Heading Back to School and Ways to Pay for It
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
Not only does going back to school help individuals advance in their job or re-enter the workforce, it also can help pre-retries chart a “second act” career or start their own business. But what are the right strategies adults should keep in mind to help manage education expenses? A planning and life events specialist with Wells Fargo Advisors, shares financial tips for adults going back to school.
If you are currently working, see what your employer offers.
Many large companies offer benefits such as tuition reimbursement through a qualified program up to $5,250 may be excluded from income. But even in the tuition above $5,250is taxed as income, that’s still a great strategy verses paying it yourself. “Check with your employer to see if they offer any scholarships, educational discount, or other resources that you could tap into,’’ says Pacatte.
Consider tax-deferred educational saving plans.
If you have money in 529 plan or Coverdell Education Saving Accounts (ESA), it may make sense to use those funds for going back to school. Did the plan provide a way to fund a child’s education? The beneficiary can often be changed to a qualified family member, is your planned enrollment date months or years in the future? You may be able to make contributions to a 529 plan between now and then to build up funds. In the case of ESAs, however, remember that the beneficiary has to be under age 30, Pacatte says.
Remember tax deductions and/or tax credits
Though not a source of direct funding, some education expenses may qualify for either the American Opportunity or lifetime learning Credit, IRS publication 970: Tax Benefits for Education provides a comprehensive overview of tax benefits and tax rules related to education.
Tap into retirement funds only if you understand the rules.
Thatyou can use IRA saving for “qualified educational expenses” and avoid penalties for early withdraw, though you’ll still owe taxes using a Traditional IRA. With a Roth IRA, you are able to access your contribution tax and penalty free. The earning portion may be able to avoid the early withdrawal plenty if used for qualified education expenses. Likewise, it may be possible to borrow from your 401(k) plan. You will want to check with your plan administrator.
But tapping into retirement funds should be among the last options you consider because you’re spending resources you originally invested in your future. If you feel you have to do it, make sure you’re using the money for qualified expenses.
“You’ve got to make sure that you can balance your current and future needs.”
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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