As a new school year approaches, so do fall semester tuition bills! As a college parent, here are 4 tips I found helpful to get the most from your money.
1. Take advantage of college tuition federal tax breaks.
Some pre-planning is required to make sure you qualify for these. I have found that as long as you pay at least $4,000 toward college tuition from an account belonging to you or your dependent child, you should be eligible for a tax credit or deduction as long as your household income doesn’t exceed the limits. Check the IRS website to find out more about the credits and deductions available.
2. Use assets that are in your student’s name first.
I learned that I had potentially made a mistake putting money for my daughter into a Uniform Gift to Minors Act (UGMA) account. This type of account is carried in the child’s name and is considered an asset of the child when you file for financial aid. Any assets held by the child are weighted more heavily than assets of the parents, potentially lowering your student’s eligibility for financial aid. It is best to keep college savings in an account in the parent’s name so that the impact to financial aid eligibility is lower. Although it was not possible to move the money out of my daughter’s name and back to my name, the best advice I received was to use that money first in paying for college. Once that is used, my daughter could be eligible for more financial aid in subsequent years of college.
3. Put money in a tax-advantaged college savings account. I have saved hundreds of dollars each year on my state taxes by funding 529 accounts for my children. If your state offers state tax breaks for 529 college savings accounts and you don’t already have one, it’s not too late to do it! You can open a 529 account at any time and continue to put money into it while your child is in college. In my state, every dollar that I put into a 529 can be deducted from my income on my state tax form. Every state’s rules for 529 accounts are a little different, so check into what qualifies in your state.
4. Minimize your investment risk. With recent stock market volatility, I watched my daughter’s college savings go up and down for a year before college and wished I had already moved the money to a savings account. It is best to move out of stocks and mutual funds altogether and into an account where the value will not fluctuate, like a savings account, money market account, or interest-bearing checking account. The last thing you want is to have a child in college and find you have less savings than you anticipated.
College is one of the best investments you can make for your child. If you can maximize your chances for financial aid, keep your college savings stable, and save money on your taxes, you will be able to stretch your tuition dollars farther.
Image Source: Stock Xchng