Some states allow a state income tax deduction for a contribution to a 529 plan. The amount of this deduction is limited to a certain amount per donor (e.g., New York's limit is ,000 per donor per year). Therefore, to get the maximum state income tax deduction benefit, the donor should consider spreading out the contributions over several years instead of making a large lump sum that will exceed the annual deduction limit.
Rather than pay the upcoming tuition bill from other savings, you may consider investing money into your home state 529 plan so you can claim the state income tax deduction. You can then use the money from the 529 plan to pay the college bills. You will need to check with your state plan to inquire about the rules regarding withdrawals.
If you feel that the state 529 plan does not have a suitable investment plan, you can initially invest in the plan to receive the state income tax deduction or credit. After meeting the time requirements by your state, you can roll over the funds to a state plan that has a suitable investment plan.
You are not limited to the 529 college savings plan in your state. It is a good idea to look at your state 529 plan first to see whether tax incentives are offered to in-state residents. The tax breaks will usually be more beneficial to you than investing in an out-of-state plan with lower fees. For example, in Indiana a taxpayer receives a tax credit of 20% for amounts invested in the plan up to ,000 per year.
If you decide to work with an advisor, it is important to ask the advisor how many different college savings plans they offer.
Note: Distribution of the earnings from the 529 plan will be subject to income tax if the amount withdrawn from the 529 plan exceeds the qualified higher education expenses. Refer to IRS Publication 970 for more detail. It can be found at www.irs.gov.
Example 1: In 2001, Angela Tucker's parents opened a 529 plan for Angela. The total balance in the account in 2007 was ,000 on the date the distribution was made. Angela incurred qualified education expenses of ,700. Angela also received a partial tuition scholarship in the amount of 00. In 2007, Angela parent's took a QTP distribution of ,700 (,200 of the ,700 distribution is the earnings) and a Hope Credit of ,650. To determine the taxable portion of the ,700 distribution, you must determine the adjusted qualified education expenses. Total qualified education expenses ,700
Minus: Tax-free education assistance '3,100
Minus: Expenses taken into account in determining the Hope Credit '2,200
Equals: Adjusted qualified education Expenses (AGEE) ,400
The taxable portion of this distribution is:
,200 (earnings) x ,400 AGEE ,700 distribution = 4 (tax-free earnings)
,200 (earnings) - 4 (tax-free earnings) = 6 taxable earnings
Example 2: Last year you withdrew ,000 to pay for the first year of college. At tax time, your accountant tells you that you will have to pay tax on about 60% of the earnings. Because your child received a grant, received a scholarship, and used the lifetime learning credit, your qualified expenses were decreased by ,000. Your net qualified expenses are now ,000. Unless you wanted to pay tax on some of the earnings, you should not have withdrawn more than ,000. It is very important to pay attention to the exit strategy out of a 529 plan.
Copyright (c) 2009 Karen Bolton
Showing posts with label Plan. Show all posts
Showing posts with label Plan. Show all posts
Tuesday, January 15, 2013
How Does Floor Plan Financing Work For Car Dealerships
Floor plan financing is a key element of the auto industry in both Canada and the United States . Exactly what is floor plan financing and how does it work?
This type of financing is in effect a short term inventory financing for both new and used car dealerships . Traditionally the floor plan industry was geared towards what we know as franchise dealers, i.e those dealers representing product for the likes of GM, CHRYSLER, FORD, etc .
The financing allows the dealers to carry sufficient inventory to satisfy customer needs and demands re model types, accessories, options, etc . It is an extremely large market in what is of course a multi billion dollar industry .
When floor planning financing works properly it is effective, has a reasonable cost attached to the financing, and is totally transparent to the consumer . As consumers when we drive past auto dealerships, either new or used, we don't care how the inventory got there, we just know its there for us to examine and purchase .
Floor plan financing is executed on both a small and large basis . It is not unusual for finance firms to use more esoteric finance vehicles such as asset backed commercial paper, Special Investment Vehicles ( commonly called SIV's ) etc. to finance the billions of dollars of inventory that the industry needs to move product through .
