Tax Considerations

Class Location: The Internet

Description: Many types of financial aid exist and there are different rules to be aware of when it comes to taxes. While we are not CPAs or lawyers, and exceptions exist with every section of the Internal Revenue Code, we highly recommend that if you have specific questions, you should ask your financial advisor or contact the IRS.

Objectives: To help you understand the various types of tax laws and the deductibility of student loan interest.

Interest on Student Loans

There are many criteria for this deduction that must be met. The main one applies to your AGI (adjusted gross income). It must be under $55,000 if you are single or under $75,000 if you are married. The main one is that your AGI (adjusted gross income) be under $55,000 if you are single or under $75,000 if you are married. The current maximum deduction for student loan interest is $2,500.

Research 529 Savings Plans

These are available in all 50 states and are a way to prepay tuition long before a student starts school. IRC Section 529 is roughly the educational equivalent of the IRA. It allows your money to grow tax free, which is a great investment strategy. These funds can be applied to state schools and some private schools.

Request that Grandparents Wait Until the Grandchild Graduates High School

If the grandparents give a gift to fund college education, request they do it after high school graduation. Funds prior to graduation can be held against you when filing the FAFSA.

Beware of Trust Funds

Trust funds are not always the best investment as they are largely ineffective at sheltering your money from the needs assessment. If you choose this for managing your money, be sure to proceed with caution and that you are receiving expert advice before committing to this strategy.

Choose to Return to School at the Same Time as Your Children

If you are considering a return to school, financial aid generally awards more money to families with the most members simultaneously in school.