To make matters more complicated, some states offer a state tax deduction or credit for using their plan, some states offer a deduction or credit for using any plan, and other states offer no deduction or credit at all. When choosing a plan, first see if your state offers a tax break and, if so, whether it requires you to use your state’s 529. If so, use that plan first. If not, or if you have already maximized the state tax break, then choose one of the top plans in the country with good investment options such as those of Utah, New York, Nevada, or Ohio. The largest benefit of an ESA or 529 plan is that the money, once contributed, grows in the account and is withdrawn from the account tax-free, as long as it is spent on legitimate education. If the money ends up not being needed, the beneficiary can be changed to another family member, including yourself. Unneeded money can also be withdrawn penalty-free, although not tax-free, if the child gets enough scholarships to pay for school. The earlier you start saving for college, the more of the heavy lifting the portfolio can do, thanks to compound interest, and the less you will need to save.
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ACEP Now: Vol 35 – No 11 – November 2016The fourth pillar is your current earnings. This is the main reason the FAFSA or CSS calculates your EFC to be such a high number. Typical emergency physicians will discover that their EFC is something like one-third of their annual income plus 6 percent of their non-retirement investments. It is true that for most physician families, a significant portion of the college expense can be simply cash-flowed. Unfortunately, one of the main benefits of cash flowing at least some of the cost of college is that tax credits and deductions are phased out for many emergency physicians. The American Opportunity Tax Credit ($2,500 per year) starts phasing out at an adjustable gross income of $90,000 ($180,000 for married filing jointly, or MFJ). The Lifetime Learning Credit ($2,000 per year) phases out at $65,000 ($130,000 MFJ). The tuition and fees deduction ($4,000 per year) phases out at $80,000 ($160,000 MFJ).
Notice that there is no pillar called debt. There is little reason for any student to have student loans when finishing a bachelor’s degree, especially the child of a physician. Certainly there is no reason for the physician to take on additional debt such as Parent PLUS Loans or a home-equity line of credit to pay for school. If the cost cannot be covered with savings, the earnings of the child, and the earnings of the parent, consider choosing a less expensive school.
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3 Responses to “Financial-Aid Planning for Physicians with College-Bound Children”
December 12, 2016
David Adinaro MD, FACEPI thought this was very well written but as the parent of a recent college student I was surprised by some of the conclusions in the last paragraph.
My daughter looked at a variety of schools but none were anywhere near $36,000 per year. The average was closer to $50,000 per year. (with a scholarship we are paying $40,000 in her Freshman year)
Also in this economy who expects their child to earn nearly $10,000 a year and to put it towards their education? At minimum wage that is nearly 1,200 hours of employment in a year.
Assuming you do not want your child to carry any debt it is realistic to plan for at least $120,000-$150,000 per child for average private colleges (and many public ones).That is assuming they graduate in 4 years (rare these days) and don’t have internships and semesters abroad.
December 12, 2016
James M. Dahle, MD, FACEPThank you for your valuable and personalized feedback.
Would it be helpful for me to provide a list of schools with tuition under $20K a year? There are dozens and dozens of them. There are 10 in my small state alone. Just because your daughter only looked at more expensive schools, doesn’t mean the cheaper ones do not exist. If your daughter were told that schools costing $40-50K per year would not be an option, I’m sure she would pick her favorites of the less expensive ones to apply to. Some states don’t have very cheap in-state universities, but I don’t know of one where the cheapest school in state is >$40K.
I, for one, expect my children to earn $10,000 a year during college. Heck, my wife and I both made more than that a year 20 years ago in college with summer and part-time work. I did so while maintaining a GPA sufficient to get into med school and playing college hockey. Hopefully they can get jobs that pay more than minimum wage, but even if it takes 1200 hours, I don’t see that as a big deal. Consider 4 months in the summer- maybe 18 weeks. At 60 hours a week, that’s 1080 hours. That only leaves another 120 hours, or 15 per month during the school year. Seems very doable to me. But if it seems like too much for you, knock it down to $5,000 per year and adjust elsewhere accordingly.
I’m not sure what you mean by “this economy” but by most figures (unemployment, wages etc) the economy is doing at least average by historical figures.
Finally, I see nothing wrong with you paying $150,000 per child for your childrens’ educations as long as you can afford that. I know a rheumatologist who spent a cool million on the education of his four children because it was a major priority for him. But if you (or someone else reading this comment) cannot afford that, I would recommend some of the tactics discussed in the above article.
February 27, 2017
HDMDDisclaimer: I am an avid fan of the ‘White Coat Investor’ blog.
I agree with the pillars in the article. My first son is a freshman in college at North Carolina State University which is a very good public university and I am paying under $25000/year. While he did apply to some elite colleges, I let him know way ahead of time that unless he had really big scholarships he would be going instate and he understood. I won’t make him work while at college until he feels like he has his academics under solid control.I have two others to put through college in a few years. I don’t plan to touch the 529 right now and I will just transfer beneficiaries if I have to. This is my first year of at least 10 years of college payments total for my three children, and, while prestige is nice, I plan to pay for value. Here in North Carolina, that’s pretty easy to do.