It’s College Decision Season, Are You Financially Ready?
As high school seniors finalize their college decisions and families start picturing what the next few years will look like, one question is at large: how will we pay for it all?
College costs are rising, and planning ahead is more critical than ever. Whether your student is heading off to campus this fall or you’re still in the decision phase, now is the time to think strategically about your finances, especially how to make the most of your 529 plan, navigate the new FAFSA changes, and prepare your cash flow for the college years ahead.
Maximize the Value of Your 529 Plan
If you’ve been saving in a 529 plan, you’re already ahead of the game. But simply having the funds isn’t enough, and using them wisely is just as important.
Here are some key strategies:
Time your withdrawals carefully: Only take 529 distributions in the same tax year that the qualified education expenses occur. Mistimed withdrawals could lead to tax penalties.
Understand what “qualified” means: In addition to tuition, you can use 529 funds for fees, books, supplies, computers, and some room and board costs — but not every college-related expense qualifies.
Avoid over-distributing: Taking out more than the student’s qualified expenses in a given year may result in taxes and penalties on the earnings portion.
Stay on Top of FAFSA Changes
The FAFSA Simplification Act has made some significant updates that may affect your family’s eligibility for federal aid starting this year.
Highlights include:
The Student Aid Index (SAI) has replaced the Expected Family Contribution (EFC), changing how need-based aid is calculated.
Parent-owned 529 plans now receive more favorable treatment, particularly if the plan is owned by a parent rather than a grandparent.
Families with multiple children in college no longer receive the same financial aid boost they used to, which could change your aid package.
The FAFSA Simplification Act expanded the Federal Pell Grant to more students and linked eligibility to family size and the federal poverty level.
These changes can significantly impact how much aid your student is eligible for, and how you might want to time your income, assets, or contributions.
Anticipate Cash Flow Needs
Paying for college isn’t just about tuition bills, but also your overall financial lifestyle during those years. Planning for expenses like travel, insurance, living costs, and emergencies is just as important.
Here’s what to consider:
Create a year-by-year college cash flow plan: Account for tuition, housing, books, and personal expenses each semester. This should include groceries, take-out, commute costs, and all other things money will be spent on, big or small.
Review your own budget: How will these new costs affect your retirement contributions, emergency fund, or other financial goals?
Explore smart borrowing strategies: If loans are necessary, understand the pros and cons of federal vs. private loans, and how to avoid over-borrowing. Look into the different types of loans, and the different types of grants that you are eligible for.
Have an emergency fund: You never know what may arise, and we want to make sure you are covered. Whether it is a sorority dress you do not have money for, or your biology book is more than anticipated, make sure you have cash set aside for instances like these.
Get a College Funding Strategy That Works for Your Family
Every college journey is different and so is every family’s financial situation. Whether you’re trying to stretch your 529 funds, make sense of FAFSA, or just want to feel confident heading into the fall, we are here to help you.
Schedule a College Funding Strategy Session today and let’s build a plan that supports your student’s success without sacrificing your financial future.
Email: advisors@4wealthfg.com
Phone: 708-695-5300
