At Ostrofe Financial Consultants, we strive to take the fear and stress out of financial planning. One financial planning challenge that I’ve seen cause stress for parents and grandparents is college funding. In late 2015, several changes were made that will impact college funding and 529 plans. If you have children or grandchildren planning for or applying for college, it’s important to understand these new rules.
First, there was a significant change made to the FAFSA (Free Application for Federal Student Aid) process in September 2015. Starting in 2016, students can file a 2017-18 FAFSA as early as October 1, 2016, rather than January 1, 2017. As a result of this change, students will now report income information from an earlier tax year. So, if you or your child or grandchild is filing a FAFSA for the 2017-18 school year, you will report your 2015 income information instead of your 2016 income information.
These changes were made to offer a few benefits. First, the financial aid process is now more aligned with the standard college admission process, as most college applications begin in the fall. Secondly, applicants will no longer need to estimate income or taxes paid, as they’ll use a previous year’s tax information. And thirdly, this provides students and parents more time to explore and understand their financial aid options and apply before tuition deadlines.
529 Plan Changes
In December 2015, President Obama signed the Protecting Americans from Tax Hikes (PATH) Act, which affects 529 plans in three major ways:
1. Expanded Qualified Higher Education Expenses (QHEE)
Under the new rules, QHEE include expenses for the purchase of computers and accompanying equipment such as a printer, Internet access and similar services, and computer software. These expenses only qualify if they are used primarily for the beneficiary during their school years. Expenses for non-educational computer software is excluded.
2. Ability to Re-Contribute Refunds
If you receive a refund by an educational institution for qualified expenses paid with 529 plan funds, you can re-contribute the money to a 529 plan if the student is the beneficiary. If you recontribute within 60 days of the refund, you can avoid inclusion in income.
3. Aggregation No Longer Required
If you have multiple accounts in a 529 program with the same owner and beneficiary, you no longer need to aggregate them when reporting to the IRS. As of the new ruling, the earnings portion of a 529 program distribution will be computed individually on an account-by-account basis.
Do you need help planning for your children’s or grandchildren’s college education? I understand how confusing these changes and new rules can be. If you have questions about your current plan or would like to explore whether or not a 529 plan is an appropriate option for your family, call my office at 530-273-4425 or email me at firstname.lastname@example.org to discuss. I look forward to hearing from you!
How Rick Can Help
Rick strives to take the fear and stress out of financial planning. He works with clients to uncover financial issues they may not have known about or have not yet addressed. Rick and the Ostrofe Financial Consultants team are there to answer questions, guide clients towards their goals, and help them feel confident in their future. To learn more about how Rick may be able to help, call his office at 530-273-4425.