How Tax Professionals Help Reduce College Costs

Many parents approach college planning with a primary focus on saving sufficient funds. However, the actual expenditure on college can depend significantly on how those savings are structured, the timing of your income, and how adeptly your family positions itself for financial aid. With strategic financial planning, families can realize savings of $50,000 to $300,000 or more throughout the span of a child’s undergraduate education.

Working closely with an experienced tax professional can uncover numerous opportunities to maximize savings that might otherwise go unnoticed.

Smart Savings Structuring

The method of saving can drastically impact the financial aid available to a family. Parent-owned 529 plans, for instance, are assessed at a much lower rate on the Free Application for Federal Student Aid (FAFSA) — roughly 5.64% compared to the 20% for student-owned assets. By shifting assets from custodial accounts to 529s, families can significantly increase their eligibility for aid.

Optimal Timing of Income

FAFSA calculations use the income data from two years prior. This "base year" consideration means that a high-income event, like a business sale or capital gains realization, in the wrong year can diminish your need-based aid. Professional advisors have the expertise to guide families in scheduling income and deductions strategically to safeguard their eligibility for financial aid.

Exploring Education Tax Credits

Education tax credits are a valuable, yet often overlooked, resource. The American Opportunity Tax Credit (AOTC) can deliver up to $2,500 per year, per student, for four years, and the Lifetime Learning Credit (LLC) offers up to $2,000 annually without a time limitation on use. Too often, families miss these savings or inadvertently "double dip" with 529 withdrawals. A tax professional can coordinate these correctly to maximize available credits without running afoul of regulations.

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Targeting Optimal Schools

Elite schools, characterized by their substantial financial aid endowments, can present a surprisingly affordable option. Universities such as Harvard, Princeton, and Stanford often offer generous aid to families earning up to $150K–$200K annually, possibly resulting in low to no out-of-pocket tuition costs. An informed tax advisor can help families compare net costs and choose schools that align best with their financial circumstances.

Success Story

Consider the case of a family earning approximately $140,000 annually. Initially believing that their child’s preferred university was financially out of reach, they partnered with us to explore financial planning options. By moving savings into a parent-owned 529, postponing a major business sale beyond the relevant FAFSA year, and fully claiming available education credits, they succeeded in decreasing their college expenses by over $300,000 over four years—a substantial improvement over their original plan.

College payments don’t need to exhaust your savings or result in overwhelming debt. By embracing strategic financial planning, your family can uncover hidden savings, increase available aid, and dramatically cut out-of-pocket expenses.

👉 Next Step: Ready to see how professional guidance can ease your college financial planning? Book a discovery call with our team today to devise a strategy tailored to save your family tens, or even hundreds, of thousands of dollars.

Have Questions?

Let's talk. We are here to help!

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