College costs lots of money these days, so saving for your college-bound child is a big deal. Saving in a tax-smart fashion can really help.
In this article, we explain the most helpful federal income tax breaks that are potentially available to college savers. Here goes.
College Is Expensive!
Data for the 2019-2020 academic year indicates that the average cost of tuition, fees, room, and board was $32,500. Here are some average sticker-price numbers:
$12,720 for a public two-year institution at the in-state rate ($3,730 for tuition and fees plus $8,990 for room and board
$21,950 for a public four-year institution at the in-state rate ($10,440 for tuition and fees plus $11,510 for room and board)
$38,330 for a public four-year institution at the out-of-state rate ($26,820 for tuition and fees plus $11,510 for room and board)
$49,879 for a private non-profit four-year institution ($36,880 for tuition and fees plus $12,990 for room and board)
Consequently, the average total price for a four-year degree is approximately $122,000.
$87,800 for a public four-year institution at the in-state rate
$153,320 for a public four-year institution at the out-of-state rate
$199,500 for a private non-profit four-year institution
These numbers assume that your child will finish his or her undergraduate education in four years, but only 39 percent of students actually do that. Nearly 60 percent take six years. Yikes!
That said, most students receive at least some financial aid to offset the sticker price of their degrees.
Key point. Tax-smart college savings strategies can make college costs more manageable. So, let’s talk about those.
Contribute to a Coverdell Education Savings Account
You can set up a Coverdell Education Savings Account (CESA) to pay qualified education expenses for the account beneficiary (your college-bound child).
You can contribute up to $2,000 per year to the child’s CESA. ... Log in to view full article.