5 Steps to College Savings and Planning

college savingsCollege savings and planning can be overwhelming at best. Below are the key facts you should know in order to maximize the funding you make available for your child’s education. Whether your child is a newborn or in high school, it’s never too late to get a jump on this. After all, the most important thing we can give to our children is an education to be able to be self-sufficient adults that contribute to society.

  1. Begin Saving As Early As Possible.

     In an ideal world college savings should begin when your child is born. A small savings account where you add cash baby gifts, deposits you can make along the way, and birthday gifts from family and friends can add up to quite a large sum after 15 years. 

  1. The First Thing You Should Know About College Savings.

    DO NOT put the money is your child’s name. There are 2 reasons for that. The first is, when they attain the age of 18, they are legally entitled to remove any and all of the money from the account, even if it is set up as a custodial account.  The second reason is that an account in your child’s name can eventually affect any federal financial aid or low interest federal loans you may qualify for. If gift checks are written directly to the child, keep a small custodial savings account to make the deposit, then withdraw and deposit into the “college savings account”.
    *** If you currently have an account in your child’s name move it now…  

  1. The Famous 529 College Savings Plans.

    These accounts are feasible if you are extremely wealthy and do not anticipate qualifying for any financial aid, but they are not as special as the investment advisors who gain a commission claim. Also, unless you have a crystal ball and know your own future and the future financial aid laws, it doesn’t pay to take a chance. The 529 money is not only ear marked for college, but if there are any withdrawals that are not used for higher education, there are tax penalties. My philosophy is to avoid unnecessary taxes – keep the money for yourself and your children. There may be situations where this would be feasible, but that would be worked out on an individual basis.  

  1. What is Financial Aid All About?

    Let’s start with the basics. Generally speaking, financial aid is either merit based (excellent high school grades) or need based (dependent on your income/assets and your child’s income/assets). There are federal funds, state funds, scholarships, grants and loans. In many cases there will be a combination of a number of these, and the balance is what you will be required to pay. Each college or university has their own rules and deadlines, but the application is the same nationwide. It is a federal application completed online called the FAFSA (Free Application for Federal Student Aid) and can be found at https://fafsa.ed.gov/. The application is generally due mid-February prior to the September your child begins college. You will want to be ready to file your tax return early, and even if you don’t most of that info will be needed for the FAFSA.  

  1. Will My Child Qualify For Financial Aid?

    The federal government is actually very helpful with this. Within the FAFSA website there is a link for those considering college, which is https://fafsa.ed.gov/FAFSA/app/f4cForm?execution=e1s1. You will be led through an application worksheet and will get approximate results for the FEDERAL Aid your child should qualify for, as long as all the numbers remain the same or similar to those you enter now.  


Remember you read about not having the funds in your child’s name. Here’s the real skinny as to why you want to follow that advice. When a FAFSA is reviewed, the calculations will allocate your savings as up to 1/3 being available to pay toward tuition. HOWEVER, any funds in your child’s name are allocated to be 100% available for tuition. The long and short of it… having the college funds in your child’s name will cost you 2/3 more of that money each year if you qualify for financial aid. Why take the chance? The funds could be used for room and board or a car if your child commutes.

My advice has one goal – Strengthen your Money Mojo and keep as much in your pocket as you can.


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Ellen is a Women’s Financial Specialist and has been a federally licensed tax practitioner for more than 25 years. She has expanded from the divorce specialty to a broader financial practice, helping women in many stages of life set up their finances on autopilot. She is also the author of the popular e-book "Divorce Starter Tools Women Need."

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