The
following list is a simple breakdown of the different education plans
available to students and their parents.
Coverdell Education Savings
Account
This particular type of account offers tax free
earnings, no tax will be due until the money is withdrawn. Withdraws
themselves are also tax free as long as the money is used for the
qualified school expenses and as long as they do not go over the cost of
said expenses in that tax year.
Because this type of account is
considered an asset of the student and not the parents they will have to
give at least 35 percent of the money towards their schooling every single
year.
The money that is invested in a
Coverdell account can be rolled over to any other family member if the
beneficiary chooses not to go to college. And as long as the new
beneficiary is not over 30 there will not be any tax consequences to have
to deal with.
529 Savings Plan
The money invested into these accounts earn money tax free as well and
only withdrawals used for things other than school expenses will be taxed
upon withdrawal.
Since this money is the asset of the
parents they will only have to contribute up t 5.6 percent of the money to
the school expenses each year.
This money can be rolled over to any
family member to use for their education.
Pre paid tuition
plan
Just as with the other education programs the money
invested in this type of savings plan will not be taxed even upon
withdrawal unless the money is used for something other than the school
expenses.
This type of plan is thought of as a
resource of the parents and as such it can directly affect the amount of
aid that a student is eligible for.
This money can be transferred to an
account of the same type for any other family member who has
one.
