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Will Saving for College Affect the Federal or State Aid My Child may Receive?
Financial aid is based on need. Assistance is provided to eligible students when it is estimated that the family will not be able to afford the entire cost of college. Through applying for federal financial aid, the Expected Family Contribution (EFC) is determined. The EFC then is used to determine financial need. (Financial Need equals the cost of attendance less EFC, Pell grant eligibility, and other aid.) An account in your name or the student’s name may affect your EFC. Accounts established in Qualified State-Sponsored Tuition Programs will not likely be included in calculations for determining state financial aid.

What are Qualified State-Sponsored Tuition Programs such as New York Saves?
A Qualified State-Sponsored Tuition Program is a program that usually offers a state tax benefit (an adjustment to gross income) for amounts contributed to the account up to a certain limit. The account owner names a revocable beneficiary. The investment choices (equities, bonds, cash) are mandated by state government according to the child’s age and usually become more conservative (less risky) as the child grows older and nears college age. Typically, there are no state taxes on the earnings. Federal taxes on earnings in excess on contributions are deferred until withdrawn.

Is a Tax Break Available Once I Start Spending Money for College?
There are two tax credits that are intended to help with post-secondary education costs - the Hope Scholarship Credit and the Lifetime Learning Credit. The credits are available for qualified tuition and/or related expenses. A tax credit is a dollar-for-dollar offset against tax owed. The Hope Scholarship Credit applies during the first two years of school up to a maximum of $1,500 for the year 2000. The Lifetime Learning Credit can be used over a lifetime, but it cannot be used for a student using the Hope Scholarship Credit. It is calculated on a per family basis. The maximum credit available is $1000 for the year 2000. AGI phase-out rules apply to both credits and the credits are not available in the year the taxpayer takes an education IRA distribution.

How can the Financial Planning Process at Sage Rutty Help me with Saving for College?
As you can see, many investment vehicles are available to assist you with saving for college. In addition to the alternatives mentioned above, there is the Education IRA, Uniform Gift to Minor’s account, trusts, and taxable and qualified investment accounts. Decisions as to ownership of the savings account (custodial vs. parent) must also be made. With so many alternatives available, our professional financial planners will weigh the advantages and disadvantages of each, consider the interaction and tax consequences, and make recommendations that will be the most appropriate and beneficial for your financial situation.