Paying for College Education: Gifting and Educational IRAs
This article provides an overview of two methods for college saving.
With the rising cost of higher education, many parents are concerned about having sufficient funds to send their children to college. This article provides an overview of two methods for college saving.
For example, if a child is under age 14, the first $700 (1999 amount) in income from custodial accounts is exempt from taxes. The next $700 is taxed at the child’s rate, usually 15 percent. Income earned in excess of $1,400 is taxed at the parent’s highest marginal rate. If the child is 14 or older, all net investment income earned is taxed at the child’s rate, usually 15 percent. If however, you hold the child’s investment in your name alone, all income and capital gain distributions are taxed at your rate. Depending on the size of the college fund, you could incur a substantial tax liability.