Roth IRA contributions (up to $5,000 annually for those under 50 and $6,500 for age 50 and over) can be withdrawn any time without taxes or penalties. Grandparents’ investments in 529-college savings programs do not count against financial aid until the money is withdrawn to pay expenses. Before any money is used, the control can be transferred to the parents, and only 5.6 % will typically be counted against the student’s college aid.

Just because you live in NC does not mean that you are limited to NC's plan.  Part of the attractiveness of NC's plan disappears now that the tax deduction has been eliminated. Two good web sites for comparing 529 plans are savingforcollege.com and collegesavings.org. The sites explain how you can shop among plans in different states; they also discuss the Coverdale ESA and compare its benefits to the 529 plan.

Finally, think about buying fewer toys and giving your children and grandchildren a gift that grows and prevents them from being burdened with crippling college debt.