The Right Site For Free Credit Reports
Dear Liz: It would appear you have been taken in by a scam. In a recent column, you state a free credit report may be obtained through www.annualcreditreport.com. I went to the site and filled out the information requested. Instead of receiving a credit report, it signed me up for a paid membership. I was able to cancel it but I did not receive any credit report.
Answer: AnnualCreditReport.com, which has provided free credit reports since 2005, is not a scam. Unfortunately, many people navigate to the wrong sites and wind up being pitched credit monitoring or similar products. If youre being asked for a credit card, youre not on the right site.
One problem is that people search for terms such as free credit report, annual credit report or even AnnualCreditReport.com and click on the first link that comes up, not realizing that many search engines top their results pages with paid advertisements. The actual site, annualcreditreport.com, could be halfway down the page. The better way to access the site is to either click on a trusted link, such as the one provided here, or type the full URL into the address bar of your browser.
Here are some insights into how employees and bosses can agree on remote work arrangements that work for everyone involved.
How To Withdraw Money From The Scholarshare 529 Plan
You can request a 529 plan withdrawal by visiting your account online or downloading a withdrawal request form and mailing it in. The payment can be made to you, your beneficiary or the school youre funding. However, youre limited to a maximum withdrawal of $100,000, with anything larger than that requiring further approval and requirements.
You can elect to issue payments via check or electronically transfer them if youve kept banking information on file with the plan for at least 30 days. Your child can use these savings in conjunction with financial aid and scholarships. But remember that its always best to use 529 plan money on qualified higher education expenses at eligible institutions. You can use your funds at a vast array of institutions, virtually any accredited school that accepts financial aid from the U.S. Department of Education. That includes vocational schools, technical schools and four-year universities as well as some foreign institutions.
Of course, youre not limited to Californias direct 529 plan. Any U.S. citizen can open a 529 college savings account that another state sponsors if he or she finds others more appealing. Overall, ScholarShare shines for its low fees and robust investment menu.
California Saving For College Report In 2022
We discuss the tax benefits, trends, do’s and don’ts and various plan options of setting up a 529 college savings plan in California
As parents, grandparents and students we know college is coming and that we’re somehow going to have to pay for it someday. Fortunately we have many options available to us including savings bonds, the stock market and 529 plans. Starting a 529 account now is always the best option, no matter how old you is. While playing the stock market may yield higher returns on your investment, placing your money into a 529 plan allows it to grow in a tax free environment. One study even found that when the federal tax benefits were taken into consideration, 529 plans outperformed their benchmarks in every category.
California has it’s own state-operated 529 plan called ScholarShare College Savings Plan. It is important to note that your child does not have to go to a CA college or university in order to use this savings account. 529 plan funds can be used at any accredited college or university across the nation, including some K-12 private schools!
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Start Saving Towards A California 529 Scholarshare Plan
A 529 plan is a savings plan that helps families save for future qualified higher education expenses. This money can be applied to in-state schools or out of state schools, public or private institutions. Unlike a traditional savings account or bank account your money grows tax-deferred in a 529 account and qualified distributions are federal tax and state tax free. There are different plans to choose from that have different benefits and investment options, and often you are not limited to the state that you live in. In the state of California, for example, California residency is not required for investment.
The contribution limit is generous. Each year, you can contribute up to $15,000 to a 529 plan for each beneficiary without triggering federal gift tax restrictions.
When the beneficiary goes on to college or vocational school, they can withdraw funds from the account balance tax-free. They wont have to pay taxes on funds they take out from the plan account, as long as the funds go to qualifying educational expenses like tuition, books, and related supplies.
What Is A 529 Plan
A 529 plan is a tax-advantaged savings plan designed to help pay for education. Originally limited to postsecondary education costs, it was expanded to cover K-12 education in 2017 and apprenticeship programs in 2019.
The two major types of 529 plans are education savings plans and prepaid tuition plans.
Education savings plans grow tax-deferred, and withdrawals are tax-free if they’re used for qualified education expenses. Prepaid tuition plans allow the account owner to pay current tuition rates for future attendance at designated colleges and universities. That means that, most likely, you can lock in a lower cost of college attendance.
529 plans are also referred to as qualified tuition programs and Section 529 plans.
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Who Can Have A California 529 Scholarshare College Savings Plan
Typically we think of 529 college savings plans being set up by parents for minor children so they can continue their post-secondary education.
