Update on Student Loan Rates Increasing
It has been reported on FoxNews.com that as of July 1, 2013, the interest rate on Stafford subsidized loans has doubled to 6.8%. Congress was not able to reach an agreement on how to keep loan rates down and on July 10 Congress met again to discuss the increase in loan rates. Unfortunately Congress was unable to come to an agreement that would let Stafford subsidized loans to go back down to 3.4%. Therefore, some students may not be able to afford to go to college because the loans will be prohibitively expensive to pay back.
A little history
Loan rates were dropped to 3.4% in 2007, where they stayed until June 30. In July 2012, when the rates were originally scheduled to increase to 6.8% (double), the deadline was extended by another year. However, unlike last year, Congress was unable to come to an agreement about Stafford loans and how to keep rates down.
Education is extremely important when it comes to the betterment of the country and the individual and with the rising cost of post-secondary education, so is saving up to go to school. Saving for education can be set up through special accounts that reduce the student’s (and family’s) reliance on student loans, whose rates may increase a lot as we just witnessed. One way to do this is with a Coverdell Education Savings Account (ESA). A Coverdell ESA is a tax-deferred trust account that helps families fund educational expenses and if used for approved educational purposes, the funds are tax free when taken out. You can learn about Coverdell ESAs and other accounts at Next Generation Trust Services website. The staff at Next Generation Trust Services is here to answer any questions you may have about retirement or education savings accounts.
Is Your Kid Saving for Retirement?
With the average US lifespan rising and Social Security becoming questionable for our younger generations, MSN Money asks the question Is your kid saving for retirement?
Donna Freedman at MSN Money reviews the merits of saving early, its impact on learning good money habits, saving for college versus retirement and ensuring a financially stable future for our children. Did you know that there is no age limit on IRAs?
Next Generation Trust offers not only self-directed IRAs, but also specialty plans such as a self-directed Coverdell Education Savings Account (CESA) and Health Savings Account (HSA) to help you get started on the road to financial freedom. Contact our office today for more information on these great plans.
Check this article out, and help your children control their future, today!
Go Back to School with a Coverdell!
It’s that time of year again; school supplies, tuition, homework and education. To help you and the children you love take advantage of a self-directed Coverdell Education Savings Account (CESA), we are offering this plan for FREE!
Now through the end of the year, you can open a Coverdell account with no setup fees and no annual fees*! In order to qualify for this great promotion, you must open your account with a minimum contribution of $500 and use the promo code BTSC on your application.
As Coverdells require additional identification, Next Generation Trust Services recommends that you contact our office directly and speak to a representative when opening this type of account.
Hurry! This offer only lasts until 12/31/2011. Let Next Generation help you start saving for a child’s education, today!
*Annual fee waiver applies to new cash-only accounts. Annual administration fees will be due at the time of first investment.
What is a Coverdell Education Savings Account?
A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses.
The total contributions for the beneficiary of a Coverdell Education Savings Account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary of a Coverdell Education Savings Account is someone who is under age 18 or is a special needs beneficiary.
Contributions to a Coverdell Education Savings Account are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses. Annual contributions may be made to a Coverdell Education Savings Account until the beneficiary reaches age 18, or is a special needs beneficiary.
Here are some things to remember about Distributions from a Coverdell Education Savings Account:
- Distributions to a Coverdell Education Savings Account are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.
- There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law. Eligible institutions that can be paid from a Coverdell Education Savings Account also include any college, university, vocational school or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. Virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions are eligible.
- The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell Education Savings Account, as long as the same expenses are not used for both benefits.
- If the distribution of a Coverdell Education Savings Account exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.
WHAT ARE THE LIMITS OF A COVERDELL EDUCATION SAVINGS ACCOUNT?
There are contribution limits for taxpayers based on the contributor’s Modified Adjusted Gross Income. Contributions to a Coverdell Education Savings Account may be made until the due date of the contributor’s return, without extensions.
If there is a balance in the Coverdell ESA when the beneficiary reaches age 30, it must generally be distributed within 30 days. The portion of a Coverdell Education Savings Account representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell Education Savings Account for another family member. For more details, see IRS Publication 970, Tax Benefits for Higher Education (at IRS.gov) or call 800-TAX-FORM (800-829-3676).
- Publication 970, Tax Benefits for Higher Education (PDF 368K)
- Tax Topic 310 — Coverdell Education Savings Accounts
- IRS Tax Tip 2007-48 — Offset Education Costs