As your child edges closer to high school graduation, the dream of college can feel both thrilling and overwhelming. With over 63% of high school grads enrolling in college programs last fall, and costs soaring amid shrinking federal aid, smart planning is key. Drawing from a comprehensive four-year action plan, here are crucial considerations to help you navigate this journey confidently.
Start with Savings Strategies Early On
Get an early start and prioritize tax-advantaged accounts like 529 plans.1 Encourage grandparents and relatives to contribute—it can be a family effort! Distributions from “non-parent” owned accounts will no longer have a negative impact on financial aid calculations. As your teen takes summer jobs, guide them to allocate earnings toward college, fostering good habits. By sophomore year, review your 529's asset allocation to match the shortening timeline before withdrawals. Avoid aggressive investments that could falter in market dips. Also, fund a Roth IRA if your child has employment income, and explore custodial accounts for non-qualified expenses like travel.
Master Financial Aid and Tax Smarts
Junior year ramps up with calculating your Student Aid Index (SAI) via studentaid.gov for a preview of potential aid packages. Remember, FAFSA uses "prior-prior" year income (e.g., 2024 taxes for 2026 entry), so watch moves like stock sales that could inflate income and reduce aid. Research if target schools require the CSS Profile alongside FAFSA, and compile documents early. In senior year, ensure liquid assets are ready, strategize withdrawal order from savings, and explore IRS tax credits for education.
Support Your Student's Academic and Extracurricular Path
While you handle finances, empower your child: Aim for a strong GPA from day one, dive deep into extracurriculars, and consider part-time work to build resilience. Sophomores should tackle the PSAT and research colleges. Juniors: Prep for SAT/ACT, build resumes, visit campuses, secure recommendations, and align coursework with school requirements. Seniors: Hit FAFSA deadlines early—submission timing can boost aid chances. Don't forget practicalities like a health care proxy at 18.
Proactive steps today ease tomorrow's burdens. Consult professionals, attend workshops, and keep communication open. With thoughtful preparation, you'll turn college aspirations into reality—without the financial stress.
1A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan. Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings prior to 2024 are taxable and subject to a 10% tax penalty. Beginning in 2024, unused 529 plan funds may be rolled into a Roth IRA assuming the following conditions are met: 1) must have owned the 529 plan for 15 years, 2) can only convert funds that have been in the 529 plan for at least 5 years, 3) rollover amount cannot exceed $35,000 and 4) rollovers must be made to a beneficiaries Roth IRA. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk. Thank you