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    How physicians can stretch their college dollars

    Saving for college is one thing, but making the most out of those savings is something else entirely. Fortunately, there are concrete steps physicians can take to make sure they stretch those education dollars.

    How early should you develop a plan? Ideally, start making financial adjustments when your child enters middle school. But even if your college-bound child is already in their senior year of high school, there are still strategies to reduce their college costs and decrease their Estimated Family Contribution (EFC).This article appears in the 4/10/18 issue of Medical Economics.

    Let’s start with some of the short-term strategies that everyone can take advantage of—like what funds to use to pay for college costs.

    529s are great but…

    One mistake parents sometimes make is to pay all of their college costs out of their 529s. Why is this bad? Because doing this may make some parents ineligible for the American Opportunity Tax credit, which taxpayers can claim for the first four years of higher education tuition, course materials (such as books), and required fees. The credit is worth up to $2,500 per year based on adjusted gross income.

    Since you’ve already received a tax benefit with the tax-free distribution from your 529, the government says you can’t “double-dip” and also claim the $2,500 American Opportunity Tax credit. You can use one or the other, but not both. Your tax adviser can work with you to figure out how to use your 529 funds in a way that will help you take advantage of this credit. 

     

    Beware generous grandparents

    If a grandparent gives your child money for college, even if it’s under the $14,000 cap of what the IRS considers a tax-free gift, that money can still cost you and your child. 

    That’s because of how FAFSA (Free Application for Federal Student Aid) rules determine income. Any money a grandparent gives a student over the income protection allowance of $6,570 is assessed as untaxed student income at 50 cents on the dollar. That’s regardless of whether the grandparent gives the money directly to the child or sends a payment to the school to cover tuition. 

    How much could that cost you? A $16,300 gift from grandma for the benefit of the child raises the family’s EFC by $5,000 to $8,000, depending on whether the student has already reached their income protection allowance. That doesn’t mean grandparents shouldn’t help out at all. Some experts suggest waiting until after students are upperclassmen and have filed their last FAFSA before withdrawing money from 529s.

    Next: More college tuition tips

    Jim Slowik
    Jim Slowik is the chief college funding strategist of www.MyCollegePlanningTeam.com, an Illinois-based organization that brings together ...

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