Education Financial Planning Saving for college is becoming more important as the costs of education - tuition, student living and other education expenses - have been increasing at a rate greater than the general level of inflation.Many of the education plans available today offer tax advantages such as tax-deferred growth, tax deductible contributions, and/or no tax consequence at the time of distribution, which lessen the financial burden.Most education planning strategies become even more effective if you do your planning early.One important aspect of an investment is its balance of yield and risk. Open Range Financial Group assists you with a risk analysis based on the longevity of the investment to review asset allocation preferences for your education planning strategies.You'll also receive help determining whether assets and income should be held in your name or your child’s name. Structuring your investments ahead of time can have a significant effect on the net amount of funds available for your child’s education or student loan possibilities.What are some of the more common college funding options Open Range works with? 529 Savings Plans 529 Plans are tax-deferred savings vehicles for education (or post-secondary) costs. 529 Savings Plans allow you to make contributions to a state-sponsored investment account for the benefit of a selected beneficiary for purposes of funding their higher education costs. As the account owner, you control the account, not your beneficiary. The earnings on the contributions grow tax-deferred and are not subject to tax upon withdrawal provided that the funds are used for qualified education expenses and the provisions from The Economic Growth and Tax Relief Reconciliation Act of 2001 are still in effect.Limits, restrictions and costs of these plans vary among states. At Open Range, we research your options to assure that we recommend the plan that best accommodates your needs. Prepaid Tuition Plans Prepaid Tuition Plans are plans that provide a guarantee that the value of the account will increase at the same rate as tuition. This allows you to prepay a child's college tuition at today's prices or prices close to today's prices. Custodial Accounts There are two types of custodial accounts:Uniform Gift to Minors Act (UGMAs)Uniform Transfers to Minors (UTMAs)UGMA accounts only allow transfers of cash and securities whereas UTMA accounts allow transfers of other types of property and therefore can provide more flexibility. The type of account available depends on the state in which the account is established. Through these accounts, you establish a custodial account for the benefit of a minor. The account transfers to the child outright once he or she reaches the age of majority. While the child is under age 18, the “kiddie tax” applies, and the income earned in the account may be taxed at the parents’ tax rate. Once the child reaches age 18, he or she is taxed separately which may provide tax benefits due to potentially lower tax rates. The gift is irrevocable, and the assets pass to the child, whether or not they are used for education expense.Important Note: Accounts in a child’s name can affect the child’s eligibility for financial aid. Coverdell Education Savings Accounts (ESAs) - (Formerly Education IRAs)Anyone can establish and contribute to a Coverdell ESA subject to certain income limitations. Contributions to a Coverdell ESA are not deductible; however, earnings grow tax-free and are not subject to income tax when withdrawn as long as the withdrawals are used to pay for qualified education expense. The total contributions from all donors cannot exceed $2,000 per beneficiary in a single year. A portion of any amounts distributed in excess of qualified education expenses generally will be includible in income and may be subject to an additional 10% penalty tax.Assets remaining in the Coverdell ESA must be withdrawn when the beneficiary reaches age 30, at which point the earnings that accumulated tax-free are included in taxable income of the beneficiary. The designated beneficiary may be changed to another family member. There should be no tax consequences if the new beneficiary is under age 30. Education credits (below) cannot be claimed in the same year a withdrawal is made from a Coverdell ESA. Traditional And Roth IRA Withdrawals from Traditional and Roth IRAs for qualifying education expenses are not subject to a penalty for early withdrawals. However, the withdrawal from the Traditional IRA may be subject to income tax. US Savings Bonds Interest on redeemed series EE and series I bonds may be excluded from income if the proceeds are used to pay qualified education expenses. However, some interest may be taxable if proceeds are in excess of the qualified educational expenses.