So my husband is a huge procrastinator. He's an engineer - so he's one of those people who takes his time on EVERYTHING. He's very particular - everything has to be perfect before he signs off on it. I on the other hand need to get things done when I find out they need to be done. You can imagine what the conversations are like when I ask him to take out the trash 😉
There is an exception to this - and that would be TAXES. Every year, he kind of nags me about doing them (yes, I used the word nag). I mean, I get it - its your money (if you should get a refund), you should get it done pronto. Every year, we have done our own taxes. I've heard the saying - you could probably save more money by going to a tax accountant. Whatever...$9.95 on one of those DIY tax sites is just fine for us.
This year - we were looking forward to the tax credits/deductions for having a baby. Let me tell you - we will be changing our W-4's this year.
When we found out that we were having a baby last year, we started researching a college savings accounts for our baby. Last week, I started doing some more research for this next baby to try to remember what the differences were in a 529 plan versus an Educational Savings Account (ESA).
I'm a big fan of Dave Ramsey, and value his opinion. But I think I disagree with him. Click here for Dave Ramsey's opinion on a 529 Plan versus ESA.
So, if you want to know the differences, click here. The website pretty much spells it out for you. The big things were:
- 529 Plan you can use only on higher education, whereas ESA you can use for private school for K-12 education as well as higher education
- There is an age limit on when you have to take withdrawals for an ESA (30 years old) - or else you will incur tax implications. On a 529 plan - there is no age limit.
- ESA has a limit of $2,000. On a 529, it depends on the plan or state.
- With an ESA, you can choose your own investments. With a 529, you have to choose among the state's plan investments.
With both, you are contributing with after tax money. Distributions are tax free if you are using them for qualified expenses. None of them are deductible on FEDERAL tax returns. However, the 529 Plan CAN be deductible depending on your state and/or plan you choose.
GOLDEN NUGGET #1: Digging deeper, here is what I found for MISSOURI residents. We are one of few STATES that allow tax parity. Missouri was the FIFTH state to allow taxpayers to deduct from their income a portion of contributions made not only to the state's 529 plan but also to qualified 529 programs from other states. What this means is that - if you don't like the investments' in Missouri's plan - you can go find a plan in a different state (we choose Kansas) and invest in that state. Just because you invest in a plan in a different state does not mean your kid has to go to that state's college - its just a plan managed by that state. The reasons why you would choose a plan in a different state is if the expense ratio of those funds and the funds itself are better than Missouri's.
You could potentially deduct up to $16,000 a year if filing jointly and those filing single returns can deduct up to $8,000 a year.
GOLDEN NUGGET #2: If your adjusted gross income is under $74,999 - Missouri's plan may be the best plan out there for you even if it has higher expense ratios because they having MATCHING contributions. Crazy right!!???! A matching grant is available for eligible applicants who are Missouri residents and who have opened a plan account for a beneficiary 13 years old or younger who is also a Missouri resident. The matching rate is dollar for dollar up to a maximum of $500 per beneficiary with a lifetime maximum of $2,500 per beneficiary. The applicant must be an account owner who is a parent or legal guardian of the beneficiary and the account owner's household Missouri adjusted gross may not exceed $74,999. Applications for matching grants must be submitted each year between March 1 and June 30.
Anyway, I hope that helps someone out there. There isn't a lot of information about Missouri all in one spot - so I figured I'd share with my local peeps. I'm sure if I went to a CPA or something, they could have told me this in two minutes. But it was kind of nice figuring it out myself. I'm on a mission to figure out how to pay less taxes by finding all these small little
Right now, I'm researching this statement: In 2008–2012, the tax rate on qualified dividends and long term capital gains is 0% for those in the 10% and 15% income tax brackets.
P.S. Speaking of deductible items, would you mind donating to my friends for a great cause? Every day, thousands of babies are born too soon, too small and often very sick. Their team is walking in March for Babies because they want to do something about this. I know you care, too. Please click here to donate. Thank you!
Good luck filing this year!!!