College Planning

COVERDELL EDUCATION SAVINGS ACCOUNT (COVERDELL ESA)

A tax-advantaged investment account that allows accumulation of funds to cover future education expenses, subject to limitations.  Coverdell ESAs allow money to grow tax deferred and proceeds to be withdrawn tax free for qualified educations expenses at a qualified institution.

QUALIFIED TUITION PROGRAM (QTP)

A qualified tuition program allows a taxpayer to make contributions to an account or program to be used to pay qualified higher education costs.  (QTPs are sometimes called section 529 plans.)

Benefits of establishing a QTP are:  Earnings accumulate tax free while in the account, the beneficiary does not generally have to include the earnings from a QTP as income, distributions are not taxable when used to pay qualified higher education expenses, contributions may be tax deductible on the Colorado return.  However, if the amount of a distribution is greater than the beneficiary’s qualified higher education expenses, a portion of the earnings is taxable.

AMERICAN OPPORTUNITY TAX CREDIT (Hope Credit)  

A Federal tax credit that compensates families for a certain amount of tuition per student per year for the first four years of post-secondary education. The maximum credit is $2,500 per student (100% of the  first $2,000 of eligible expenses and 25% of the next $2,000 of expenses).  The credit is per student per year.  A family may have more than one eligible student in a year.

LIFETIME LEARNING CREDIT

A Federal tax credit for qualified higher education expenses incurred to learn or improve job skills.  The lifetime learning credit is a nonrefundable tax credit equal to 20% of up to $10,000 of qualified tuition and fees paid during the tax year.  The maximum credit is $2,000.

RETIREMENT PLANNING

As you begin planning for retirement (you are reviewing your current plan), it is important to consider all retirement planning alternatives.  Please contact our firm for individualized help in determining  the best plan for you.

INDIVIDUAL RETIREMENT ACCOUNT (IRA)

A qualified retirement account for individuals.  Contributions to a Traditional IRA may be fully or partially deductible, depending on your individual circumstances.  Distributions from Traditional IRAs and most other employer-sponsored retirement plans ae taxed as ordinary income and, if taken before age 59-l/2, may be subject to a 10% Federal income tax penalty.  Generally, once you reach 70-l/2, you must begin taking required minimum distributions.

ROTH IRA

A qualified retirement plan in which earnings grow tax deferred and distributions are tax free.  Contributions to a Roth IRA ae generally not deductible for tax purposes, and there are income and contributions limits.  Roth IRA contributions cannot be made by taxpayers with high incomes.  To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59-l/2.  Tax-free and penalty-free withdrawals also can be taken under certain other circumstances, such as after the owner’s death.  The original Roth IRA owner is not required to take minimum annual withdrawals at 70-l/2 as required with a Traditional IRA.

MyRA RETIREMENT SAVINGS ACCOUNTS

In 2014, the Treasury Department introduced a new savings program for taxpayers that do not have access to an employer sponsored retirement savings plan or for those that want to supplement their existing plan.  The my Retirement Account (myRA) is a Roth IRA account and has the same tax treatment rules.  A myRA can be opened with $25 and there are no fees for the services.  The account must be funded by a direct deposit through an employer.  Taxpayers determine the amount of contributions direct deposited from each paycheck into their myRA.

In 2014, the Treasury Department introduced a new savings program for taxpayers that do not have access to an employer sponsored retirement savings plan or for those that want to supplement their existing plan.  The my Retirement Account (myRA) is a Roth IRA account and has the same tax treatment rules.  A myRA can be opened with $25 and there are no fees for the services.  The account must be funded by a direct deposit through an employer.  Taxpayers determine the amount of contributions direct deposited from each paycheck into their myRA.

SIMPLE IRA PLANS

Qualified employers (including self-employed individuals) may establish savings incentive match plans for employees (SIMPLE) retirement plans.  A SIMPLE plan allows eligible employees to defer taxable compensation and employers to make either matching contributions for employees who elect to participate, or nonelective contributions for all eligible employees (including those who do not elect to participate).

SIMPLIFIED EMPLOYEE PENSIONS (SEPs)

A SEP is a written arrangement that allows an employer to make contributions to a traditional IRA (SEP IRA) for each eligible employee.  The limits on employer contributions to a SEP IRA are generally higher than the limits on IRA contributions by individuals.  SEPs are often used by self-employed individuals because they have the same contribution limits as profit sharing plans but none of the complex (and costly) compliance and reporting rules applicable to qualified retirement plans.

401(k) PLAN

A qualified retirement plan available to eligible employees of companies.  401(k) plans allow eligible employees to defer taxation on a specific percentage of their income that is to be put toward retirement savings; taxes on this deferred income and on any earnings the account generates are deferred until the funds are withdrawn—normally in retirement.  Employers may match part or all of the employee’s contributions.  Employees may be responsible for investment selections and enjoy the direct tax savings.