Question

Young Professional Couple are concerned as to the funding of their children's higher educations. Their alma mater has a Qualified Tuition Program and they hav ealso hear about savings bonds and Educational Savings Account. What is your advice to them?

Answer 1

Qualified Tuition Program

There are many ways to save for college, but one thing is certain: it is never too early to start. One relatively new way to save for college is a qualified tuition program (QTP), or "Section 529" plan. These plans offer a way to pay for college expenses with some nice tax advantages. The 2001 Tax Act expanded the benefits of these plans. The benefits of establishing a QTP are: Earnings accumulate tax free while in the account. The beneficiary doesn't generally have to include the earnings from a QTP as income. Distributions aren't taxable when used to pay qualified higher education expenses. However, if the amount of a distribution is greater than the beneficiary's qualified higher education expenses, a portion of the earnings is taxable.

savings bonds

The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution.

Additional Requirements to Qualify

• Qualified higher education expenses must be incurred during the same tax year in which the bonds are redeemed.
• You must be at least 24 years old on the first day of the month in which you bought the bond(s).
• When using bonds for your child's education, the bonds must be registered in your name and/or your spouse's name. Your child can be listed as a beneficiary on the bond, but not as a co-owner.
• When using bonds for your own education, the bonds must be registered in your name.
• If you're married, you must file a joint return to qualify for the exclusion.
• You must meet certain income requirements.
• Your post-secondary institution must qualify for the program by being a college, university, or vocational school that meets the standards for federal assistance (such as guaranteed student loan programs).

Educational Savings Account

An Education Savings Account (ESA) provides for special tax treatment of money set aside by parents or guardians for the educational purposes of a child. Money put into an ESA may be invested and can earn interest tax-free, and may be withdrawn free of federal taxes, as long as it is used for qualified educational expenses. Be aware, however, that money which is not used for educational purposes prior to the child's 30th birthday may be subject to steep penalties.

                                   The 3 terms are meant for the benefits of childrens who want to persue their career .each of them have benefits and cons.. while selecting a plan for our children we must consider each cons and prons of the plan