August 2022
Financial Planning
It’s back to school season and that has us talking about one of my favorite topics…college savings and financial aid! As the cost of college tuition keeps climbing, it’s no surprise that 73% of parents’ number one financial concern is paying for college.[i] Depending on your child’s age, there are different things to consider as you prepare for college.
If your child is already in college…
Whether they are about to embark on their freshman year or take their final lap as a senior, you want to maximize financial aid. For the 2022-2023 school year, it is not too late to fill out the FAFSA if you haven’t already! However, keep in mind that some aid is first come, first serve. Even if you don’t think your family will qualify for financial aid, the FAFSA should be completed regardless, as loans and scholarships may also take the information on the FAFSA into account, and with tuition prices where they are these days, every dollar counts.
If you are using 529 savings to help cover the cost of college, here are three things to remember to make sure you are making the most out of the funds:
Withdrawals for qualified expenses from 529 plans are not taxed at the federal level, but you will have to report your 529 plan spending to the IRS, so keeping careful records is important.
Withdrawals you take from your 529 savings account must match the payment of qualifying expenses in the same tax year—this is the calendar year, not the academic year.
If your child has more than one 529 savings account, such as an additional account through a grandparent, know which account to use first or how to take advantage of them concurrently.[ii]
If your child is in high school…
While college may seem like a lifetime away on the first day of high school, it's important to start the college planning conversations early. Doing this gives you and your child the chance to consider the advice of college planning experts and set long-term goals. I encourage you to sit down with your child to have a realistic conversation about covering the cost of college. The process of figuring out how to pay for college can be daunting and time-consuming, so here are some tips.
Set clear expectations on how much you (or other relatives) will be contributing. It’s important your child understands what portion of their education they will be responsible for covering.
Don't make assumptions about financial aid eligibility. Apply even if you think you may not be eligible.
Don't shop based on sticker price. Families should pay attention to the net cost, which is the sticker price minus grants and scholarships.
Avoid paying third parties for scholarship searches. There are free resources to use, including the College Board, FastWeb.com and the U.S. News Scholarship Finder.
Be aware of deadlines. The FAFSA opens every Oct. 1, but the federal deadline to apply isn't until June 30 of the following year. State and college deadlines can be sooner.
Apply early. Students should not only meet deadlines but apply early, as some financial aid is awarded on a first-come, first-served basis. Pay attention to priority deadlines, experts advise.
Look at out-of-pocket costs. At first glance, a financial aid package from one college may seem larger than an offer from another school. But pay attention to out-of-pocket costs. [iii]
If your child is in junior high or younger…
The earlier you start saving for college, the better! You may not be touring college campuses or looking into scholarships at this age, but it is important to think about how much you plan to contribute to their education. Do you want to pay for 100% of the cost? Maybe half? It’s good to start setting these goals now because even small sums set aside regularly over time help make higher education more affordable. Each dollar saved is a dollar you don’t need to borrow and repay with interest. Here’s an example of $40 contributed the first day of each month.[iv]
There are different options to consider for college savings. The 529 plan is one of the more popular options. With a 529 plan, earnings aren’t subject to federal or state tax when used for qualified higher education expenses and many states offer tax credits or deductions on contributions. The funds can be used for K-12, college, university, post-secondary vocational or technical school, or graduate school. Some of the other options are Roth IRAs, Coverdell Education Savings Account, Savings Bonds, and UGMA/UTMA. Determining which savings options is best depends on your unique financial situation.
To learn more about how to save and pay for college, please set-up time to discuss with us. We would be happy to dive into your college savings goals.
If you have questions, please contact us.
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[I] Gallup 2001-2015 Economy and Personal Finance Survey
[ii] Source: Fidelity Viewpoints: How to spend from a 529 college plan
[iii] Source: US News: 10 Financial Aid Tips for College Students
[iv] Source: my529.org; All numbers are my529 estimates. Earnings on a my529 account assume a contribution of $40 at account opening and a 5 percent rate of return compounded monthly over 18 years.
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