This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Tax-Savvy Ways to Get Your Kids Through College

NEW YORK ( TheStreet) -- The tax code provides several ways to defer or avoid taxes while saving for your child's education.

For parents or grandparents of newborns or young children, perhaps the best way to save for their college education is with a Qualified Tuition Program, also known as a Section 529 Plan. Contributions to a 529 Plan are not deductible, but distributions are tax free as long as they are used to pay for the qualified higher education expenses of the designated beneficiary. Qualified expenses include tuition, required fees, books and supplies. For someone who is at least a half-time student, room and board also qualifies.

There are no statutory limitations to the amount that can be contributed to a 529 Plan, other than that they cannot be more than the amount necessary to provide for the qualified education expenses of the beneficiary. The amount each person can contribute is based on the annual gift tax exclusion. There is no adjusted gross income or modified adjusted gross income income phaseout -- anyone can contribute to a 529 Plan regardless of income or relationship.

What if the beneficiary of the 529 Plan decides not to go to college, or gets a full scholarship? Or if the balance that has accrued in the plan is more than the qualified education expenses of the beneficiary? In such situations you can change the beneficiary to another family member or transfer the money to the 529 Plan of another family member.

You can also save for college using a Coverdell Education Savings Account. Parents and family members can contribute up to a maximum of $2,000 per student beneficiary per year to a Coverdell ESA.

As with a 529 Plan, contributions to a Coverdell are not deductible, but distributions are tax free if they are used for the beneficiary's qualified education expenses at an eligible institution.

What is good about a Coverdell is that distributions can be used for qualified education expenses for kindergarten through 12th grade as well as college and graduate school. Qualified expenses include tuition, fees, books, supplies and equipment (although not computers) as well as room and board for students who are enrolled at least half-time. You can also use a distribution from an ESA to make a contribution to a 529 Plan. An eligible institution includes any public, private or religious school that provides elementary, secondary or post-secondary education as determined under state law.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.69 1.10%
FB $117.76 -0.68%
GOOG $693.43 -0.68%
TSLA $234.41 -3.10%
YHOO $35.93 -1.60%


Chart of I:DJI
DOW 17,719.05 -172.11 -0.96%
S&P 500 2,057.92 -23.51 -1.13%
NASDAQ 4,756.0180 -61.5760 -1.28%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs