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Specializing in Healthcare Professionals

 I want to let you know that it is a real pleasure working with you, and I have recommended you to several people. – Sonia, DMD

College Financial Planning Services

Saving for your child's college education can be one of the longest financial goals you pursue. 

Without sound planning, its easy to feel overwhelmed and unsure if you're proceeding in the best possible way.

At Schwartz & Schwartz, we offer our clients in-house consultation with a Certified Financial Planner who specializes in College Financial Planning.

Working as a team, we can assess your individual tax situation and college financial goals simultaneous to provide you with a thorough and personalized College Financial Plan.

Our College Financial Planning Services can help you:

• Reduce your family's college expenses
• Save money on your child's college education
• Receive a customized plan for your individual situation
• Assist you in filing college funding forms
• Give you specific strategies to save for retirement and other financial priorities while you save for college

To learn more about our College Financial Planning services, please contact Susan at 800.471.0045 or use our online request form to schedule an appointment.

Susan Schwartz is a Certified Financial Planner and MBA.  Susan does not sell investment products and therefore, doesn't receive any fees for specific products.  She will advise you on what works best for you!  You might also want to try: College Search GamePLAN 

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Feature Article:

"KIDDIE TAX" INCREASED FOR SECOND TIME IN TWO YEARS

by Andrew D. Schwartz, CPA

For the second time in just two years, the Kiddie Tax, introduced as part of the massive Tax Reform Act of 1986, was made even broader. Prior to 2006, any unearned income above a certain threshold earned by a child under the age of 14 was taxed at the parent's tax rate.

In 2006, the Tax Increase Prevention and Reconciliation Act of 2006 expanded the Kiddie Tax to include children 17 or younger who earn more than $1,700 (in 2007) in interest, dividends, capital gains, and other non-wage income. 

This year, as part of the Small Business and Work Opportunity Tax Act signed into law on May 25^th, the Kiddie Tax was bumped up to age 18, and up to age 23 for children who are full time students, except for these children whose earned income exceeds more than half of that year’s support, effective 2008.

New Rules

Understanding how your child will be taxed is very important when determining how to best save money for their college education.  Unfortunately, parents who managed to build up a college savings nest egg in their children's names can expect to be hit with higher tax bills when liquidating those investment to pay for college.

Here's how the Kiddie Tax will work starting in 2008.  The first $850 (based on the 2007 brackets) of net investment income earned by a child isn't taxed, and the next $850 is taxed at a rate of either 5% or 10%, depending on the type of income earned. Any additional income is taxed based on the child's age as follows:

• Children 17 or younger:  A child's net investment income earned during the year that exceeds the $1,700 threshold (in 2007) is taxed at the parent's marginal tax rate.

• Child age 18:  Unless your child's earned income exceeds half of his or her support for the year, the child is subject to the Kiddie Tax.

• Children between the age of 19 and 23: If a child is a full-time student whose earned income does not exceed more than half of their support, a child is taxed under the Kiddie Tax rules. 

• Children over the age of 24: Upon reaching the age of 24, a child's income is taxed using the same tables that apply to single adults. For 2007, the first $7,825 of net taxable income is taxed at 10%, and then the next $24,025 is taxed at 15%. As with all taxpayers, corporate dividends and long-term capital gains are taxed at just 5% for income falling within the lowest two brackets, which equals $31,850 in 2007.

Saving For College Under the New Rules

Now that the Kiddie Tax applies to children through age 23, it makes even more sense for parents to consider saving for a child's college education either in their own name or within a 529 Plan or Coverdell Education Savings Account (ESA).  Don't forget that the Pension Protection Act of 2006 made tax-free distributions from 529 plans permanent.

• For financial aid purposes, effective July 1, 2007, 20% of the money held within your child's name is generally considered available to pay tuition and other related expenses, while a maximum of 5.6% of money held in the parent's name, including 529 plans, counts - according to FinAid.org.

• If your child receives a full scholarship or decides not to go to college, any money saved in that child's name becomes his or her property upon reaching the applicable age of majority in their home state.

The Six Month Solution

Nothing ruins good financial planning as quickly as a change to the income tax code.  So what steps should you take in light of these new rules?

If your child is young, take a long look at 529 plans.  The government really designed a great way to save for your child's education.  And it's tough to beat the fact that 529 plans provide you with tax-free growth.

What if your children are older, and you have already saved a bunch of money in their names earmarked for their college education?  Since the new Kiddie Tax rules don't take effect until tax years starting after May 25, 2007, you have the next six months, until December 31, 2007, to minimize  your family's tax bite. 

Consider selling enough of your child's investments to take advantage of the reduced tax rates available this year only to children who are 18 or older by December 31st.  For 2007, the tax rate on the first $31,850 of long-term capital gains is just 5%, provided your child has no other income. 

Then, determine if it makes sense to take the money and open a UGMA 529 plan.  Since these plans are considered your child's money, they are significantly less flexible than the standard 529 plan.  Even so, this strategy will allow your child's college money to grow tax-free from this point forward.

Reversal of Fortune For College Savings

How people save for a child's college education has changed dramatically over the past few decades.  Prior to the introduction of the Kiddie Tax twenty years ago, saving for college in a child's name was very common.

These days, with the broader Kiddie Tax rules, the increased popularity of 529 Plans, and the current financial aid formulas, the trend is now for parents to build up a college savings nest egg in their own names.