quagmire of college finances|
finance planning, simplified
Hogan approaches college planning as an
exercise that requires families to focus on the answers to two main questions:
How much time do you have to plan? And will your family be eligible for financial
aid? The planning strategy for families that are eligible for aid versus those
that are not is not only different, she says, "but exactly the opposite."
For instance, when qualifying for financial aid is
a strong probability, the goal would be to minimize the amount of assets in the
child's name. That's because these assets would count against the child to a much
greater degree than they would the parents in the computation of the financial
But if a family doesn't qualify for financial
aid, says Hogan, "it becomes a tax-planning game. What you're trying to do is
take advantage of the fact that students are in a lower tax bracket than the parents."
Ironically, the tax laws don't help the families that can
best afford to pay tuition because of income limitations. For example, the Lifetime
Learning and Hope credits begin phasing out when income exceeds $42,000 for individuals,
$85,000 for married couples filing jointly.
So the strategy
for high-income parents would be to shift assets to their children. That way,
the student can capture the Lifetime Learning or Hope credits for the family and
take advantage of other tax-saving opportunities. In her article, Hogan shows
how parents with three college students can enjoy savings of as much as $18,000
in one year by shifting assets to their children.
and improved 529 plans
Hogan is not a big fan of 529 plans because
of their potential to impact financial aid eligibility. Her advice is for grandparents
to own the 529 savings plan rather than parents or children. She also dislikes
these plans because it's "hard to keep up with plan changes," which contain "lots
of important fine print."
But this is one problem that we
are working on solving, right here at Bankrate. You can compare
the various 529 plans in Bankrate's College Finance channel. This efficient
way of comparing plan costs is the result of Bankrate's collaboration with Joe
Hurley, renowned 529 plan guru, who will soon launch a column on Bankrate that
will focus on answering readers' questions about college financing.
earlier this year, I
wrote that 529 plans were chock-full of flaws because they weren't very forthcoming
about performance information or fees?
Hurley reports that
things have improved significantly this year. "There is much better disclosure
now in most of the 529 plans, but that doesn't necessarily make it easier to compare
because the fee structures are so varied," he says. "By summarizing it the way
we do is actually much less confusing than going to the official disclosures."
Have a question about 529 plans? Direct your question
to Joe Hurley via email@example.com.
you have a comment or suggestion about this column, write to Boomer
Longtime financial journalist Barbara
Mlotek Whelehan earned a certificate of specialization in financial planning.