But any U.S. resident age 18 or older, with a social security number, can open and fund a 529 plan. They can designate any beneficiary they choose, including themself. This could be a great option for an adult to go back to school, change career paths, or get some further training.
How Does A 529 Plan Work
A 529 plan works similarly to a retirement plan. Youâll set aside money on a regular basis and invest it according to your risk tolerance, or your childâs age if you choose an age-based portfolio.
Money saved in a 529 plan grows tax-free and wonât be taxed upon withdrawal as long as you use it for qualified education expenses. Eligible expenses include college tuition, room and board, textbooks, computers and software for students attending half-time or more, and up to $10,000 in K-12 private school tuition. Individual states run their own 529 plans, but you can choose to participate in any stateâs plan. You may get a tax credit or deduction for using your home stateâs plan, so it makes sense to compare various accountsâ benefits.
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California 529 Plan Benefits And Tax Advantages
Funds you invest in a 529 plan grow tax-deferred. And funds that the student eventually withdraws from the plan towards qualified educational costs are free from federal taxes.
A common misconception is that these 529 plan assets will disqualify your child from financial aid. On the contrary, 529 plan funds are treated more favorably in the financial aid formula than other savings in your childs name through a custodial account such as an UTMA/UGMA. This is because assets in a childs 529 plan belong to the parent not child, and FAFSA gives preferential tax treatment to assets belonging to a students parent versus the student.
If your child is an Einstein or football star, and manages to score a free ride to school, you can still repurpose those funds. You can take out an amount equal to the scholarship fund amount from the 529 plan without incurring the 10% federal penalty youd normally have to pay on funds not going to qualified education costs. You would have to pay regular ordinary income taxes on earnings, but there would be no penalty. Alternatively, you can leave the funds in the 529 plan to be used at a later date by this beneficiary or a direct relative of the original beneficiary.
Where Can I Open A 529 Account In California
Californias official 529 plan is called ScholarShare 529, and it has been helping families of all income levels save since 1999. ScholarShare 529 offers a diverse set of low-cost investment options, tax-deferred growth, and withdrawals free from state and federal taxes when used for qualified higher education expenses.
To open your ScholarShare 529 account in just 15 minutes, visit ScholarShare529.com
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Tax Benefits Of The Scholarshare 529 Plan
When you invest in the ScholarShare 529 plan, the money your contributions generate in the market is protected from taxes. This means your money can maximize the power of compound interest. The money you take out of the plan is also tax-free if you use it for 529 plan qualified expenses such as tuition and mandatory fees at eligible institutions.
The SECURE Act expanded qualified education expenses to cover the costs of apprenticeship programs. You can also withdraw up to $10,000 tax-free in your lifetime to pay student loan debt.
And up to $10,000 can be withdrawn from 529 plans tax free to cover tuition at public, private and religious K-12 schools. This benefit applies to federal taxes. Check with a local accountant to see how this may impact your state tax return.
However, you may face a financial hit if you take money out of the plan for anything else. In this case, youve made a nonqualified withdrawal and it may be subject to your standard federal income tax rates, in addition to a sizable 10% penalty.
Plan Contribution Limits Rise To $17000 In 2023
For those who want to stash as much away for college as they possibly can, it’s worth noting that the annual gift tax exclusion is increasing to $17,000 in 2023. According to IRS.gov, this new amount is up $1,000 from the $16,000 gift tax exclusion in 2022, and up from the $15,000 gift tax exclusion amount that was in place from 2018 to 2021.
Kantrowitz notes that this means a couple can give twice this amount jointly in 2023, or $34,000, since there are two individuals doing the giving.
“If you use five-year gift-tax averaging, you can contribute five times as much as a lump sum, or $85,000 as an individual or $170,000 as a couple,” he said.
That’s quite a bit of money in contributions, and the annual limit is likely a lot more than you’ll need to save in a year if you start stashing away money for college when your children are young.
Kantrowitz points out that, if you give $17,000 per year for 17 years from birth to college at the beginning of each year and earn a 6% average return on investment, you will accumulate a total of $508,396.09.
“If you break it up into monthly contributions of $1,416.67, you will accumulate a total of $495,094.85,” he says.
Unless you think your child is going to pursue multiple graduate degrees or attend an Ivy League School without any financial aid, you can start saving a lot less than that early on and have plenty to pay for school.
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How To Choose A 529 Plan
When it comes time to choose the best 529 plan for your family, look at whatâs available within your home state first. Many plans offer special incentives such as tax breaks for state residents, so you may find a better deal by starting your search at home.
