Sy Schnur CPA, Busn. Valuer, Litigation Support Expert Witness & Ins Agent

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EdFundOptimization

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EDUCATION FUNDING OPTIMIZATION

Achieving your financial goals requires a coordinated, integrated approach. Peace of mind is achieved from knowing that you have planned well. The sooner you start, the better, since education costs are rising rapidly and aid sources are diminishing.

PLAN TO PAY FOR LARGE EXPENSES

As the cost of a college education continues to skyrocket - even outpacing the annual inflation rate - planning is critical if you want to have the required funds available. Whether you use the funds to finance a child's education or for some other purpose, there are a few ways you can reduce your family's tax bill.

Shifting income to a child to take advantage of the lower tax rates is one way to build your family's wealth. Special income tax rules apply to children under age 14, so you will need to plan carefully.

WATCH OUT FOR THE "KIDDIE" TAX

Children under age 14 pay tax at their parents' highest bracket on the portion
of their unearned income (for example, interest and dividends) that exceeds $1500.
There are still some effective ways around this potential stumbling block:

Take Advantage of Lower Rates

Even if your child's income isn't earned, the first $750 is tax free, and the tax
rate on the next $750 of income is only 15%.

Choose Growth Instead of Income

You can avoid the kiddie tax if your child invests in growth stocks or growth mutual funds that pay low dividends. As long as they are held until after the child turns 14, the capital gain is taxed at the child's rate, not yours.

Consider Municipal Bonds

Interest on these securities is federally tax exempt to owners of any age. However, they generally do not offer an opportunity for growth with reasonable chance for earnings in excess of the inflation rate. Ownership of individual bonds may require coupon clipping, and there is the inconvenience of timing sales or redemptions. Furthermore, bond income is relatively low.