A Few, Important, College Planning Do’s and Don’ts

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Just as all parents planning for the expense of a college education focus on the Free Application for Federal Student Aid (FAFSA) rules surrounding the Expected Family Contribution (EFC), small business owners should pay particularly close attention. The higher the EFC, the more a family will pay.

Don’t Save in A Student’s Name

Assets in a student’s name will be assessed at 20%-25%, depending on the school. Assets in the parent’s name will be assessed at only 5.64%. Moreover, a family also has an Asset Protection Allowance (APA) which, for a typical family, is around $19,500; students are not afforded such protection.

Don’t Pay with a Grandparent-Owned 529 Plan

While some financial advisors recommend this strategy, it actually provides a highly negative result. Funds from a grandparent-owned 529 Plan will be considered untaxed income to the student. Student income is assessed at 50%.

However, students do have a small income protection allowance of around $6,400. Any dollar in excess of that allowance will be assessed and will impact financial aid.

Don’t Use or Borrow Retirement Funds

Sure, parents may get a “break” by paying for college from IRA funds, as the government waives the 10% penalty for early withdrawal. However, most parents forget that they are increasing their income by the amount of the withdrawal, thereby increasing the amount assessed for EFC purposes. Parent income is assessed between 22%-47%.

Utilize Available Tax Deductions and Credits

Paying the entire cost of college from a 529 Plan may result in the loss of the American Opportunity Tax Credit, as distributions from the 529 Plan are tax-free. Claiming the credit is considered “double-dipping” and is not permitted. Be sure to consult your tax advisor. Don’t miss out on free money.

Become Acquainted with EFC-Reduction Strategies

Be sure to educate yourself; however, that may not be enough. Nor would just relying on your CPA. The foolproof means of obtaining the most complete, current information is to seek the assistance of a Professional College Planner.

Do you feel as though you need an advanced degree to plan for college?

There is plenty to learn and to navigate. The expense of a college education may be the largest investment of your lifetime, especially when considering more than one child.

Whatever you do – – start early!

A great time to start is when your children are in middle school. Waiting until junior or senior year in high school may be too late.

No college planning campaign should be attempted without the assistance of a knowledgeable advisor. At times, we all need the help of a specialist.

Planning for college is one of those times.

Contact our Professional College Planners to schedule your meeting!

 

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