Last updated on March 26, 2003
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SAVING FOR COLLEGE
With Five Years to Go
If you're more or less on track with your savings, shift about half your investments
into a bond fund or zero-coupon bonds with staggered maturities so a portion of them will
mature as each year's tuition bill comes due. Savings-bond returns are too small to waste your money on when
you're saving long term, but with five years to go you could use savings bonds for the
fixed-income portion of your portfolio if your adjusted gross income is less than $86,400
(filing jointly). At that threshold any earnings used for college tuition and fees will be
totally tax-free.
If your adjusted gross income is higher, the earnings are still free from state and
local taxes, but the taxable-equivalent return might be better on a five-year CD.
See if you're eligible for financial aid. If you're just starting now,
you could shift into heavy-duty saving mode, search for extra sources of income and slash
your spending. But first, check out ways to lower the tuition bill. Go to the College
Board's Web site and calculate your expected family contribution -- the amount of
money financial-aid officers estimate that your family can afford for a year of college.
The figure will change if your income changes by freshman year, but it will give you a
general idea how much you'd need to pay before financial aid kicks in.
Move money around to improve your financial-aid picture. For example,
if you sell stocks after January of your child's junior year in high school, the earnings
will be considered income on your financial-aid form. But if you sell any big winners now,
the proceeds will be considered assets and count for much less in the aid formula.
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IN THIS TUTORIAL
With Five Years to Go