Once youâve noted the details of your home stateâs plan, compare it to other statesâ offerings. As you review each 529 plan, pay attention to the following factors.
The Time Horizon Is Not Freshman Year
Parents of teenagers often ask me if they should open a 529. They wonder if it makes sense given how close the child may be to needing the money for college. While there are a variety of factors to consider, I remind parents the time horizon for needing the money for college is not freshman year, but by senior year. So, for instance, a parent with a 13-year-old may think they have only four years till theyll need the 529 money, when in reality the time horizon could be eight years, since not all the money is withdrawn in the freshman year. If that is the case, then yes, eight years may still be enough time to invest in a 529. .)
Having said that, I probably wouldnt invest all the 529 money in equity mutual funds, given the time horizon is only eight years that is too risky. But perhaps the tuition payment earmarked for the eighth year, or senior year, could be invested in a dividend-paying mutual fund or a balanced mutual fund, since that has the longest time horizon. I suggest consulting with a qualified financial adviser who can help ensure your investment mix is aligned properly with your risk tolerance and time horizon.
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Earn Federal Tax Breaks
Your earnings from your 529 investments are always tax-free at the federal level if you use the money for qualified expenses. If you use the money for noneducation costs, you may pay income tax and a 10% penalty on the amount of earnings you withdraw.
Account owners may also make contributions to a 529 plan to avoid gift taxes. Typically, a gift tax would apply if you give someone more than $16,000 for the 2022 tax year. However, itâs possible to contribute more than this to a 529 plan and still avoid taxes.
Account owners can contribute up to five times the gift tax maximum in one lump sumâthat would total $80,000 for the 2022 gift tax rules . You will need to file additional paperwork at tax time to correctly distribute this amount over five years, but frontloading your investments in this way could help you earn larger returns more quickly. This process can also be repeated when the five-year period ends.
Use The Money For Expenses Besides College
Besides common college expenses, you can use your 529 plan for a few other things. First, it doesnât need to be used for an undergraduate degreeâtrade school, community college, and graduate and professional degrees are also eligible. If you have children in private school, you can use up to $10,000 per year for K-12 tuition fees.
If the beneficiary graduates college and money is left in the account, you can still make good use of it. A lifetime maximum of $10,000 can be used for student loan payments on behalf of the beneficiary or the beneficiaryâs sibling.
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California 529 Plan And College Savings Options
California has a 529 plan called ScholarShare that can help you save for college. California also has a 529 Able Plan as well.
If you live in California, these might be good options for you to save for college.
These programs are designed to help make college more affordable – so that you can get the education you need. By saving for college early on, you can make paying for college easier down the road.
If you’re not quite sure how 529 plans work, check out this starter guide to What Is a 529 Plan?
There is also a specific order of operations to save for college that we recommend families follow. These programs are specific to the State of California. Each state has different rules when it comes to 529 plan savings.
Why Use 529 Plans
With a 529 plan, you can save money for college or higher education while earning some type of tax benefit.
Profits from 529 plans are not subject to federal tax and are not normally subject to state tax when used for eligible educational costs, such as tuition, fees, books, room and board.
With college education continuing to increase, more parents are searching for ways to save this future cost.
The 529 called plans are very popular and are the biggest savings for higher education.
These are state sponsored programs that change data and investment options.
The California plan offers 19 investment options and allows you to save funds at any eligible higher education institution in the country.
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A Compromise: Use More Than One 529 Plan
If you still want to use your home states plan to get the state income tax deduction, but want better mutual funds, you may want to try using your states plan up to the state tax deduction cap usually $10,000 a year for married parents and a separate 529 somewhere else for any additional money.
I see this in states that cap the tax deduction to the first $10,000 of contributions. The next penny over the cap is not state tax deductible. A parent then can contribute the first $10,000 to the home states plan for the deduction and use another states plan for anything above the cap. This may help with diversification, or using a different plan may have more and better fund choices. You want to be mindful of the annual contribution limits .
The downside is the administrative burden, do you really have the time to oversee two different accounts for each child?
Do I Need A Scholarshare Plan For Every Child
You dont need a California 529 plan for each child but you may find it easier to administer if you do. You can only have one named beneficiary on a California 529 plan. The risk and mix of equities to fixed income of certain investment options is determined by the age of the beneficiary. For this reason, you may want to have a different 529 plan for each child.
You may be interested to know that multiple people can open accounts for the same beneficiary.
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