Student, Education College and K-12 Savings Accounts
There are a few tax-advantaged savings plans to encourage saving (and give tax benefits) for you or your dependent‘s future education costs:
Please contact an eFile.com Taxpert if you have any questions about these education tax savings accounts. If you want to learn more about tax-free education savings accounts, read on.
Two education savings accounts are available to K-12 and college students (as well as those paying for someone’s education). Theses types of accounts allow you to save money for school expenses and withdraw funds tax-free:
A Qualified Tuition Program, or 529 Plan (named for the section of the tax code that describes it), is a state-sponsored savings account set up to pre-pay for K-12 and college expenses. The owner of the 529 account can make contributions that may be withdrawn by the beneficiary to pay for qualified education expenses at an eligible educational institution that can participate in a student aid program administered by the Department of Education. These institutions include:
529 Plans have no age or income restrictions for contributions or withdrawals. The only limit on contribution amounts is that the total contributions may not be greater than the amount needed to pay the beneficiary’s qualified education expenses.
Qualified Education Expenses
Non-Qualified Education Expenses
A Coverdell ESA is a savings account sponsored by a bank or other financial institution. The account is set up to pre-pay for K-12, college tuition, and other education expenses. The savings account’s beneficiary must be at least age 18 (or a special needs beneficiary) to withdraw Coverdell funds. The beneficiary must withdraw the funds before age 30 or the funds will be distributed and taxed. If the age requirements are met, the funds may be withdrawn tax-free if they are used to pay qualified education expenses. If the beneficiary turns age 30 before withdrawing the funds, they may avoid taxation by transferring the account to another qualifying relative or by rolling the ESA into a 529 Plan.
The following expenses are qualified uses of funds from a Coverdell ESA (note that a computer and/or internet access are not covered):
Coverdell ESAs have certain restrictions that 529 Plans do not have:
Education savings accounts can be complicated, so let eFile.com help you with your 529’s and/or ESA’s if this information overwhelms you. Answer a few simple questions during our tax interview and we will select the right college savings forms for you. Then, we will automatically make the calculations. It’s that easy! Contact an eFile.com Taxpert if you have more questions about college savings. Prepare and e-File your 2020 Tax Return with eFile.com to get the most out of your refund. Plus, gain access to your own personal support page as well as a page of free 2020 tax calculators.
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