If you're about
to launch a full-throttle college
savings plan, take note. A number
of changes affect those footing
the college bill in the coming
year. That means even the most
tried and true financing strategies
may need some adjusting.
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The best moves to make in 2007: |
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Start saving now
This No. 1 rule merits repeating.
The cost of higher education
isn't getting cheaper, so unless
you're expecting a huge inheritance
or some other windfall, you
have got to be prepared for
some pretty hefty expenses.
"The gap
between college grants and tuition
is growing. More students are
borrowing to pay the difference,
and there's more concern about
debt," says Sandy Baum,
senior policy analyst at The
College Board. "So, my
biggest advice to families is
they should save."
Whether you have
toddlers who are years away
from college or students scheduled
to enroll in the near future,
make a commitment to stash away
as much as possible. Of course,
how you invest money will depend
on a variety of factors. How
quickly do you need the cash?
Are you willing to take on more
aggressive investments? To maximize
your money, you have to strategize.
Keep
savings out of your child's
name
Saving for college doesn't have to torpedo your odds of getting financial aid.
It's best to keep
assets in the parents' names.
That's because when financial
aid eligibility is calculated,
colleges rightly assume that
parents have bills other than
tuition (such as mortgage payments
and retirement saving obligations).
As a result, moms and dads only
have to earmark 5.6 percent
of their assets to higher education
costs. Children have to pitch
in more.
The (paradoxical) good news: Students can use less of their savings in 2007. For years, students have had to allocate 35 percent of their savings and earnings to college costs. But as of July 1, 2007, that level drops to 20 percent.
Avoid directing large sums to teens
Taxes are the other reason to
refrain from making big financial
gifts to students. The expansion
of the so-called "kiddie
tax" has made it far more
expensive for a youngster to
own, and later sell, investments.
Under new rules,
childrens and teens up to age
18 must now pay their parents'
rates on investment gains exceeding
$1,700. In some cases that's
as much as 35 percent on short-term
capital gains and 15 percent
on long-term gains. Previously,
the kiddie tax expired on teens'
14th birthdays.
Invest
in a 529 plan
Parents and grandparents, or
anyone else for that matter,
can help a child get a jump-start
on college costs by investing
tax-favorable 529 plans.
You can invest in any 529 plan that suits your fancy, even one that's not from your home state. There are no income restrictions for participating. The gifting limits let generous souls quintuple the annual gift exclusion amount of $12,000 (that's $60,000 a pop) as long as no subsequent donations are made for five years. Because 529s are considered the property of the account owner, typically not the student, they won't hamper a student's chances of scoring financial aid.
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