Hello Everyone,

A discussion that I have with all of my clients that have minor children is saving for college. Although there is not an one fit it all solution, I would like to make a few points here that can be used as a guide:

• I don’t think it is a good idea to sacrifice your retirement savings for college savings.
• If you are at an income level where you might qualify for financial aid, you don’t want to save in the child’s name.
• Equity in the primary residence generally does not count toward financial aid considerations.
• I like 529 plans for their tax treatments. On the other hand, as with everything where the government has a say, there are restrictions posed on you. So make sure you don’t put all the savings into a 529, since you will never know if your child might qualify for merit based scholarships beside the financial need ones.
• You can change the beneficiary of the 529 once a year if one child does not use it. Nevertheless, this money could be used for your retirement, a wedding, your child’s first house. So don’t go overboard on the 529 contribution.
• Depending on your income and overall tax situation as well as the state you live in, it could be beneficial to contribute to a 529 even if your child is already attending. At least this might give you a state income tax deduction when you contribute to your state 529, as you usually can withdraw the money shortly after you deposited it. You certainly have to look at the overall tax situation for that, as you might get most bang for the buck in tax savings by doing several different strategies.

Please let me know if you have any questions, I am sure I will touch on this again in the future.

Cheers,

Patrick