If you're planning on sending a family member to college any time soon (like, in the next 25 years), or if you would like to contribute to the college education of a friend, or the child of a friend, here's something to think about'You can start saving for college now, and save yourself some tax money while you're at it.
The Indiana Family College Savings Plan is an easy way to put money aside for post high school education'The first thing you need to know is that this plan has nothing to do with Indiana, except for the fact that it is administered by the State of Indiana and the funds are maintained by Banc One, which is sort of located in Indiana'You don't have to be resident of Indiana to participate in this plan; the student for whom the savings account is established doesn't have to be a resident of Indiana, and the school that the student attends doesn't have to be an Indiana school.
Here's the way this works: Any person 18 or older may open an account'There is a $50 minimum initial contribution, and a $10 processing fee'Any person (it doesn't have to be a child) who is expected to attend college (including junior college or vocational/technical school) can be named as the beneficiary of the account'Contributions may be made as frequently or infrequently as you like, but each contribution must be at least $25'You can set up an automatic payroll deduction or an automatic deduction from your bank account, or you may mail payments with coupons provided by the plan.
Here's how you save money with this plan: All earnings of the plan are tax-deferred until the money is withdrawn'If the money in the plan is used as intended, for the school expenses (including room and board) of the beneficiary, the earnings of the plan will be taxed to the beneficiary at presumably a lower tax rate than that of the plan owner'Earnings will be reported as income in the year in which they are withdrawn from the plan.
If it turns out the beneficiary does not go to college, or does not use all the money in the plan, another member of the beneficiary's family may be named as a beneficiary'Alternatively, the remaining amount in the account may be returned to the plan owner and the earnings taxed to the owner at the time of distribution'There is a 10% penalty on earnings from the plan that are withdrawn and not used for education costs'A savings plan account has a maximum life of 25 years'If there is still money in the account after 25 years, it will be returned to the owner.
If the child receives a scholarship, funds from the plan may be withdrawn and returned to the plan owner up to the amount of the scholarship and there won't be any penalty.
There are two optional paths to follow for investing, depending on the age of your child 'one provides more of a long-term approach to saving, most appropriate for younger beneficiaries whose funds will have a long time to grow, and the other a more short-term approach'Each option contains four mutual funds from which you may choose, depending on the type of investment(s) you prefer'You may deposit amounts in more than one mutual fund, and you may change the fund(s) to which your deposits are routed once each quarter'These funds have some fees associated with them, and that will weigh on your decision as to which funds are most attractive to you.
When it is time to withdraw money, the plan administrators make payments on your behalf to the educational institution based on bills and statements that you provide'You may also send in bills such as book store receipts for direct reimbursement to yourself'This ensures that the funds are actually spent on higher education'Plan funds may be used for tuition, fees, supplies, textbooks, school equipment, and room and board'The student must be attending at least half-time for the plan to cover room and board.
Don't worry about what your child is going to think about paying tax on the earnings of this plan'First, remember that only the earnings are taxed'Most of the money in the plan represents your contributions, which will not be taxed when withdrawn'And, if you don't want the plan beneficiary (the student) to have to pay tax on the earnings from this plan, you can simply reimburse the student for the tax that is paid.
Note that contributions to this plan count as gifts for purposes of Federal Gift Tax, and you are entitled to give $10,000 per person per year as a gift without triggering the gift tax'However, the rules of the Indiana Family College Savings Plan allow you to make a gift of up to $50,000 in one year without triggering gift tax, instead of the normal $10,000'Amounts over $10,000 are treated as gifts that are spread equally over a five-year period instead of the normal one-year period.
This is a nice vehicle for college saving, particularly
because of its tax-deferred nature and the fact that it is available to anyone,
anywhere'You can request a packet of information about this plan by calling the
Indiana Family College Savings Plan toll-free at 1-888-814-6800, or send an
email request to email@example.com'You can
also find information at the plan web site: http://www.che.state.in.us/ifcsp/ .
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