Planning for a child’s college education is always a daunting task for parents. But, if they are familiar with some with savings accounts, they can manage educational expenses easily and happily.
Savings plans can relieve the financial anxiety of parents. So, Hispanic families should consider and evaluate the key features of each savings plans as per their saving strategy.
However, savings plans differ from each other, but the objective of all savings plans is similar, that is to provide a way to help fund your child`s education.
Here are some types of college savings accounts that can be the best for Hispanic families.
A 529 plan is a state-sponsored plan. This plan specially designed for college savings. The funds used other than qualified educational expenses are subject to income tax and a penalty fee.
The plans offer different students friendly services as given below:
Tax-advantages
There is no tax on investment earning when your money is in your account. If you want to take money out of qualified education expenses, there is no tax imposed by federal income.
Multiple investment options
You have options for investment. You can opt for either an age-based strategy or custom strategy.
Plan pricing
On opening a 529 account, there is no need to pay account fees. It is free to open a 529 account. Besides, there are no annual fees.
Easy use of funds
You can use the funds to pay a wide range of college expenses, including tuition expenses for K-12, student loan repayments, and apprenticeship costs.
Types of 529 plans
Here are a couple of 529 plans in place for you to start saving for college.
1. The college savings plans – college savings accounts allow you to take money out and use it your qualified education expenses its withdrawal is tax-free.
2. Prepaid tuition plans – prepaid tuition plans will enable the account holder to pay tuition and other college expenses now instead of later to hold the cost of college at the current rate. Currently, college tuition increase every year by 8%, so prepaying tuition expenses might be an option for you in your family has the funds to do so and if the college of your choice allows the plan.
Roth IRA is an individual retirement account (IRA). If you satisfy certain conditions, you can withdraw your qualified funds tax-free. This saving plan was named after a former Delaware senator, William Roth.
Roth IRA’s rules are simple they state:
- If you are using your account for five years and you are not less than 59½, you can withdraw your money whenever you want, and you will not owe federal taxes.
- If you think your taxes will be higher than they are now, the Roth IRA is the best choice for you.
- If you are paying taxes on the deposited money in your account, your future withdrawals will be tax-free.
- The contribution amount changes periodically.
UTMA
Uniform Transfers to Minors Act is a savings account that gives you a choice to build tax-free savings accounts for minor children. With the help of the UTMA, gifts can include the following financial assets: patents on products, financial royalties, residential or commercial real estate, and expensive fine art as well as good-old fashion money are given to minors who don’t have to have a trustee assist them in distribution. The one giving the gift is responsible for taking care and managing the minor’s account until they reach the legal age of 18 or 21. It also exempts minors from taxes on the gifts. The funds can be used by the custodian to fulfill a child`s educational expenses. Please contact your financial tax accountant for ways to tap into these college savings accounts to help pay for your education.
Coverdell Education Savings Account (ESA)
With the help of this plan, parents can save funds for their child`s college education. Very similar to a 529 savings plan, ESA will have an impact on a student`s ability to receive financial aid.
For the contributions to a Coverdell ESA, families must be below a certain income level. The grants cannot exceed more than $2000 per student per calendar year.
In a nutshell, Coverdell ESA provides:
- The funds should spend on qualified educational expenses only.
- When opening an account, there are some income restrictions.
- Contributions are limited to $2000 per student per year.
This type of college savings plan is different from the rest. It provides you flexibility while spending your funds, and you can spend on a variety of college expenses such as trade and licensing schools, and post-secondary educations. In addition to this, it does not affect your applications for grants, loans, and financial aid.