Do you have any ideas?"a clearlyfrustrated Dr. David Parsonsasked. "I just calculated ourexpected contribution to Emily's collegeto be $100,000 per year. A stockbrokercame to her school and spoke about collegeplanning, but it seemed like he hada hidden agenda." When you considerincome taxes and lost investmentgrowth, Dr. Parsons's daughter's 4 yearsat college could reduce his retirementfund by more than $500,000. TheCollege Board reports that the average529 account holds $10,569, less thanthe cost of 1 year at a public college.
It's Not Over Until It's Over
Their assets make physicians unlikelycandidates for financial aid; most arefinancially unable to pay for college, notto mention additional years. Accordingto ACT, Inc, the sponsors of the ACTcollege admissions exam, only 51% ofcollege students graduate within 5 years.Each extra year of college adds at least20% to out-of-pocket college cost.
One problem is that approximately50% of high school students receive nocareer guidance. This lack of preparationcontributes to college dropouts,transfers, and extensions. Familiesshould use academic planning to reversethis trend. There is a right way and awrong way to pick a college. Only afterassessing the student's interests, values,skills, and personality through a validtesting process should the student bematched to a career. Families can thenmatch the career to a major beforematching a major to a college.
Protect Yourself Financially
Families should begin plans to take a"tax scholarship." Students almostalways have lower income tax rates thanparents. By shifting income to the students,families can reduce the out-of-pocketcost of college by up to 40%.Common strategies for using the student's"tax capacity" include:
•Compensating the child throughthe medical practice or other businessesand real estate owned by the parent;
•Shifting appreciated assets to thechild, who sells them and uses the proceedsfor college;
•Removing children from the parents'tax return so they can utilize theHope and Lifetime Learning Tax Creditsthat would not be available to the parentsby virtue of income limits.
J. Wayne Firebaugh is a CPA, certified collegeplanning specialist, and CertifiedFinancial Planner™practitioner whose primaryfocus is helping clients plan thegrowth of their assets. He is also the presidentof Wayne Firebaugh, Inc, a registered investment advisoryfirm, and frequently speaks on the topics of retirementand education funding. For a complimentary copy of Howto Survive the High Cost of College-153 Strategies to CutCollege Costs, please contact him at 540-366-5800 email@example.com.