College Funding Helpful Tips
It’s no secret that college is becoming more expensive each year that passes. Many parents with young children even question whether traditional secondary education as we know it will even exist in the next 15 years. It could transition to more online learning or the students we are saving for could prefer to take their college savings and use it to start a business. No doubt technology will have a major impact on the way college will look in the not-so-distant future. Either way, I always tell my clients to build their financial plans around what we know is true right now and not try to guess what it may be in the future. With this in mind, here are a few facts that we know about the college landscape now that will impact how you plan to pay for it.
529
The recently passed SECURE 2.0 gave us more reason to consider using the already popular 529 college savings plans. Soon you will be able to roll up to $35k from a 529 to a Roth IRA. The beneficiary will be required to hold that position in the 529 for at least 15 years and the rollover must go to those beneficiaries 529. Also, employers are considering offering employee benefits to set up 529 accounts for automatic payroll deductions directly into the 529. This will make 529 accounts more accessible and less of a mental burden to set up and fund.
American Opportunity Tax Credit
It is very important to understand how much you can afford before you start accepting offers from schools. Knowing your budget could knock a few colleges off your list but it will save you and your student a major financial burden that could delay or cancel your retirement or prevent the student from affording rent to move out of your house many years after graduation. When building this essential budget, don’t forget to include the American Opportunity Tax Credit or AOTC. The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. There are some qualifications required before claiming the credit but if you are eligible for the credit this could knock up to $10,000 over 4 years of school off your budget. Be aware that you must pay the tuition with non-529 assets to qualify for the credit.
Financial Aid Forms
Most people have heard about the FAFSA but most also don’t know that certain institutions require different forms to be used to determine financial aid. It’s important to understand that each school is a business, and they view students as ways to boost their credibility and produce income. That means they all tend to make their business decisions differently. FAFSA is the federal form, but some schools use the Consensus method and use the form CSS and others use the institutional method to determine the financial aid the school will provide. It is important to fill all forms out correctly so that you know what the school thinks you can afford. Knowing what the schools think you and afford and knowing what you can afford is critical data to help you make the best financial choice for your retirement savings and the students balance sheet after graduation.
High Income Family Issue
What if you make a high income? It can be a frustrating thought that you will have to pay full boat for all four years of school and possibly for multiple kids. To ease some of this stress you should know there is two types of financial aid. Need based and merit based. As I mentioned, schools are looking for students who will help their credibility, so they look for star students. Schools will often look for at least the top 25% of their class and great test scores. This means you can focus on selecting the schools that will provide the best merit aid based on your students’ best attributes to help pay for their schooling. Proper tax planning and seeking out private scholarships are a couple more ways you can help bridge the gap to a more affordable price tag. If your student is not in a position to qualify for merit-based scholarships, then you will need to work hard for better test scores and you may have to do a more extensive school search.
Conclusion
Education funding is a lot more complex than many realize so it is important to start as soon as possible. Working with a professional to help you understand the appropriate forms and strategies could end up saving you tens of thousands over the course of your student’s college career. College is one of the most expensive goals you could have so don’t let it derail your retirement or saddle your child with debt before they start to make a paycheck.
Fiduciary Mission
At Integritas Financial(IF), we are committed to providing fee-only, fiduciary financial planning services that are tailored to the unique needs of young professionals, particularly millennials. IF works with you to develop customized financial plans that address key areas such as estate planning, trusts and wills, retirement, workplace benefits, education funding, student debt, and buying a house.
IF believes in transparent, client-focused service that puts your financial goals at the center of everything we do. As a fiduciary firm, IF is dedicated to acting in your best interests, and we never sell products that charge commissions to clients.
IF’s goal is to help you achieve a stable and prosperous financial future by providing comprehensive financial planning services that are tailored to your individual needs. Whether you're just starting out in your career or you're already well-established, IF can help you navigate the complexities of financial planning and create a roadmap for success.