As Jenn and Kerry Milligan embark on the college application and selection process with their older child, they've been taking copious notes of things they've found interesting, along with ones they've found surprising, along the way. They've been to meetings with high school guidance counselors and sit-down appointments with college admission counselors and financial aid representatives during college visits. As two tax and wealth management professionals, they thought they knew it all when it came to education planning, but they want to pass along the following tips that may help others navigate this journey.
- FAFSA submission is delayed this year. While families who have done this before are used to completing the Free Application for Federal Student Aid (FAFSA) during October, it won't be available for completion until later in the year. Earlier this year, the U.S. Department of Education (ED) announced that, to fully implement the FAFSA Simplification Act, the 2024-25 FAFSA will be released in December 2023, instead of October 1.
The FAFSA Simplification Act is just that—a new law requiring the ED to change the online form and the backend technology that supports it. One of the changes includes the direct import of IRS data into the form for certain calculations—just another reason to be sure that a tax professional like those of us at Strojny Financial Services are preparing your tax returns. You want that information to be as accurate as possible so that when it's pulled into the FAFSA, your student qualifies for any and all applicable grants and aid.
There is some concern about how the delayed availability of the FAFSA will play into "early" college admission deadlines. So, if your child is looking to apply "Early Action" or "Early Decision" to any college, you may not have all of the financial aid information in your hands when you need to make that decision. At the very least, be sure to ask the college or university for an estimate of what your child's financial aid package may look like so that you have an idea of how much you'll be expected to pay out of pocket.
- Be mindful of Federal versus state aid. During an in-person meeting with a college counselor, Jenn and Kerry learned that it's necessary to complete the FAFSA to receive state financial aid. According to this expert in her field, many families who do not think they will qualify for Federal aid opt to skip completing the FAFSA. What they don't realize is that limits the amount of state aid the student may be eligible for.
Furthermore, when filing out the FAFSA, you have the option to apply with certain state financial aid forms. If you see a link from the FAFSA confirmation page to your state financial aid form, you should select it. You never know what Federal or state aid your student may qualify for, but you can be certain your student won't qualify for any if you don't complete the paperwork. There is no downside to completing the FAFSA (or any state financial aid forms for that matter)—even if your child does not qualify for aid, it won't be counted against them in the admission or merit scholarship process.
- 529 plan assets are now transferrable to Roth IRAs. Under certain conditions, SECURE Act 2.0 allows for tax and penalty free rollovers from 529 accounts to Roth IRAs, so be sure to put those funds to good use. Beneficiaries of 529 college savings accounts are permitted to roll over up to $35,000 during the course of their lifetime from any 529 account in their name to their Roth IRA. Be mindful that rollovers are subject to Roth IRA annual contribution limits, and the 529 account must have been open for more than 15 years.
While a 529 account can be a useful addition to a financial plan for a child's education, it doesn't take into account life's changes that may come your way. Your child may decide not to go to college, or perhaps they earn enough scholarship and other financial aid to cover the educational costs. By utilizing the tax-free, penalty-free conversion from a 529 account to a Roth IRA, this gives the child a leg up on retirement savings and allows them to avoid a 10% federal tax penalty for using the 529 funds for a nonqualified expense.
- Carefully limit college application submissions. When your student is choosing where to apply, be mindful of the college application fees, housing deposits and college financial aid applications that are to follow. If possible, start your student's college search early and try to focus on 3-5 colleges of interest by the fall of their senior year in high school. That way, you're only paying to apply for admission and financial aid to 3-5 schools, instead of dozens. Assuming your student is accepted into any of those schools, you'll be expected to put down a housing deposit soon after receiving the acceptance letter. While some families choose to "double deposit" to hold their child's place at more than one school, those deposits are non-refundable.
Jenn and Kerry are enjoying the college selection process, but as the "lifelong learners" they are, they want to continue to share the parts of the experience that are new or surprising to them. If you're looking for help with education planning, look no further than Strojny Financial Services. We offer financial coaching for every season, including the one when your oldest child is heading off to college.
Units of the 529 plan investment options are municipal securities and may be subject to market value fluctuation.
Before investing in a state specific 529 plan, you should compare your own state's qualified tuition program and any state tax or other advantages it may provide.
Subject to certain restrictions. By investing in a plan outside your state residence, you may lose available state tax benefits. 529 plans are subject to enrollment, maintenance, administration/management fees & expenses. Make sure you understand your state tax laws to get the most from your plan. If you make a withdrawal for any other reason, the earnings portion of the withdrawal will be subject to both states and federal income tax & a 10% federal tax penalty. As with any investment, it is important to fully consider the plan’s objectives, risks, charges and expenses before investing.