Monthly Archives: June 2013

Taxes on College Savings Accounts

Scarsdale accountant Paul Herman of Herman & Company CPA’s has all the answers to your personal finance questions!

In recent years, parents have lent an ear to a similar tune: Take the reins of any and every type of tax-advantaged savings account in order to save for your children’s enormous college bills. The message has resonated very clear. A majority of families are now saving for college using on average two types of college savings vehicles. Almost 16% of households are using three. College Savings and Taxes Tips from Scarsdale AccountantOften, this mix includes the more traditional accounts, such as Uniform Gifts to Minors Act (UGMA), as well as tax-deferred education programs like 529 Savings Plans and Coverdell Education Savings Accounts (ESAs). Alternatively, other households are investing in a combination of aforementioned tax-advantaged plans, and taxable brokerage accounts.

There is a scary measure to this story: After spending several years trying to decipher UGMAs, ESAs, IRAs, and 529s to figure out the best path, parents face the equally confusing task of determining how to properly utilize these accounts under the tax code when their child is ready for college. Even for those parents with consolidated accounts, determining how to distribute these savings is not cut and dry. The decision could dictate financial aid grants, as well as affect the household’s tax rate.

Aid considerations are a big reason that planners suggest that parents holding traditional custodial accounts like UGMAs deplete those first to pay for initial college costs. The reasoning is that money saved in a custodial account is held in the child’s name to take advantage of his/her lower tax bracket. Furthermore, anything held in a child’s name considered “for college money” as opposed to monies held by parents (35 percent of the student’s assets are considered “tuition eligible” while only 5.6 percent of the parental assets are considered).

This is just one area in which choosing the correct 529 plan can diminish your tax liability. Please contact our Westchester CPA firm with any further questions about your secondary education questions and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Scarsdale NY, Katonah NY, Mount Kisco NY, Rye NY, Bedford NY and beyond.

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Helping Grandchildren with College Costs

Scarsdale accountant Paul Herman of Herman & Company CPA’s has all the answers to your personal finance questions!

Contributing to a Section 529 college savings program is a great way for grandparents to help their grandchildren pay for college. It is also a great way to remove assets from the grandparent’s estate without paying estate tax.

As an added feature, money in a 529 plan owned by a grandparent is not assessed by the federal financial aid formula when qualifying for student aid. Help Your Grandchildren Through College With These Tips from Scarsdale CPA Paul HermanGrandparents, as well as other taxpayers, have a unique opportunity for gifting to Section 529 college savings plans by contributing up to $70,000 at one time, which currently represents five years of gifts at $14,000 per year. ($14,000 is the annual gift tax exclusion amount for 2013). A married couple who elects gift-splitting can contribute up to double that amount ($140,000 in 2013) to a beneficiary’s 529 plan account(s) with no adverse federal gift tax consequences.

Example: Electing to spread a 529 plan gift over five years.

In 2013, Linda contributes $75,000 to a 529 plan account for the benefit of her grandson, James. She makes no other gifts to James in 2013. Because the gift exceeds the $14,000 annual gift tax exclusion, Linda elects to account for the gift ratably over five years beginning with 2013. Only $70,000 (five times the current annual gift tax exclusion) is eligible for the election; therefore, Linda is treated as having made an excludible gift of $14,000 in years 2013-2017, and a taxable gift of the remainder ($5,000) in 2013.

Our Scarsdale tax preparers here at Herman & Company CPA’s are here for all your financial needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Scarsdale NY, Larchmont NY, White Plains NY, Bedford NY, Chappaqua NY and beyond.

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Higher Education Costs Continue to Escalate

Scarsdale Tax Preparers at Herman & Company CPA’s have all the answers to your personal finance questions!

The choice to attend college is inevitable for most people. College graduates have been statistically proven to earn substantially more than non-college graduates over the course of their lifetimes and report a greater overall satisfaction with life.

Scarsdale-Accountant-Information-College-Costs

Many more students will be feeling like this with the increasing cost of college.

 

However, it is important to understand that the cost of attending college also continues to increase. The College Board reports that 2012-2013 tuition and fees have risen significantly. Private four-year colleges are up 4.2% (to an average of $29,056) from 2011-2012 for tuition and fees.

 

Public four-year colleges are up 4.8% (to an average of $8,655) from last year for in-state tuition and fees. Public four-year colleges are up 4.2% (to an average of $21,706) from last year for out-of-state tuition and fees. Even public two-year schools are up 5.8% (to an average of $3,131). The report indicates that the subsidies provided to full-time undergraduates at public universities through the combination of grant aid and federal tax benefits averaged $5,750 in 2012-2013.

 

While the cost of attending college may seem daunting, there are plenty of options available for financing your education. Contact us to discuss your options in a free consultation!

Herman and Company CPA’s proudly serves Scarsdale NY, Purchase NY, Larchmont NY, Mamaroneck NY, Katonah NY and beyond.

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Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.