College Planning
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Tax-free withdrawals of funds can be used to pay for elementary, secondary, or higher education. The government does not tax the appreciation on the funds. The investment decisions are totally controlled by the donor. Contributions are not tax deductible.

Funds must either be used by the time the beneficiary reaches age 30 or transferred to an educational savings account for a younger family member.

Section 529 Plans
Contributions up to $70,000 per child can be made with no gift tax implications if the donor elects to treat the gift as made over five years. There are no limits on the donor’s taxable income. 529 plans have maximum funding caps per child. The cap will vary by state plan but will be in the $250,000 range.

Withdrawals are tax free to fund higher education only. The donor may choose government directed age based portfolio investments or investments with greater choice and control. Specific investment options are determined by the plan sponsor. The donor can choose one of fifty state sponsored plans.

Unused funds in the account can be transferred to a 529 plan for another family member. Non qualified plan distributions are subject to tax and a 10% penalty.

To compare different state’s 529 plans go to http://www.savingforcollege.com

Commercial College Savings Incentives
There are some excellent college credit card reward programs (typically 1% or 2%) and savings clubs programs (up to 10% on purchases) that help you build college savings by contributing a percentage of your purchases to a 529 plan. Compare programs at http://www.529rewards.com such as Upromise and Baby Mint. Small steps, or in this case baby steps, can lead to big rewards.

For help in determining how much you need to save try the financial calculators on our web site. Select Financial Calculators/Savings Calculator/College Savings.

FINANCIAL AID
When deciding on how much financial aid a family gets, the government and colleges look at the assets and income that parents and children have in the years immediately before and during college. Particular attention is paid to the calendar year that runs through December of the child’s senior year at high school. Minimize income, minimize capital gains, and maximize retirement contributions for that year in particular.

There is a wealth of information on the internet regarding funding college costs. Try the Financial Aid Information page www.finaid.org and College Board Online, www.collegeboard.org. They can answer many of your questions about the financial aid process, include interactive calculators to estimate your expected contribution amounts, and provide search engines for scholarship and loan money. The U.S. Department of Education puts out an excellent publication on federal financial aid programs and borrowing: “The Student Guide” to financial aid. It can be downloaded from:
http://studentaid.ed.gov/students/attachments/siteresources/Stud_guide.pdf
If you need help filling out your FAFSA try
http://studentaid.ed.gov/students/publications/completing_fafsa/index.html

Things to consider to increase aid:

  •     Spend all the child’s assets before the child borrows. Have the child borrow first (even if you
     plan to pay). They are likely to get better rates on the Stafford loans and can defer payment.
     Also, your child is more likely to benefit from the new loan interest deduction.
  •     A preferred method of borrowing for the parent may be a home equity line of credit. The
     interest may be deductible on loan amounts up to $100,000.
  •     Pay off consumer debt such as credit cards and auto loans.
  •     Accelerate necessary expenses to a date prior to completing FAFSA.
  •     Don’t take money out of your retirement account to pay for education. The retirement assets
     are sheltered from the needs analysis formula.
  •     It may be a mistake to have grandparents gift or pay tuition. Have them wait until after
     graduation and offer to repay loans.

In addition to need-based aid, try for merit-based aid. To increase your child’s chances:

  •     Apply to schools where your child is in the top 25% academically.
  •     Apply to schools out of your geographic area. Schools want the diversity and your child may
     be more likely to get merit-based aid.

COLLEGE PLANNING - SAVINGS AND FINANCIAL AID

SAVINGS

Education Savings Accounts
Parents or Grandparents can now contribute up to $2,000 per year, per child under age 18. The phase-out limits are married filing joint $190,000 - $220,000, and for single filers $95,000 - $110,000. Contributions can be made up to April 18, 2017 for the year 2016.
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