GUEST BLOG POST: Back to School

September 01, 2011

Clipping coupons and watching out for store sales and promotions will be important, but elementary strategies, for keeping back-to-school spending in line. This year, however, parents of college-age kids may need some higher grade ideas for keeping their back-to-school expenses affordable.

  • For college kids with 529 plans, be aware of a potentially expensive pitfall as a result of 2011 tax legislation. Formerly, withdrawals for computers, electronics and internet services were considered as qualified educational expenses, and were therefore tax-free. Now, however, a 10% penalty may be imposed if money from the 529 plan is used for these purchases, unless they are required by the college, university or technical school. Be sure to check with your child’s school on their policy on this. If their college or university does not have a policy requiring computer equipment, it is best for you to purchase those outside your 529 plan.
  • Also, going forward, you may want to require your child use summer earnings to purchase any new technology needed for college or to fund other college expenses. Since college students will be responsible for their expenses after college, it’s a good strategy to start giving them some responsibility for expenses before they graduate to make the transition into the real world a little easier. Budgeting and saving are the most important financial skills for young adults, so any opportunity you can give your child to practice budgeting and saving will pay off in the long run. Some of the most financially responsible and successful people I’ve met had to pay for at least a portion of their college expenses out of money they earned themselves.
  • If your child has a custodial UGMA or UTMA account, and has not yet reached your state’s age of majority, it’s okay for parents who are custodians on these accounts to use the funds for college expenses, including computers and equipment.
  • Get educated on the rules for taking educational deductions and credits on your tax return for your child’s college expenses. Talk to a financial planner with tax expertise for a planning strategy to coordinate and maximize these tax benefits now, so that you don’t discover you missed opportunities when you file your tax return.