Special Bulletin: Now Ask Your Senators to Preserve Your College Tax Benefits!

The U.S. House of Representatives recently passed its tax bill. This bill would repeal many of the higher education tax benefits on which millions of college students and parents rely. But it isn’t law yet.

The U.S. Senate will soon act on a similar bill. But as currently written, the Senate’s bill IMG_0078would keep the House-targeted college tax benefits in place and unchanged. These benefits include:

  • College Savings Bonds: The House would start taxing students on money they use from such bonds to pay college expenses.
  • Coverdell Education Saving Accounts: The House would prohibit new deposits into these accounts.
  • Death and Disability Debt Discharge: The House would tax student loan debts forgiven for borrowers who die or suffer total and permanent disabilities.
  • Employer-Provided Educational Assistance: The House would subject what your employer spends on your tuition, fees, books, and supplies to taxation The Senate would leave current law as is — so only employer spending above $5,250 would be taxed.
  • Graduate Tuition Reduction Exclusion: The House would make all tuition reductions awarded to graduate research and teaching assistants taxable income.
  • Interest Deduction on Student Loans: The House would end this $2,500 per year deduction.
  • Lifetime Learning and American Opportunity Tax Credits: The House would repeal the Lifetime Learning credit that applies to what you pay on a course helping you get a degree or a job skill. Instead, it would expand the American Opportunity credit from 4 to 5 years. But the American Opportunity credit applies only to degree-related courses. The Senate would leave both credits unchanged.
  • Tuition and Fee Deduction: The House would kill this $4,000 per year deduction for what you pay in tuition and fees for yourself, your spouse, and your dependents.

All these changes would take affect in 2018 unless the Senate causes them to be dropped.

The Senate will amend, debate, and vote on its bill soon after Thanksgiving, so there’s little time to contact your Senators (their contact information is here). Urge IMG_0081them to use the Senate bill to preserve the tax benefits described above.

The House and Senate must negotiate to finalize all differences in the bills they pass, and such negotiations often lead to one or the other bill’s differences being dropped. So the last, best hope for preserving these tax benefits is a Senate tax bill that opposes the House’s plan to kill them.

Contact College Affordability Solutions at (512) 366-5354 or collegeafford@gmail.com if you have questions.

College Savings Bonds: An Affordable, Safe, Simple College Investment

Do you have a modest income and a limited amount to invest? Are you looking for a treasury-bondssafe, simple way to invest it? Are you interested in tax breaks that’ll free more of your other money for college savings bonds? If so, think about college savings bonds. Here are the fundamentals . . .

The U.S. Treasury Department sells education savings bonds. They’re extremely low-risk because they’re backed by the full faith and credit of the U.S. government.

There are two types of education savings bonds. You can buy Series “EE” bonds at half their maturity value and they slowly grow into that amount based on a fixed interest rate 3-ussavingsbonds_590x394that never changes. You can purchase Series “I” bond in denominations of $50 to $10,000 they grow into those amounts by paying interest based on inflation every 6 months.

You, or you and your spouse, may buy education savings bonds for your child (also for your spouse or yourself) directly from the Treasury at http://treasurydirect.gov/. You can redeem them as soon as a year after buying them, but if you do this less than 5 years after buying them you’ll lose the last 3 months of the interest they earn.

That interest isn’t subject to state and local income taxes. It’s also excluded from federal income taxes if:

Your tax exclusion starts to be limited if your MAGI exceed these amounts, and, if your MAGI reaches $91,000 and $143,950, respectively, they’re eliminated.

Your tax exclusions will cover whatever savings bond principal and interest you use to pay tuition and required fees at an accredited U.S. public, nonprofit, or for-profit college, university, or vocational school. If your student receives money from scholarships, other college investments (e.g. 529 plans), and carious educational benefits such as VA benefits, employer-provided educational assistance, etc. your tax exclusions could be limited.

Want to know more? Check out the Treasury Department’s publication called Using Savings Bonds for Education and its Education Planning webpage. And remember, every penny you invest and save makes your child less reliant on student loans to pay for college!

 College Affordability Solutions can help you evaluate various strategies for paying for college. Call (512) 366-5354 or email collegeafford@gmail.com.

Saving for College? Consider a 529 Plan.

One of the best ways to save for college education is a 529 plan. This is an investment designed to help save money for a child’s future college expense. Here are the basics.

A 529 plan — also know as a “Qualified Tuition Plan” — is owned by whoever opens the plan: a parent, other relative, or family friend. The child for whom the plan is img_4691designated is its “beneficiary.”

You may contribute to a plan even if you aren’t its owner, but the owner controls it. Contributions of up to $14,000/year ($28,000/year for married couples) aren’t subject to federal gift taxes.

529 plans offer other tax breaks — no federal income taxes on what they earn, and many states offer residents state tax benefits on their 529 plans.

One type of 529 plan is a “prepaid college tuition program.” This purchases all or part of the beneficiary’s future tuition at a rate set today so, as tuition rises, it’s already been prepaid at a lower rate.

The other type is a “college savings plan.” Plan managers invest what you contribute. You usually have different investment options, and earnings vary according to the return on those investments. Some college savings plans are riskier than others, so you could end up losing some or all of what you put in if they perform poorly.

When the beneficiary goes to a college covered by a 529 plan, what’s withdrawn from the plan isn’t subject to federal taxes (or state taxes in many states) as long as it pays “qualified education expenses” — tuition, fees, books, class supplies and equipment, certain room and board amounts, and some other college costs.

If the beneficiary doesn’t go to college or use everything in a 529 plan, what’s left may roll over to another beneficiary. This must be a relative of the original beneficiary — a sibling, cousin, niece or nephew, parent, etc.

All states and some colleges offer 529 plans. The earlier you contribute, the more the plan is likely to earn. But be sure to check out any plan you consider for “portability” — the number and locations of the institutions at which the Plan can be used.

To research each state’s 529 plan(s) and how to open them, check out the College Savings Plan Network’s website. For 529 plan information on federal taxes, qualified education benefits, and rollovers see pages 59-62 of IRS Publication 970.

College Affordability Solutions can help your family devise strategies to prepare financially for college. Call (512) 366-5354 or email collegeafford@gmail.com to make contact with us.