Saving and spending decisions can vastly affect whether a family is eligible for financial aid for college, Vanguard says—and this can impact whether parents are in a position to save for their own retirement.
Vanguard recommends that parents take three steps to lower their children’s tuition bills. First, the firm recommends parents spend student assets early and delay spending that will count as income in order to boost the amount of student aid in future years.
Second, parents can look into tax credits and deductions and create a spending plan that takes full advantage of them. This can substantially lower the after-tax cost of college. In addition, they need to realize that spending from tax-deferred accounts can create taxable income, and spending from taxable accounts can mean realizing gains or losses.
Third, parents should spend from their 529 college savings accounts throughout a student’s college years to ensure that the benefits these accounts provide are maximized, and plan to deplete the account over the student’s college career if the assets can’t be used by another eligible beneficiary. Smart spending from 529 accounts can also help take the most advantage of tax benefits and aid opportunities.