When It’s Time to Break the College Savings Piggy Bank

It takes some fancy footwork to tap college savings while maintaining your child’s eligibility for financial aid, minimizing taxes on earnings, and simply making the money last.

If you’re like many parents, you’ve cobbled together a mishmash of college savings accounts. Between gifts from grandparents, contributions to college savings accounts, and regular investments, you’ve amassed a respectable amount of money to pay for college. Now that the time has come to break that piggy bank open, which funds do you tap first? When you understand which savings affect taxes and eligibility for financial aid, you can call Excel to the rescue to plan your payouts.

Even if you don’t think your family qualifies, it’s worthwhile to fill out financial aid paperwork. Colleges recalculate financial aid eligibility each year, so your family might qualify one year, even if it didn’t the previous year. Federal financial aid guidelines expect students to contribute 35 percent of their income toward college costs and parents to pony up 5.6 percent of their income. Use web-based financial aid calculators [Hack #91] or consult college financial aid officers to see whether you qualify. If you are close to qualifying for financial aid, you can spend your child’s assets first to increase your chance of financial aid in the future. If your income and savings put you way above financial aid cut-offs, you have more flexibility for spending college money. ...

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