lifehack.guide

Tax Implications:

1. The death benefit from a life insurance policy is not subject to income tax.
2. Heirs dont have to pay taxes on the money.
3. The money policy goes directly to the beneficiaries you have named on the policy, not to your estate.
4. Funds do not have to go through probate or pay off any outstanding debts before reaching your beneficiaries.

Disclaimer:

It is important to note that the dates below are just general guidelines. The specific dates for a particular dividend may vary depending on the company's policies. Investors should always check with the company directly to confirm the dates for any dividend that they are interested in receiving.

Following are all the points to remember for the 529 Post Tax Education investment account:

1. A 529 plan is a tax-advantaged savings account designed to be used for the beneficiary's education expenses. 
2. Your after-tax contributions in mutual funds or similar investments grows on a tax-free basis and can be withdrawn tax-free for qualified expenses.
3. Your after-tax contributions in mutual funds or similar investments grows on a tax-deferred basis and can be withdrawn by paying taxes + penalties on the withdrawal for non-qualified expenses.
4. To create an effective 529 funding strategy, you’ll need to determine how much is needed to fund the lesser of the total tuition liability, or the maximum allowable withdrawal amounts so that you will end up with a $0 account balance after paying the final year of college. 
5. Prepaid tuition plans:
   In-state public college: These plans let you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges.
   Private College: a separate prepaid plan only for private colleges.
6. You can use your education savings to pay for college costs at any eligible institution, including more than 6,000 U.S. colleges and universities and more than 400 international schools. 
7. You must be a US resident, age 18 or over, with a US mailing and legal address, and a Social Security number or Tax ID.
8. Beneficiary can even be the same person who sets up the account.
9. You may not have to report anything on your federal income tax return. investment earnings in your account are not reportable until the year they are withdrawn.
10. 529 plans don’t limit how long money can remain in the account. The only rule is that the account must have a living beneficiary. 
11. If the funds were spent on qualified education expenses or rolled into another 529 plan you don’t have to report anything.
12. If 529 funds spent on purchases that do not fall into one of these two categories will be considered taxable withdrawals.
13. Expenses at accredited schools nationwide in addition to tuition expenses at Vocational and trade school, university, college, online college courses, private, public and parochial elementary, high schools, K-12, certain registered apprenticeship program expenses, and student loan repayments.
14. There is a $10,000 annual limit on qualified K-12 withdrawals at an elementary or secondary school. This includes public, private, and parochial schools. 
15. If you have leftover money in your 529 college savings plan after you graduate, you can use that money to pay off all or part of your student loan debt under a $10,000 lifetime limit on student loans.
16. Not all states give tax deductions on contributions, and some consider K-12 tuition a non-qualified distribution, limiting state-tax benefits.
17. If you live in one of these states – Alaska, California, Illinois, Indiana, Kansas, Kentucky, Nebraska, or Texas – you can probably use funds from your 529 plan to cover certain homeschooling expenses that meet the same criteria as tuition.
18. College only expenses: books and supplies, Computers, “peripheral equipment” (like a mouse or speakers), software and internet access, course textbooks, lab materials, safety equipment, or anything else mandatory for your coursework. Special needs equipment for students with disabilities or other special needs to attend college or university. 
19. Room and board is considered a qualified expense if the student is enrolled at least half-time in a college, which most colleges and universities consider to be at least six credit hours per term. student must also be studying towards a degree, certificate, or another recognized credential.
20. For on-campus residents, qualified room-and-board expenses cannot exceed the amount charged by the college for room and board. For students living off-campus, qualified room and board expenses are limited to the ‘cost of attendance figures provided by the college. 
21. Room and board costs incurred for abroad programs count as long as it’s approved for credit by your home college or university. 
22. You can’t use prepaid tuition plans like the Private College 529 Plan to pay for room and board.
23. 529 plans dont cover costs for a student’s Extracurricular activity fees, College application and testing fees, private tutoring costs, health insurance and transportation costs are not qualified expenses, unless the college charges them as part of a comprehensive tuition fee or the fee is identified as a fee that is “required for enrollment or attendance” at the college.
24. 529 plans dont cover Expenses used to generate federal education tax credits such as the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Tax Credit (LLTC)
25. If you made non-qualified purchases last year, you will need to review your 1099-Q, which breaks out the basis portion and the earning portion. 
26. The basis/initial-principal portion will never be taxed or subject to penalty because it is made up with the amount you originally contributed with after-tax dollars. 
27. 529 plan withdrawals must happen in the same tax year as the expenses that are incurred. 
28. Once you’re ready to start taking withdrawals from a 529 plan, most plans allow you to distribute the payments directly to the account holder, the beneficiary, or the school. 
29. Unlike a custodial account, with a 529 plan the account owner maintains ownership of the account, can make investment decisions, and can even change the beneficiary if plans change until the money is withdrawn.
30. As long as the money stays in the account, no income taxes will be due on earnings. 
31. When you take money out to pay for qualified education expenses, those withdrawals may be federal income tax-free—and, in many cases, free of state tax too.
