Brain power and computer knowledge is becoming far more important in today’s growing economic environment – even in blue collar jobs.
Many of us are finding that technology can easily surpass our education level if we don’t work hard to keep up with it. Investing in education is critical because it helps reduce poverty, boost economic growth, saves the lives of children, increases incomes and makes people healthier.
According to UNESCO figures, 171 million people could be lifted out of poverty if all students in low-income countries left school with basic reading skills, the equivalent to a 12 percent cut in world poverty.
As a parent or grandparent, we can’t guarantee the success of our kids or grandkids- but we certainly can be an integral piece of the supportive, influential, and financial backbone that paves a path to the future of their success.
Our congressional leaders realized this several years ago. They created various tools that allowed parents, grandparents, and other family members to set aside money. These accounts were designed for the purpose of elementary, secondary, and higher education and are known as Coverdell Education Savings Accounts (ESA) and 529 Plans.
The Coverdell Education Savings Account
The Coverdell Education Savings Account or commonly known as the ESA, is an education investment account that allows any person or combination of family members to contribute up to $2,000 per year for any one beneficiary (child, grandchild, other) up until that beneficiary reaches age 18.
The funds in the account may be used for elementary, secondary, and higher education expenses.
Certain K-12 expenses were also added to the list of qualified expenses. In order for the gains from the account to be “tax-free” proceeds for education, they must be “Qualified Expenses,” as defined in the final section of this article. The account must be fully withdrawn by the time the beneficiary reaches age 30 or tax and penalties may occur.
The 529 Plan
529 Plans are operated by a state or educational institution. These plans make it easier and tax-friendly to save for college and other post-secondary education. Residents are not limited to investing in their own state’s plan as another state may offer benefits more suitable for you. Earnings in the 529 and ESA plans are not subject to federal tax if used for “qualified education expenses” by the beneficiary- such as tuition, fees, books, computer, room and board.
Contribution levels for the 529 plan are more generous at $14,000 per person, per beneficiary, each year (indexed for 2013). Additional amounts can be contributed, but generally are not advised since it may subject the donor to gift tax, however; the plan does allow a first year contribution of up to $70,000 per person, per beneficiary. These 529 plans also give you flexibility to change the beneficiary at will.
Your personal time, attention, and love – by far are the greatest gifts that you can give any child, grandchild, or family member. However, should you be in a position to generously help to reduce the financial impact on the future goals of a loved one, there can be no greater gift than the opportunity for them to achieve a great education.
Consider your options and plan well in advance of the need.
Kim Ciccarelli Kantor, CFP® CAP™ is president and
Co-founder of the Family Focused Wealth Management
Independent RIA firm, Ciccarelli Advisory Services, Inc.
CAS has a team of family members and professional
advisors serving clients and communities from Naples,
Florida and Rochester, New York offices for 30+ years. www.
Ciccarelli Advisory Services, Inc. is located at 9601
Tamiami Trail N. in Naples, FL 239.262.6577
Investment advisory services offered through Ciccarelli
Advisory Services, Inc., a registered investment adviser
independent of FSC Securities Corporation. Securities and
additional investment advisory services offered through
FSC Securities Corporation, member FINRA/SIPC and a
registered investment adviser.
The views expressed in this newsletter may not reflect the
views of FSC Securities Corporation.