invested in real estate you might consider gifting that property. Richard Darvis, a CPA and
certified college planning specialist in
Plentywood, Montana, tells of one client who
purchased a single-family home for investment when his daughter was born, intending
to sell it and use the profits to pay for college.
Some 18 years later she went to college in
the town where the house was located, so the
client gifted the house to her. Because she
lived in it for more than two years, she could
sell it as a personal residence rather than
investment property, thereby reducing the
Strategies for business owners
and non–business owners:
Shift the tax burden
If your child’s income (from working at
your business or elsewhere) equals at least
half his expenses, consider removing him as a
dependent from your income-tax return.
Your student’s lower income could qualify
him for the Lifetime Learning credit or the
Hope tax credit, thereby reducing the federal
Owning and managing real estate presents several options for savings, and maybe
even investment growth. You could, for example, buy a residential property near your
child’s college campus and then hire your
child to manage the property, says Darvis.
Part of the compensation could include a
place to live. Meanwhile, you’ll have the traditional tax savings associated with investment
property and the possibility for appreciation.
Using any of these strategies alone, in
combination with each other or in combination with cash-flow adjustments and merit
aid can go a long way toward mitigating the
financial burden of college—even without
financial aid. Finding the best strategy for you
depends largely on your family’s financial situation and the number of years you have to
implement the strategy.
“Every family’s situation is different,”
says Fox. “There is not a cookie-cutter
approach. In addition to working with a college funding specialist, you really need to
work with your tax advisor and potentially
an estate attorney, since certain college
funding strategies could be great for college
planning, but detrimental to estate, retirement or tax planning.”
And it pays to remember that what
might be your financial situation when your
child is 2 could be very different from the
reality 16 or more years later. So keeping
plans flexible can help. C
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Kristi Vaughan is a freelance writer living in
Ridgefield, Connecticut. She writes frequently
on personal-finance and small-business topics.