32. You may also qualify for a state tax benefit, depending on where you live. More than 30 states offer state income tax deductions and state tax credits for 529 plan contributions. 
33. You can invest in any 529 plan that is considered to be a nationwide plan. You do not have to be limited to the plan sponsored by the state where you live.
34. Nearly all (30) states sponsor 529 plans to offer a full or partial tax credit or deduction that are managed by a variety of financial partners. Most states only offer this benefit to residents who use their home state’s plan
35. Most states offer nationwide plans where anyone can open an account. A handful of 529 plans are only for state residents; applicable to: Florida, Louisiana, New Jersey, South Carolina, South Dakota, and West Virginia.
36. Some states offer their Residents a state income tax deduction when they contribute to any state’s 529 plan; applicable to: Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana and Pennsylvania 
37. Each state also has an aggregate contribution limit for 529 plans, which ranges from $235,000 to $550,000. This amount is based on the price of attending an expensive college and graduate school program, including textbooks and room and board.   
38. You can also gift money to an existing 529 plan account
39. Your contribution is treated as a gift to the named beneficiary for gift tax and generation-skipping transfer tax purposes and so you need to be aware of this exposure particularly if you are making other gifts to the beneficiary during the same year.
40. 529 contributions up to $17,000 for individuals or $34,000 for married couples filing jointly will qualify for the annual federal gift tax exclusion. 
41. You will have to file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if your contributions exceed the $17,000 annual gift tax exclusion.
42. 5-year gift tax averaging lets you contribute five times as much money to a 529 plan in a single year. But this also blocks in funding the beneficiary for the next 4years. Contribute up to a maximum of $85,000 ($170,000 per married couple) in a year per beneficiary without generating a taxable gift and eating into your lifetime gift-tax exclusion by electing to treat the contribution as made over a five calendar-year period for gift tax purposes. This allows you to utilize as much as $85,000 in annual exclusions to shelter a larger contribution. The money (and the growth of your account) gets faster/earlier on a tax free basis.  Your estate will also have to include a portion of any contribution made with the five-year averaging election if you don’t live past the fourth year.
43. 6-year gift tax averaging. With careful timing, you can give the equivalent of six years of contributions at once. To take advantage of this, you would give one year’s contributions up to the annual gift tax exclusion by December 31 of one year, and then use 5-year gift tax averaging on or after January 1 of the next year.  
44. The annual gift tax exclusion typically increases by $1,000 every three to five years. If the annual gift tax exclusion increases during the five-year gift tax averaging period or a contributor gave less than five times the annual gift tax exclusion, the contributor may be able to give a supplemental contribution each year. 
45. Give to a different beneficiary’s 529 plan. The grandparents can use five-year gift tax averaging to contribute to a different beneficiary’s 529 college savings plan, such as a 529 plan with a parent listed as the beneficiary, and later change the beneficiary to the grandchild or rollover all or part of the funds to a 529 plan that lists the grandchild as the beneficiary. The grandchild must be a member of the family of the original beneficiary. 
46. Although rollovers to a 529 plan for the benefit of the same beneficiary are limited to once every 12 months, this limitation does not apply to changes in the beneficiary or rollovers to a different beneficiary’s 529 plan.
47. If the grandparents give money to the parents, up to the annual gift tax exclusion, nothing stops the parents from contributing this money to the grandchildren’s 529 college savings plans. This lets you give an extra $17,000 per parent each year 
48. Once assets are in the account, they are generally considered to be out of the account owner's estate.
49. Use 529 plans as an estate planning vehicle since contributions are considered completed gifts to the beneficiary. Up to $17,000 per donor, per beneficiary, qualifies for the annual gift tax exclusion in 2023. 
50. Contributions in excess of the annual gift tax exclusion ($16,000 in 2022) will count against your lifetime estate and gift tax exemption (maximum exemption size is $12.06 million in 2022). 
51. Withdrawals from a 529 plan account can be taken at any time, for any reason. But, if the money is not used for qualified education expenses, federal income taxes may be due on any earnings withdrawn. A 10% federal penalty tax and possibly state or local tax can also be added.
52. There are exceptions to the 10% penalty—for instance, if the beneficiary receives a scholarship or attends a US military academy or The account beneficiary dies or becomes disabled. earnings/profits would still be subject to federal income tax and any state and local taxes.
53. The penalty on non-qualified 529 plan distributions is 1-3% of the distribution amount – no worse than investing in a taxable savings account.
54. Taxable/Penalized earnings = Total Earnings - Non-Taxable Earnings = Total Earnings - ((Qualified Expenses)/(Total Distribution)) x (Earnings Portion)
55. Assets held in the 529 plan receive favorable treatment on the Free Application for Federal Student Aid (FAFSA), and distributions are not reported. 
56. here may be a greater impact on aid eligibility when a grandparent or other third party owns the 529 accounts. In this case, assets are not reported, but distributions used to pay for college are considered cash support to the student. This can reduce the student’s eligibility for need-based aid by as much as 50% of the amount of the distribution. 
57. Effective 1/1/2024, 529 account funds may be transferred to a Roth IRA, as long as the account has been maintained for at least 15 years and the amount being transferred was contributed at least 5 years prior. The Roth IRA also must be that of the 529 account’s designated beneficiary. While the aggregate transfer amount is capped at $35,000, the Roth IRA annual limit ($6,500 in 2023 for those under 50) will still apply.

