{"id":294,"date":"2018-11-28T16:29:44","date_gmt":"2018-11-28T16:29:44","guid":{"rendered":"http:\/\/fredricksonfinancial.com\/blog\/?p=294"},"modified":"2018-11-28T17:30:36","modified_gmt":"2018-11-28T17:30:36","slug":"starting-early-is-key-to-acing-college-funding-test","status":"publish","type":"post","link":"https:\/\/fredricksonfinancial.com\/blog\/starting-early-is-key-to-acing-college-funding-test\/","title":{"rendered":"Starting early is key to acing college funding test"},"content":{"rendered":"

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Never mind how you were during finals week. Avoid cramming to figure out how to pay your children\u2019s college expenses.<\/p>\n

The year your scholar applies to college is too late to get your ducks in a row.<\/p>\n

Early on,\u00a0 parents should assess if their kids will get aid based on need. Not surprisingly, need is based mostly on the parents\u2019 income and assets.<\/p>\n

The income level that virtually guarantees you won\u2019t get assistance is $250,000, according to Peter Van Buskirk, president of consulting company Best College Fit, whom I heard speak recently at a National Association of Personal Financial Advisors (NAPFA) conference. Plenty of young, newlywed couples in New York City \u2013 with its flourishing tech and financial industries \u2013 earn more.<\/p>\n

Their best friend \u2013 absent wealthy, generous parents or a trust fund \u2013 is a 529 College Savings Plan. A 529 plan is like a Roth IRA for education. Money in the plan is not taxed. Money pulled out, if used for qualified education expenses, is tax-free.<\/p>\n

New York residents have an extra incentive. Married couples filing jointly can deduct up to $10,000 from their state income taxes for contributions to the New York State 529 College Savings Plan. For single filers, the deduction caps out at $5,000. To get the tax break, they would need to invest through New York\u2019s 529 Program (Direct) or New York\u2019s Advisor-Guided College Savings Plan.<\/p>\n

I prefer the direct plan. Not only does it offer low-cost Vanguard funds, it\u2019s commission-free. That\u2019s not the case for plans sold through advisors.<\/p>\n

Within the direct plan, parents leery about making financial choices can opt for age-based portfolios rated conservative, moderate or aggressive. The underlying investments become gradually more conservative.<\/p>\n

In addition to the two New York state plans, non-New York-based plans are available for purchase, but they are ineligible for the New York State tax deduction. I don\u2019t see how out-of-state plans would overcome this disadvantage.<\/p>\n

Like other assets owned outside of retirement accounts (besides the\u00a0 primary residence and an excluded amount of about $20,000), 5.64 percent of parental 529 assets are counted toward the expected family contribution in the Free Application for Federal Student Aid (FAFSA). When the plans are held in a custodial account, the expected contribution rate is 20 percent under FAFSA and 25 percent under the CSS Profile, which is required by about 300 more selective colleges. (CSS also considers equity in a primary residence, which, of course, can have a significant impact in New York and other pricey real estate markets.)<\/p>\n

A third possibility is for grandparents to own the plan with the child as a beneficiary. These assets are not counted in FAFSA. However, money drawn from grandparents\u2019 accounts to pay for college expenses is considered the beneficiary\u2019s income in the following year\u2019s FAFSA. (The same applies to gifts from the grandparents to the grandchildren.) Therefore, it\u2019s generally best for grandparents to hang onto these funds until after the final FAFSA is submitted in the student\u2019s junior year of college.<\/p>\n

Custodial accounts in general count heavily in the FAFSA formula at 20 percent. These accounts may have built up from gifts or inheritances. It may be wise to use the funds for private school tuition, camp or other expenses for your child before applying for financial aid.<\/p>\n

All investing involves risk. Consult with a financial advisor and tax professional to see how the information here may apply to your personal situation.<\/p>\n

This just fits in a few pieces of the college funding puzzle. If you want more information, contact me for a consultation \u2013 or suggest a blog topic.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Never mind how you were during finals week. Avoid cramming to figure out how to pay your children\u2019s college expenses. The year your scholar applies to college is too late to get your ducks in a row. Early on,\u00a0 parents should assess if their kids will get aid based on need. Not surprisingly, need is… Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-294","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/posts\/294","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/comments?post=294"}],"version-history":[{"count":4,"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/posts\/294\/revisions"}],"predecessor-version":[{"id":299,"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/posts\/294\/revisions\/299"}],"wp:attachment":[{"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/media?parent=294"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/categories?post=294"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fredricksonfinancial.com\/blog\/wp-json\/wp\/v2\/tags?post=294"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}