Tax-Sheltered Education Savings Save the Day
Regular investments inevitably lead to tax bills, and that eats into your investment dollars. Until fairly recently, that was the only way to save money for college. Now, though, you have tax-advantaged choices, options that let your money grow tax-deferred, and (in some cases) let you use the money with no tax bill attached.
The tax code offers breaks in the form of education tax credits and deductions. Ask your tax accountant if you're eligible to claim either the Hope credit of the Lifetime Learning credit. You may also be able to take advantage for special deductions for tuition and fees or student loan interest that you've paid.
Why is tax-deferred growth so important? It lets you keep more of your money working for you, and lets your nest egg grow faster than it would if you had to keep depleting it to pay taxes on your earnings. This works in the same way as retirement savings. The more taxes you can avoid, the better.
There are three kinds of tax advantages you can look for. First, the money you put away now isn't taxed or becomes temporarily tax-deductible. Second, the earnings aren't taxable now. Third, the money doesn't get taxed when you withdraw it to pay for college. Not all college investments offer this triple play; some of them don't offer any tax advantages at all. As you look for the savings vehicles that work best for your family situation, remember to consider the current and future impact that taxes will have on your hard-earned money.
