Enhanced education incentives.The cost of higher education higher education Study beyond the level of secondary education. Institutions of higher education include not only colleges and universities but also professional schools in such fields as law, theology, medicine, business, music, and art. has been spiraling ever upward. Fortunately, Congress has recognized this dilemma and attempted to implement solutions that will offer savings and tax incentives for pursuing a higher degree. Unfortunately, these solutions were part of the bill recently vetoed by President Clinton. Under current Sec. 529, a qualified state tuition program is tax-exempt and individuals are allowed to contribute to an account established for the sole purpose of paying the higher education expenses of a designated beneficiary. To qualify for the exemption, neither the contributor nor the beneficiary may direct how the account assets are invested (Sec. 529(b)(5)). In addition, the program must provide adequate safeguards to prevent excess contributions from being made for the beneficiary (Sec. 529(b)(7)). Further, the qualifying program must maintain a separate accounting of each beneficiary. Although earnings generated from such accounts are generally tax-exempt for state tax purposes, they were only tax-deferred for Federal purposes. However, Congress has considered enhancing the benefits of Sec. 529 plans and implementing a few other educational benefits; it introduced a bill that would allow for a Federal tax exemption tax exemption, immunity from the requirement of paying taxes. Federal, state, and usually local law provide exemption from taxation for a wide variety of organizations, usually not-for-profit, such as churches, colleges, universities, health care providers, various (rather than a tax deferral tax deferral The delay of a tax liability until a future date. For example, an IRA may result in a tax deferral on the amount contributed to the IRA and on any income earned on funds in the IRA until withdrawals are made. ) for earnings in a qualified Sec. 529 plan. If enacted, the bill would give a major boost to the popularity of such plans. The exemption would only apply to the extent that a withdrawal is used to pay for qualified expenses, including tuition, fees, supplies, room and board and books. If nonqualified withdrawals were to be taken from a Sec. 529 plan, the earnings would be taxed to the distributee. The bill would grandfather current Sec. 529 plans to qualify for tax-exempt status. The proposed bill would extend Sec. 529 tax-exempt status to prepaid pre·pay tr.v. pre·paid, pre·pay·ing, pre·pays To pay or pay for beforehand. pre·pay  ment n. tuition plans (not to savings plans). It would allow educational institutions (including private colleges and universities) to establish their own Sec. 529 plans. Because many state-sponsored Sec. 529 plans allow flexibility in the use of plan distributions, it remains to be seen what the benefits are of participating in a single school's Sec. 529 plan (as it can be used to offset only that particular school's tuition). Additionally, educational individual retirements accounts (IRAs) would be expanded, allowing contributions of up to $2,000 per year (as opposed to the current $500). This increased limit would not have been permanent, but would have been rolled back to $500 per year by 2004. Although the thought process for the proposed legislation is a little unclear, other problems specifically related to education IRAs Education IRA A savings plan for higher education. Parents and guardians are allowed to make nondeductible contributions to an education IRA for a child under the age of 18. and available education credits would have been remedied had the bill been passed. Currently, a taxpayer cannot claim available education credits (i.e., the Hope Scholarship The HOPE Scholarship, created in 1993 by the state of Georgia legislature, is a university scholarship program that has been adopted by several other states. HOPE (a reverse acronym for "helping outstanding pupils educationally") is funded entirely by the revenue from the Georgia or Lifetime Learning credit Lifetime Learning Credit A federal initiative whereby a person is eligible for a non-refundable credit for a specific amount spent on higher education tuition and fees during the year. Notes: These fees can be for the person, his or her spouse, or his or her dependents. ) along with a distribution from an education IRA. The bill would have allowed tax-exempt distributions to be made along with claiming one of the educational credits, as long as the withdrawal was not used for the same expenses for which the credit was claimed. This would have applied to Sec. 529 plan distributions as well. The proposed bill makes the future look brighter for families with collegebound children. Unfortunately, the recent veto veto [Lat.,=I forbid], power of one functionary (e.g., the president) of a government, or of one member of a group or coalition, to block the operation of laws or agreements passed or entered into by the other functionaries or members. In the U.S. places the proposals on the shelf. However, Sec. 529 plans and education IRAs still offer significant opportunities. FROM KEVIN C. HILL, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , AND MARIO DI LUIGI, CPA, ELDREDGE, FOX & PORRETTI, LLP LLP - Lower Layer Protocol , ROCHESTER/BROCKPORT/CANANDAIGUA/GENEVA/PENN YAN/WEBSTER, NY |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion