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

Related Articles
  1. Personal Finance

    When Saving for College Is a Bad Idea

    Is there a time when saving for college is a bad idea? A close look at financial-aid rules.
  2. Financial Advisor

    Paying for College: Top Ways to Budget and Save

    Saving for your kids' college education can be complex and expensive. Here are some popular vehicles that help perpetuate college funds.
  3. Personal Finance

    How to Make the Most of a 529 Savings Plan

    529 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.
  4. Personal Finance

    How to Manage 529 Plans for Maximum Financial Aid

    Understand how different types of 529 plans affect financial aid, and you'll increase your possibility of getting funds.
  5. Taxes

    How to File Your Child's First Income Tax Return

    Use this quick parental guide to help your child learn the tax filing process and establish good habits.
  6. Financial Advisor

    The Pitfalls of PLUS College Loans

    Here's how parents can avoid the pitfalls of PLUS Loans when it comes to funding their children's college education.
  7. Personal Finance

    The Best Way to Help Grandkids Pay for College

    Should you consider funding a Roth IRA or a 529 for your grandchild for college?
  8. Financial Advisor

    Helping Clients Weigh College Financial Aid Offers

    Now'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.
  9. Personal Finance

    Getting Divorced? Here's How to Pay for Kid's College

    Determining who is paying what for college during the divorce settlement is a good first step.
  10. Managing Wealth

    Before You Buy a Home for Your Child: Read This

    It is certainly generous. It can even be advantageous to both of you. But beware of the pitfalls.
Frequently Asked Questions
  1. What are the Differences Among a Real Estate Agent, a broker and a Realtor?

    Learn how agents, realtors, and brokers are often considered the same, but in reality, these real estate positions have different ...
  2. What is the difference between amortization and depreciation?

    Because very few assets last forever, one of the main principles of accrual accounting requires that an asset's cost be proportionally ...
  3. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ...
  4. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ...
Trading Center