The follow-up question to the Oregon College Savings Plan tax change is: Am I better off with the 2020 tax benefit or the 2019 one? The answer, as is so often the case, is “it depends.” Continue reading OR 529 Part 2: Which is Better?
Category Archives: Tax Credits and Deductions
Changes to OR 529 Plan Tax Benefits
Fellow Oregonians may have received an email today from the Oregon College Savings Plan about changes in the state tax benefit beginning in 2020. These changes create some opportunities for increased tax savings over the next several years. Continue reading Changes to OR 529 Plan Tax Benefits
FAFSA Basics: Divorced Parents
Divorced parents who share custody of their children often wonder who should fill out the FAFSA. And even in cases where custody is not joint, there may be questions. Continue reading FAFSA Basics: Divorced Parents
FAFSA Basics: An Example
Having gone through the FAFSA formula, let’s take a look at how it works with a few scenarios that illustrate how small changes can have big impacts on EFC, or alternatively, how big changes can have small impacts. Our hypothetical family is a family of four with two children, one a high school senior and the other a high school junior. Both parents are 48. Their 2018 household income was $106,800 and they filed married filing joint in 2018. They live in Oregon. To simplify life, let’s assume that all $106,800 is earned income. Neither student has income above the student income protection allowance ($6,840), nor does either have any assets. Continue reading FAFSA Basics: An Example
“Where Do I Begin?”
I’m taking a brief break from the programming I outlined for myself a week or so ago. It’s September and that means that many people are looking seriously at college for the first time. They may be parents of seniors, parents of freshmen, parents at any point who think now is a good time to start investigating this big future step. And after a few google searches or conversations with friends or counselors, they have concluded, “This is overwhelming! Where do I begin?” Continue reading “Where Do I Begin?”
FAFSA Basics: Parent Income
Parent income tends to be overlooked in FAFSA planning, which is unfortunate because for most families it’s the biggest piece– and one that has some real planning opportunities. Continue reading FAFSA Basics: Parent Income
AOTC vs EFC
It’s not unusual for different strategies to be more helpful at different points in the college savings/funding process. Retirement contributions are a perfect example. Continue reading AOTC vs EFC
Scholarships and Taxes
Do you have to pay taxes on a scholarship? It depends what the scholarship is for. To understand taxes on scholarships, it’s worth remembering that the IRS defines qualified expenses differently for different purposes. Expenses get more or less the same treatment for taxability of scholarships as they do for education tax credits, so let’s review those. Continue reading Scholarships and Taxes
529 Withdrawals
529 withdrawals are always pro-rata contributions and earnings. That means that if you contributed $30,000 to your account over the years and it’s now worth $40,000, then your withdrawal will be 75% contributions and 25% earnings. That’s moot in the case of a qualified withdrawal, but it matters for a non-qualified one: tax and penalties will apply to the earnings portion. On the federal side, it’s taxed at the marginal rate of the person Continue reading 529 Withdrawals
Why 529s Always Make Sense
It’s easy to explain to parents of younger children why 529s make sense: Contribute now and your account grows tax-free for 18 years until college. If you live in one of the more than 30 states that offers a tax deduction, that’s an even bigger incentive. Here in Oregon, for example, we get a tax deduction for the first $4,865 in contributions to the Oregon College Savings Plan. If I contributed that much for my newborn (well, they act like newborns sometimes) I’d get an immediate return of 9% (state tax rate) or $437.85. Suppose that my account then grows for 18 years at 5% (I’m drastically simplifying the math here), I’d have almost $12,000 when my child was ready to start college, and no tax bill to access it. Added bonus: the FAFSA and Profile don’t count that gain as income in their formulas, unlike how it would be treated if it were in a taxable account. Continue reading Why 529s Always Make Sense