Prioritize Retirement and College

[sblatner]

We have a rising senior so I'm learning a lot about college costs. You should research Effective Family Contributions. I think a lot of people get grants/loans/scholarships now - more than they used to. Especially if you have more than one student in college. You could think that you will have too much money but you still might qualify for some type of aid. In general, retirement accounts and values of homes are not included when figuring out how much a family can afford to pay for college.

Expected Family Contribution (EFC)

[jIM_Ohio]

Still thinking out loud here Jim, thanks. So what was the 60% tax break you mentioned earlier?

So here are my thoughts. Roth IRA we are still at a low earning power though in the 28% bracket. I don't work and my DH is early in his career. He's still looking for his major pay jump due to gaining another degree and possibly doubling his salary. So while we still qualify for the Roth IRA, every year it's borderline depends on bonuses and how stock bonuses sort out, we contribute or contribute to a Non-deductible IRA. The reason is the gains are not taxed. The 401k helps us stay under as well.

American opportunity credit
spend $4000
get a $2500 credit (cash back) on tax return
$2500/$4000=62.5% return

If you don't qualify, then a suggestion to consider is can your child qualify on their own from a tax point of view. Ask your CPA. They would need to supply half their own support (as defined by IRS). Ask your CPA.

[jIM_Ohio]

What qualifies you to make snarky comments which have no basis in reality? I was under the impression that this thread was meant to solicit advice, not personal attacks. Brevity works except when it fails.

Go to Vanguard's web site, or any other investment brokerage's web site, and look up the 529 plan benefits. You can contribute money to a 529 plan, which grows tax-free, and withdrawals are tax-free if used for qualified (college) expenses. If you don't understand how this is a tax benefit, which allows you to put "pre-tax dollars" to work, then I can't help you. However, while I can't help you in that instance, I would caution others to help themselves by not listening to you (or me) without investigating everything mentioned.

I would never take financial advice from someone on a forum without vetting everything said. It wouldn't make sense unless I verified everything. However, the tax benefits of a 529 plan are public knowledge, and for most people, common knowledge.

Is your ESA a 529 plan? If not, why? The first thing you want to do is make sure you're getting the appropriate tax benefit for college savings for your kdis, since these should be pre-tax dollars at work.

529's are not pre tax, you posted they were.
I call this job security. Thank you.

[LivingAlmostLarge]

Jim I doubt our kid will be able to support herself according to the guidelines.

sblatner according to this EFC Calculator https://bigfuture.collegeboard.org/p...or#efc_results

Our EFC is $32k federally or $42k institutionally. So I would take this to mean we have a large bill to cover and foot based on our income, assets, etc. So I basically screwed our kiddos right? I'm not trying to screw them but like my parents a good income with savings means we aren't going to qualify for aid, nor probably should we with what we earn.

[kork13]

529's are not pre tax, you posted they were.
I call this job security. Thank you.

[jIM_Ohio]

Jim I doubt our kid will be able to support herself according to the guidelines.

sblatner according to this EFC Calculator https://bigfuture.collegeboard.org/p...or#efc_results

Our EFC is $32k federally or $42k institutionally. So I would take this to mean we have a large bill to cover and foot based on our income, assets, etc. So I basically screwed our kiddos right? I'm not trying to screw them but like my parents a good income with savings means we aren't going to qualify for aid, nor probably should we with what we earn.

I could probably come up with a way to make it look like kid supported themselves. You read the test and applied your "current situation", change the situation, the rules might now work in child's favor. I would need a CPAs help to make this happen.

[sblatner]

Re the EFC, you could use extra funds in taxable accounts to pay off part of your house - equity is not included. Also, make sure all your credit cards and car loans are paid off. If your EFC is $32k and you are in your 30s, I think you are doing really well.

I would continue to save the $2k in the college fund, maybe set up a 529 plan (if you can do both and if you can't, probably switch to a 529 if you think they are good (we didn't so I can't really recommend them)), save in your Roth and then save outside in a taxable fund. Just because money is in a taxable savings account doesn't mean you can't use it for college. Because we don't like 529s, we have a savings account designated for college. We will use it towards college costs in the next year.

I think someone suggested having your student become independent - I have heard that is practically impossible. Parents' income is on the hook for college even if parents don't want to pay for college.

[moneybags]

If you don't qualify, then a suggestion to consider is can your child qualify on their own from a tax point of view. Ask your CPA. They would need to supply half their own support (as defined by IRS). Ask your CPA.

Your child does not have to meet the support test in order to take the tax credit. You can give up the exemption on your return and your child's return, which allows them to take the tax credit. In this situation, you would want to calculate both returns using both scenarios to see which is more profitable.

Also, the Am Opp credit is only refundable for the first $1000. This means that you can get a $1000 credit without having any tax liability, but the next $1500 you will only get if you have a tax liability (and it will not exceed what your liability is).