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The quagmire of college finances
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College 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 aid formula.

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.

New 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.

Remember, 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."

Check it out.

Have a question about 529 plans? Direct your question to Joe Hurley via advice@bankrate.com.

If you have a comment or suggestion about this column, write to Boomer Bucks.

Longtime financial journalist Barbara Mlotek Whelehan earned a certificate of specialization in financial planning.

Bankrate.com's corrections policy-- Posted: Sept. 14, 2005
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