It’s Not Too Late
Just because your child is about to enter college doesn’t mean you
don’t have time to save money.
It’s a common myth that if your child is about to head to college or is already in college, then you’ve
reached a point when the only thing left to do is take out a few large loans and get ready to bear the
burden of tuition.
According to top college funding planners, that is simply not the case.
Parents often don’t realize that with the proper financial planning, they can save significant amounts of
money even while their child is still in college. The following are a few basic tips to save money in the late-
stages of college planning.
Apply for financial aid as early as possible. The standard Free Application for Federal Student Aid
(FAFSA) forms are the first and most important to fill out. Getting into the mix early-on ensures that you
have a better chance at being awarded the “first come, first served” financial aid packages. By being
prompt, you increase your chances at better awards and loans, which reduces the amount of out of
pocket costs passed on to you.
Make sure you go over the financial aid forms and regulations with a financial
professional. Anyone who has tried to navigate through the forms or the various
pages of rules and guidelines can tell you that it’s more than a little complicated.
Having someone help you through the process doesn’t just ease the burden
financially; it also takes away a lot of stress and anxiety.
Your FAFSA forms typically take a few weeks to process, which is one more
reason to plan ahead. Once your financial need is determined, the schools
you’ve applied to will offer you a financial aid package. The package can
include various ways to pay for college, including loans, grants and any
scholarships they have awarded your child.
A little research can go a long way in saving you money for college. If your child
is applying to schools, make sure you study which schools give more gift aid
and scholarship money out compared with those who don’t. Also, make sure
your child applies to at least two schools where he or she is in the top 25
percent of the applicants. This can be found by doing some basic research on
the grade point averages of previous freshman classes.
A common pitfall to filling out financial aid forms is relying heavily on high school
counselors. Counselors are often loaded up with numerous students,
sometimes even hundreds, and often cannot provide the personal attention that
each individual student needs. That’s why a trusted college planner is best.
Gifting and Shifting
Shifting or gifting assets to your child makes gains from selling those assets
taxable at the child’s presumably lower tax rate rather than the parents’ rate. In
2006, Congress changed the age at which a child moves from the parents’ to
his own tax rate from 14 to 18. Starting in 2008, the kiddie tax will be expanded
to include dependents under age 19 and dependent full-time students under age
24. Children who provide more than half of their own support are not affected by
the kiddie-tax change. The kiddie tax applies only to investment income, not earned income, so teens
with jobs pay income tax at their rate, not their parents’.
The change put the future of accounts established under Uniform Gifts to Minors Act (UGMA) and Uniform
Transfers to Minors Act (UTMA) in question. Under these acts, individuals can place assets in accounts
for the benefit of a child but retain control of the assets as the trustee until the child reached the age of
majority, usually 18. The tax benefit of moving assets to a child’s name may now be reduced, as income
invested in these accounts over the kiddie tax threshold, equal to double the standard dependent
deduction, will be taxed at the parents’ rate anyway.
With a capital gains rate of just 5% for kids in the 10% or 15% tax bracket, parents in higher brackets
may still want to consider transferring appreciating assets. College students most often fall in a lower tax
bracket than their parents, so selling assets after the child turns 18 will most likely mean less capital gains
than if the parents had sold those assets.
Children who file their taxes independently are in a lower income tax bracket, which can work to your
advantage. The money you save in taxes adds up quickly and can be used as one more way to pay for
If you own a small business or rental property, you can use that property to your advantage by employing
your child. Your child will learn the value and responsibility of work, and receive a wage. As a small
business, you can offer a specialized Employer Education Assistance program, which allows you to give
up to $5,250 a year tax-free to employees who are attending college.
No matter what stage in life you’re at, it’s never too late to save for college. With some simple strategy
and some help from your financial advisor, you can find ways to reduce college costs and increase the
ways to pay for it.
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