The four key areas that must be considered in the process of determining Your Best Strategy® to pay for college and save for retirement are: College selection, financial aid, tax aid and personal resources.  To make intelligent decisions in these four areas requires specialized knowledge of college admissions, financial aid, taxes, and financial planning. Even if you have people advising you in these areas, it can be difficult to pull that expertise together specifically for college planning and retirement purposes. Let’s take a look at an example to gain perspective. Parental income is the biggest factor in the calculation of a student’s expected family contribution (EFC), the minimum amount the student/family is expected to contribute toward the cost of college. The most common allowances against income in the EFC formula are: federal taxes, state taxes, FICA taxes, and an income protection allowance.

So the amount of taxes you pay helps reduce the amount of income that gets calculated in the EFC formula. Therefore, the more tax the parents pay, the lower the EFC is. But conventional financial planning strives to help parents pay less tax, not more. So you can begin to see how complicated college planning can be by just looking at two variables.Things like retirement plan contributions, whose names assets are saved in and what types of ac‐ counts those assets are in, are also big factors in determining EFC. The reason that a student’s EFC is so important is because it is part of what is referred to as financial need analysis, where the EFC gets subtracted from a college’s total cost of attendance to determine if the student has “need” for financial aid (Cost—EFC = Financial Need).

So it is safe to say that anything that affects your income, taxes and non‐retirement assets may also affect a student’s EFC, and therefore possibly the student’s aid eligibility. However, note that the first variable in the need analysis formula is the cost of college.Therefore, you can see that college selection may directly affect a student’s aid eligibility because, based on cost, a student with an EFC of $20,000 will demonstrate need at a college costing $45,000, but not at another college costing $18,000 per year. Moreover, the American Opportunity Tax Credit is an example of what we refer to as “Tax Aid”, and is available to some taxpayers when they pay qualified college tuition costs. So college selection, financial aid, tax aid and your personal resources are all interconnected. Which is especially important considering that what parents spend on college they don’t have to save for their retirement. It is fair to say that there is a lot more to college planning than applying to a few colleges and completing a financial aid form. Moreover, the college decisions you make today will create ripple effects for years to come. Hopefully this newsletter will help you make them well.

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