C. Funding strategies
- Systematic saving
- Paying from current income
- Financial aid
- Student work
D. Ownership of assets
A primary question facing parents saving for college expenses is whether accumulated assets should be owned in the names of the parents or the names of the children. Generally, unless a family is absolutely sure a child will not qualify for financial aid, it should save money in the parents' names, not the child's.
Although financial aid and Expected Family Contribution formulas have become more complicated in recent years, they still assume that the child will contribute a greater portion of his or her assets than parents to cover higher education expenses. This means placing assets in the child's name means he or she will qualify for less financial aid.
There may be tax benefits to placing assets in a student's name, but those benefits are often outweighed by the financial aid cost. Also, an expansion of the so-called kiddie tax on children up to age 18 has reduced the possible tax benefits. Under the kiddie tax, unearned income in excess of $2,000 received by somebody under age 18 is taxed at the parent's marginal tax rate, eliminating the benefit of shifting income from a parent to a child.
Under 2006 legislation, Section 529, "custodial accounts" owned by a dependent student are no longer treated as a student asset for purposes of federal financial aid.
Education Savings Vehicles
Financial AdvisorSaving for your kids' college education can be complex and expensive. Here are some popular vehicles that help perpetuate college funds.
Personal Finance529 plans can be an extremely effective way to pay for college expenses, but be aware that there can be some pitfalls with distributions and financial aid.
TaxesUse this quick parental guide to help your child learn the tax filing process and establish good habits.
Financial AdvisorHere's how parents can avoid the pitfalls of PLUS Loans when it comes to funding their children's college education.
Personal FinanceUnderstand how different types of 529 plans affect financial aid, and you'll increase your possibility of getting funds.
Financial AdvisorNow's the time for reviewing financial aid offers, which can often be confusing. Here are a few tips to help clients make sense of them.
Managing WealthIt is certainly generous. It can even be advantageous to both of you. But beware of the pitfalls.
Financial AdvisorBringing a child into the world makes parents more acutely aware of their finances. Here's how advisors can help expectant couples prepare.
Personal FinanceGetting the best possible package for a college fund depends on minimizing assets and maximizing the energy you use to find possible funding sources.
Managing Wealth529 Plans are a popular way to save for college. Here's how to be strategic about how to fund them, depending on your children and their expectations.