The Wall Street Journal (WSJ) recently published an article on the best timing of making important personal financial moves to maximize financial aid in your child’s freshman year of college.
Most parents make the mistake of waiting until their child’s senior year of high school, but that is too late, you should start no later than your child’s Fall term of their sophomore year of high school (in reality even sooner so you have time to investigate your best and most viable strategies). This is based on the fact that parents and students must complete the FAFSA in the senior year of high school based on your prior-prior year’s income (your student’s sophomore year of high school) to get financial aid awarded for their college freshman year.
Before modifying your family’s finances, you should consult with your financial adviser and accountant, as these suggestions may be contrary to traditional tax-planning strategies and affect your taxes.
Step 1: Accelerate Your Income
Shifting income earned in your child’s late sophomore/early junior year into their late freshman/early sophomore year, will make your FAFSA income lower during their junior year. If possible and if you were planning to do the following, do so by December 31st of your high school student’s sophomore year:
– withdraw funds from your retirement account to pay for college (usually a last resort in the opinion of CFAST)
– convert a traditional individual IRA account to a Roth IRA, thereby increasing your taxable income
Look for the next steps from this article in our coming blog posts. Please attend one of our free seminars for more strategies for paying for college.