College Savings Strategies

One way to avoid making mistakes in saving for college is not to focus on saving taxes. One popular tax-saving idea has been to put college savings in the name of the child over 13, so investment earnings will be taxed at the childs low rate rather than the parents higher rate. This risks losing future college financial aid for the child because the standard formulas used by colleges to determine need for financial aid assume that a students own funds are available to pay tuition.

It may make sense to put college savings in the childs name depending primarily on your childs need for college aid, and how aid formulas apply at your income level. You have to examine these factors to see if the tax strategy will pay off.

Source: Taylor, R.T. (1998, February 15). What the IRS doesn’t want you to know. Shrewd tax and financial planning moves the new tax law invites you to look into....now. Bottom Line Personal, 7.