It is safe to say that as a parent, one of our biggest concerns is to ensure our kids receive the best of everything in life. Whether it is education, health, or material possessions, we want to provide them with everything they need to live a healthy, happy life.
However, Yitzhak D Stern believes that with the unstable economy and rising inflation, saving up for your kids while managing and maintaining finances is not easy. It requires discipline, effort, and, most of all, patience.
Saving With Children – Explained By Yitzhak D Stern
Open a 529 Plan
A tax-advantaged savings plan, 529 is aimed at encouraging savings for future educational expenses. These plans are also commonly known as “qualified tuition plans,” and are sponsored by states, state agencies, or educational institutions. In addition, they are managed by investment companies.
Contributions to a 529 plan are not deductible on federal income taxes, but they may be deductible on state income taxes, depending on the state in which you reside. The earnings growth within the account is not taxed when used for qualified education expenses such as tuition, books, and room and board at eligible colleges, universities, and vocational schools.
Invest in Saving Bonds
U.S. Savings Bonds are a low-risk investment you can purchase from the U.S. Department of the Treasury. They’re backed by the full faith and credit of the U.S. government, so you know your investment is safe.
Savings bonds can be used to finance education expenses at eligible colleges, universities, and vocational schools. The bonds can be redeemed tax-free when used for qualified education expenses such as tuition, books, and room and board.
Start with Roth IRA
A Roth IRA is a retirement account that you fund with after-tax dollars. That means you’ve already paid taxes on the money you contribute, so your withdrawals in retirement are tax-free.
Roth IRA contributions aren’t deductible, but the earnings on your investment grow tax-deferred. And if you follow the rules, you can take tax-free withdrawals in retirement.
You can use Roth IRA funds to pay for qualified education expenses such as tuition, books, and room and board at eligible colleges, universities, and vocational schools.
Put Money In A Custodial Account
A custodial account is an investment account that is set up and managed by an adult on behalf of a minor child. The money in the account belongs to the child, but the adult has control over how it is invested and can make decisions about when and how the money is used.
Custodial accounts are a good way to save for college because they offer tax advantages and flexibility in how the money can be used. The earnings in a custodial account are taxed at the child’s tax rate, which is usually lower than the parent’s tax rate. And the money can be used for qualified education expenses such as tuition, books, and room and board at eligible colleges, universities, and vocational schools.
Take Advantage of Tax Credit
The American opportunity tax credit and the lifetime learning tax credit are two education tax credits that can help offset the cost of college. The American opportunity tax credit is worth up to $2,500 per eligible student, and the lifetime learning tax credit is worth up to $2,000 per eligible student.
To claim either of these credits, you must file a federal income tax return and include Form 8863, Education Credits. You will also need to provide information about the eligible educational institution, such as the school’s name, address, and EIN.
Bottom Line
Yitzhak D Stern believes that these are just some tips on managing finances and saving up for college. Always feel free to consult an advisor before you make any crucial decisions.