Naturally, whether we are talking about the largest GM dealer in town, or a small used car dealership with multi lines of vehicles there has to be a finance program that can grow and backstop that inventory .
In the Canadian marketplace as an example, with which this writer is more familiar , the independent dealers have as much need as franchise dealers for this valuable type of financing .
We have all read recently that many of the tier one floor plan firms such as GMAC and CHRYSLER CREDIT have withdrawn substantially from the market . This has allowed a number of private firms to enter the market and capitalize on the withdrawal of the ' big boys ' . Additionally, as the banks perceived the auto market as significantly more risky in the current 2008-2010 economic turmoil they also have scaled bank in their previous focus on floor plan financing for car dealerships .
Finance firms that execute well on floor plan financing initiatives are those that of course properly funded ; they also know how to collateralize the inventory through proper legal documentation and registration. The average term for a car being on the auto lot tends to be within 30-90 days . The floor plan financier registers liens on the vehicle, and when the vehicle is sold that lien is removed . The finance firm of course profits from the ability to charge the dealership interest over that 30-90 day period . Naturally this process repeats itself continuously . Lenders must have reasonable confidence in the financial viability of the dealer, more experienced and financially solvent dealers can naturally command larger floor planning facilities . Dealers also are subject to rigorous audits of the inventory . The lender wants to know the car is still there and hasn't been sold and not paid for of course! Therefore VIN ( vehicle identification numbers ) are checked regularly by finance company personnel , insurance is validated, and random inspections are common
Overall the auto floor plan facility is a key aspect of the automotive market , and is a significant benefit to both new an car dealers alike .
This type of financing is in effect a short term inventory financing for both new and used car dealerships . Traditionally the floor plan industry was geared towards what we know as franchise dealers, i.e those dealers representing product for the likes of GM, CHRYSLER, FORD, etc .
The financing allows the dealers to carry sufficient inventory to satisfy customer needs and demands re model types, accessories, options, etc . It is an extremely large market in what is of course a multi billion dollar industry .
When floor planning financing works properly it is effective, has a reasonable cost attached to the financing, and is totally transparent to the consumer . As consumers when we drive past auto dealerships, either new or used, we don't care how the inventory got there, we just know its there for us to examine and purchase .
Floor plan financing is executed on both a small and large basis . It is not unusual for finance firms to use more esoteric finance vehicles such as asset backed commercial paper, Special Investment Vehicles ( commonly called SIV's ) etc. to finance the billions of dollars of inventory that the industry needs to move product through .
Naturally, whether we are talking about the largest GM dealer in town, or a small used car dealership with multi lines of vehicles there has to be a finance program that can grow and backstop that inventory .
In the Canadian marketplace as an example, with which this writer is more familiar , the independent dealers have as much need as franchise dealers for this valuable type of financing .
We have all read recently that many of the tier one floor plan firms such as GMAC and CHRYSLER CREDIT have withdrawn substantially from the market . This has allowed a number of private firms to enter the market and capitalize on the withdrawal of the ' big boys ' . Additionally, as the banks perceived the auto market as significantly more risky in the current 2008-2010 economic turmoil they also have scaled bank in their previous focus on floor plan financing for car dealerships .
Finance firms that execute well on floor plan financing initiatives are those that of course properly funded ; they also know how to collateralize the inventory through proper legal documentation and registration. The average term for a car being on the auto lot tends to be within 30-90 days . The floor plan financier registers liens on the vehicle, and when the vehicle is sold that lien is removed . The finance firm of course profits from the ability to charge the dealership interest over that 30-90 day period . Naturally this process repeats itself continuously . Lenders must have reasonable confidence in the financial viability of the dealer, more experienced and financially solvent dealers can naturally command larger floor planning facilities . Dealers also are subject to rigorous audits of the inventory . The lender wants to know the car is still there and hasn't been sold and not paid for of course! Therefore VIN ( vehicle identification numbers ) are checked regularly by finance company personnel , insurance is validated, and random inspections are common
Overall the auto floor plan facility is a key aspect of the automotive market , and is a significant benefit to both new an car dealers alike .
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