 STEPS:

1. Your yearly income before paying taxes is called "gross" or "total" income.
2. From this amount, you can contribute a maximum of $3.65k/yr = $0.3k/month into your HSA (Health Savings Account).
   
3. Good HSA account providers allow investments in crypto/stocks/bonds/ETFs, etc.
   
4. Choose the investment of your choice and start making monthly or yearly contributions.
5. It is recommended that you pay for your health expenses out-of-pocket instead of HSA so that your PRETAX investment in your HSA account can grow without withdrawls.
6. It is recommended that you keep all your health expenses receipts with you for later withdrawls in life when you need liquid cash from your HSA account.
7. Remember, you're saving money because no federal (and most state/local) taxes are taken out of your contributions initially or ever (for qualified health expenses).

BASIC STEPS:

1. After you have paid taxes on your income, you get an in-hand post-tax income/profit.
2. From this amount, you can contribute a maximum of $6k/yr = $0.5k/month into your Roth IRA account.
   
3. Good Roth IRA account providers allow investments in crypto/stocks/bonds/ETFs, etc.
   
4. Choose the investment of your choice and start making monthly or yearly contributions.

Following are all the ways in which you can reduce your yearly taxable income:

PROTIP Section 0: Use your standard deductions
This depends on your marital status and number of dependents.
File your taxes ASAP as that starts your Audit timeline early
If your tax return does have errors, the timeframe in which the government has to prove your fault starts decreasing earlier.

PROTIP Section 1: Maximize Pre-Tax & Post-tax Contributions