The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax Inc. . Please feel free to contact us with any questions or concerns.
Enrolled Agent and National Tax Practice Institute Fellow Pat White can be contacted at 917 533-8475 or email: PatTaxHelp@gmail.com with any questions or concerns regarding tax consultation, preparation or representation.
Saving for College
Custodial Accounts (UTMA/UGMA)
Assets in a custodial account belong to the minor. A custodian, usually an adult relative, controls the assets until the minor reaches the age set by state law (21 in most states).
Assets in a custodial account can be used to pay for education expenses for the minor.
Read 2016 Saving for College Here
Savings Bond Interest Exclusion
Exclusion Rules
Interest from qualified savings bonds redeemed by the taxpayer can be excluded from income if:
- The taxpayer paid qualified education expenses during the year for the taxpayer, spouse, or a dependent claimed on the taxpayer’s return.
- Filing status is not Married Filing Separate. If proceeds from the redemption (interest and principal) are more than adjusted qualified education expenses, only a percentage of the interest is excludable.
Example: Marty redeemed qualified bonds for $10,000, including accrued interest of $5,500. He paid $8,000 of qualified education expenses during the year. His excludable interest is:
$ 5,500 interest × $ 8,000 qualified expenses/$10,000 redemption proceeds = $ 4,400 tax-free interest
Income Limit
The exclusion is limited by adjusted gross income. Check with your tax preparer for income limitations.
Qualified Savings Bonds
- Series EE bonds issued after 1989 and Series I bonds. • Issued to a person who was age 24 before the bond’s issue date. The issue date is the first day of the month in which the bond was purchased (for example, a bond purchased on May 25 has a May 1 issue date). The issue date is printed on the front of the bond.
- Issued in the name of the taxpayer and/or spouse. There can be no other co-owners, including the taxpayer’s child. The bond can have a pay‑on-death (POD) beneficiary, including a child.
Qualified Education Expenses
- Tuition and fees required for enrollment or attendance at an eligible educational institution. Qualified expenses do not include courses involving sports, games, or hobbies, unless part of the student’s degree program.
- Contributions to a qualified tuition program.
- Contributions to a Coverdell education savings account.
Qualified Tuition Plans (529 Plans) & Educational Savings Accounts (ESAs)
QTP and ESA Tax Benefits
Contributions to a QTP or ESA are not deductible. Earnings accumulate tax free. Distributions are not taxable if less than the beneficiary’s adjusted qualified education
expenses in the year of distribution. Contributors can contribute to both a QTP and an ESA in the same year for the same designated beneficiary.
Read 2016 Saving for College Here
Any accounting, business or tax advice contained in the Tax E Man Blog or www.PatTax.net, including attachments, links and enclosures, are not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax related penalties.
If desired, Pat Tax, Inc. would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired.
The Tax E Man Blog, along with our website www.PatTax.net, are designed to be year round resources for tax consultation, preparation and representation services provided by Pat Tax, Inc. . Please feel free to contact us with any questions or concerns.
Pat can be contacted at 917 533-8475 or email: PatTaxHelp@gmail.com with any questions or concerns regarding tax consultation, preparation or representation.
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