EdVest Provides Tax Deductions & Other Savings
By Bob Moeller, CFP,
WEAC's Member Benefits Manager
December 2000
Financial
Planning Seminars
Achieving
Financial Independence
Last issue we looked at I-Bonds, which under certain circumstances can
be used for college education using non-taxable earnings. Another avenue
for future college expenses fully available by early 2001, is a much-changed
and vastly improved EdVest Wisconsin College Savings Program (Section
529).
Under the EdVest Wisconsin program, parents get:
- A state tax deduction on the initial contribution, up to $3,000 per
child, beginning January 1, 2001.
- A state tax exemption for all earnings on the fund.
- No federal taxes on earnings until money is withdrawn for college.
- Virtually unlimited nationwide college selection.
- Beginning in early 2001, a choice of investment options including
stock mutual funds.
Other changes include a minimum investing period of only two years versus
the old four-year requirement, and no residency requirement (neither future
student nor contributor have to live in Wisconsin). Also, there are no
income limits.
Simple example: Your son is 14 years old and your daughter is 13 years
old and they expect to start college in four and five years.
- Parents invest $3,000 in EdVest in 2001 ($3,000 for son).
- Parents deduct $3,000 for 2001 from taxable state income.
- Funds have earnings in each year, but no taxes.
- Parents invest $6,000 in EdVest in 2002 ($3,000 for each child).
- Parents deduct $6,000 from taxable state income in 2002.
- Funds have earnings in 2002, but no taxes.
- Son withdraws money to pay college costs in Michigan in 2005.
- Student pays federal tax only on the earnings only at his tax rate.
- Son drops out in 2006 and gets married.
- Parents can change “beneficiary” for son’s money to
daughter.
- Daughter withdraws money for college from then on.
*Note: The federal Hope and Lifetime Learning tax credits can still apply
(if qualified).
**Note also: Wisconsin colleges will not count EdVest funds when determining
possible state financial aid. Federal agencies may consider it, but EdVest
assets are considered a parental asset, not the student’s asset.
Hence, the required amount to be used for college expenses before a grant
is given will be less. If registered in the grandparent’s name (see
below), they are not considered a required spendable asset by either the
state or federal grant programs.
The maximum contribution is $135,000, a limit that the legislature considers
the total cost of five years of undergraduate education in a private college.
Tells you something, doesn’t it?
Grandparents may contribute to EdVest, but do not get the state $3,000
tax deduction. Or, they can gift each parent up to $10,000 a year tax
free. Then, the parents can contribute to EdVest and get the state tax
deduction. See reference in paragraph above.
There are a few provisions relating to investment choice “change”
limitations and options if the beneficiary doesn’t go to college.
For complete details, contact EdVest Wisconsin at:
PO Box 7871
Madison WI 53707-7871
Phone (608) 264-7899
Toll-free (888) 338-3789
Fax (608) 266-2647
E-Mail: edvest@ost.state.wi.us
Internet: http://edvest.state.wi.us
My sincere thanks to Martin Olle, manager of the EdVest Wisconsin College
Savings Program, for his help with this article.
Posted December 2000