Results 1 to 9 of 9

Thread: some questions re: education funds

  1. #1
    Picaresque
    Guest

    Default some questions re: education funds

    I was reading about the 529 plan, which allows for tax-free savings and withdrawals for college tuition and expenses. Supposedly it applies to graduate school as well, (which I'm saving like mad for, mostly b/c this job has made me realize my #1 source of anger in life--depending on men for money. Once I'm out of grad school, I sure as hell will never be in that position again! )

    ahem. back on topic. grad school savings. I'm a dual citizen, and I plan to use the EU to full advantage and go to grad school in the UK. Would the fact that I (most likely) won't be going to a US university disqualify me from using a 529?

    If so, is there anything I can do to lessen the degree of my ass-raping by the IRS regarding my tuition money? Over half of what I've made this year has gone to pay for school, and the idea that I'll have to account and pay taxes for the entirety of that tuition money makes me ill.

    of course I've fantasized about banking most of my earnings in my non-US country of citizenship, but I'm sure if I did, the tax bastards would somehow find out about it.

  2. #2
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: some questions re: education funds

    529's are meant to be 'custodial' accounts, meaning that someone other than the (eventual) student usually owns the money in such accounts. However, it is possible to open an account for yourself. But I suspect that the IRS 'gift tax' exclusion which stems from the 529 is not going to fly if you are attempting to give your own money to yourself !

    529's are not available to anyone earning more than $110k a year.

    'Some International Schools' qualify for 529 - this is apparently dependent on the rules of the 529 plan administrator you choose to utilize.

    The money contributed to 529's is NOT exempt from US federal and state taxes ... only the after-the-fact interest and dividend earnings when that 529 money is invested by the plan administrator (similar in concept to a Roth IRA). Thus a 529 is not going to achieve your short-term objective of shielding earnings destined for tuition payments from federal / state income taxes.

  3. #3
    Banned Katrine's Avatar
    Joined
    Nov 2003
    Posts
    13,855
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: some questions re: education funds

    Also, the funds in the 529 must be used by age 30, FYI. If you don't use them for qualified education, you lost tax-free status and will potentially incur a 10% penalty. You can gift the 529 money to other family members if a scholarship/grant is given. If student does receive scholarship, the funds won't incur a penalty, but will lose tax-free status past the scholarship amount, or something like that.

    Its not really THAT great a vehicle IMO.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

  4. #4
    Banned Katrine's Avatar
    Joined
    Nov 2003
    Posts
    13,855
    Thanks
    0
    Thanked 0 Times in 0 Posts

    Default Re: some questions re: education funds

    No, I'm talking about 529. The max contribution cap varies by plan. I also was not aware that there is an income cap. I have several clients who make over $200k a year who contribute (now that's married filing jointly). The age 30 rule still does apply, as does the relative rule. For instance, you can give it to a cousin.

    Edit: The age 30 rule is not universal, its plan contingent, usually for pre-paid type plans. Thanks Pan Dah baby!
    Last edited by Katrine; 12-10-2006 at 08:29 PM. Reason: I am fallible.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

  5. #5
    God/dess VenusGoddess's Avatar
    Joined
    Oct 2003
    Location
    Home
    Posts
    13,598
    Thanks
    0
    Thanked 28 Times in 23 Posts

    Default Re: some questions re: education funds

    I was going to say...we have a 529 plan, there is no income cap and there is no age cap. But, what we did was roll the college savings plan into a trust for Makayla. If she doesn't use the college savings plan for college, she can't touch it until she's 30...but it's all rolled up into a full trust for her. But, I do know that this plan allows you to take the money out of it without using it towards college (or any form thereof). The only difference is that the money will be taxed based upon the beneficiary's income bracket...and not the income bracket of the donor.

    As for using the plan to attend a university out of country...if I'm not mistaken, you can do it...but you'll lose the tax-free status on that.

    Definitely sit down with someone and see what is available to fit your needs.

  6. #6
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: some questions re: education funds

    Pan Dah and Venus are correct on 530 (Education IRA) versus 529 limits ...

    (snip)"In an Education IRA, the donor can contribute only up to $500, maximum, each year. With a 529 plan, you can contribute up to $10,000 a year, when gift tax kicks in.

    "There is also no income cap for 529 plans. Like other forms of IRA, there is an income maximum for an Education IRA. Make more than $110,000 as a single person or $160,000 as a couple, and you're cut off.

    The main advantage of an Education IRA is that the money is tax-free when withdrawn. In a 529 plan, investments grow tax-deferred. But the money is taxed when withdrawn.

    So Uncle Sam gets a cut. But it's not as bad as it sounds. Withdrawals count as income for the beneficiary – normally a college kid with little earnings. That's a savings over tax at the rate of the account holder – normally a parent -- in a higher tax bracket.

    People can also open 529 accounts for themselves, or make themselves the beneficiary. Perhaps you are saving for grad school, say, or even for as-yet-unborn kids. If you withdraw the money for your own use, the tax is obviously at your own rate.

    But since you are likely to stop working or have reduced income in school, your tax bracket will probably be lower than when you were working full-time."(snip) from

  7. #7
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: some questions re: education funds

    Now we all know why VG said sit down with someone
    definitely ... this particular topic seems to be full of rule changes and contradicting web based info ! But I think that we're all agreed that, for the short term purpose of shielding this year's income from taxes on money destined to be spent on tuition at a foreign college, the 529 plan is of limited value at best.

  8. #8
    Picaresque
    Guest

    Default Re: some questions re: education funds

    thanks, everyone

  9. #9
    God/dess VenusGoddess's Avatar
    Joined
    Oct 2003
    Location
    Home
    Posts
    13,598
    Thanks
    0
    Thanked 28 Times in 23 Posts

    Default Re: some questions re: education funds

    Quote Originally Posted by Pan Dah View Post
    For people with small kids like VG, of course, it's a little different story with the Federal tax savings compounding effect on accumulated income.
    Yes, this is why it is so important to sit with someone who knows their stuff. When we were working on opening Makayla's account, our financial guru gave us all kinds of stuff...sent us home to read it over...and scheduled a meeting with us that lasted almost a FULL DAY. This shit is confusing at best and unless you know exactly what you're doing...you're bound to fuck it up. Even now, I'm calling him asking questions about our dividends statement (I think that's what they call it).

    Being that you would be using this account for your own educational purposes...and as a tax shelter...it is important that you know exactly what you're getting into. Nothing worse than putting money away thinking you're getting a tax break, only to go to use it and get gang-banged by the IRS and the Plan with taxes/fees/penalties...or worse...not be able to use it at all.

    So, definitely go find someone who can sit down with you, your financial situation and find the best plan for you.

Similar Threads

  1. Education Poll
    By MissJADEN in forum Stripping (was Stripping General)
    Replies: 90
    Last Post: 10-12-2006, 02:59 PM
  2. Education
    By stripperbrat in forum Stripping (was Stripping General)
    Replies: 6
    Last Post: 10-02-2005, 06:56 AM
  3. Bush Seeks Funds for Abstinence Education
    By Farrah_Holiday in forum Political Poo
    Replies: 30
    Last Post: 12-01-2004, 06:32 AM
  4. Education
    By MojoJojo in forum The Lounge
    Replies: 47
    Last Post: 08-19-2004, 04:32 PM
  5. Get an Education!
    By Poohbear in forum Other Work
    Replies: 33
    Last Post: 12-27-2003, 12:08 PM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •