Open AccessTiming Contributions To State Educational Savings Plans
Author(s) -
K.W. Moreland
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v20i3.2214
Subject(s) - span (engineering) , style (visual arts) , subsidy , state (computer science) , economics , mathematics , history , engineering , market economy , civil engineering , archaeology , algorithm
State educational savings plans have become increasingly popular with families saving for college because contributions grow tax free. Many states also allow contributions to be deducted under the state income tax but with an annual limit. This state tax subsidy creates a dilemma for moderately wealthy investors: contribute a large sum now or limit this year’s contribution to free funds for future annual deductions? This study calculates how tax rates, time horizons, and rates of return determine one’s choice.