Accounting For Your Child's Education Cost

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Robert Klein is a savvy certified public accountant in New York. A graduate of Baruch College, he does accounting and tax preparation for companies and individuals and works with financial and estate planners for his clients. He has put two children through college.

Speaking as a tax accountant, what’s the best thing parents can do to prepare themselves to pay for sending their children to college?
Before you even become a parent, you should marry into money. Failure to do that brings you into crisis.
Basically, anyone who is middle class gets the shaft when it comes to scholarships and financial aid.

Do you think the average Joe out there making $50,000 to $100,000
and owning a house can afford $40,000 a year for his kid to go to school?
The norm in this country is to live hand-to-mouth, or worse. If you earn
X, you spend X plus 10 percent, or 20 percent. People drive around in expensive
cars that are leased. They have no equity and they are living over their heads.
I have people as clients who you would think were multibillionaires
but they don’t have anything to their name.

But the answer to your question is this: People who want to do
something about college have to start at an early age. It is very tough to put
money away for children when you are living on a very tight budget yourself,
but that’s what you have to do.

You have to make sacrifices, and unfortunately the American way is not
to make the sacrifice. “I will worry about it next year,” they say. Or “I will
worry about it in ten years.” And then they have a major problem.
Financial adviser Patrick Curtin agrees with you about the need
for an early start, but he also says he becomes very concerned when
young parents come in and say they are going to throw all their
available savings into a college education fund and not into their own
retirement fund. He says that is backwards.
There is an argument for that.

And you could also say, “I have a very intelligent child and I am going
to spend $250,000 to get him through grad school and that kid is going to
flourish and get a great job and he is going to be my retirement.”
In my case, my wife and I have been very conservative when it
came to our money, putting savings and investments aside and selffinancing
everything but our home.


The ordinary guy is the one who has a large amount of credit card debt
and has no equity. He leases new cars not because he needs them, but because
he wants them.

Some college advisers suggest that students consider changing
their state of residency to qualify for a public college at the in-state rate.
For tax purposes, how do you establish residency in a new state?
If there is a state income tax, people who earn income there have to
file a state tax return whether or not they reside there. If general, if you are
living in, let’s say, Massachusetts and actually paying rent there, that’s your
residence and you are required to file a state tax return as a resident. If you are
not deemed to be a resident, you would file a return as a nonresident
Just because you file a state return doesn’t necessarily mean that you are
now a state resident there, enabling your child to go to that state university.

Each state has different criteria as to what constitutes residence for college
purposes. In most cases it is living there as your principal residence for a
period of time. In some cases, that period of time is vague.

One strategy that makes some sense—if the parents or the
grandparents have some money—is to put aside $40,000 or $50,000 in
something like a 529 plan when a child is born and leave it there for the
next eighteen years. Done right, the parents don’t have to talk about
college financing again.

First of all, that means someone has $40,000 or so available. And there
are a lot of grandparents out there who have that money but don’t wish to
be part of this to the extent that he is talking about. You are talking about
parting with money. People have different priorities.
The greatest gift one can give their child is to allow them to graduate
debt-free from college.
My son goes to a school where there is a lot of money, and he may be
the poorest kid on campus.


And for the record, you are a successful CPA.
I will give you that point at times. But he appreciated more than
anything what we have done to enable him to go without loans.
If you look at it, you can see how college debt has choked people beyond
being able to survive. It’s terrible.

It all boils down to what are your priorities in life. There are people who
are so self-centered; they always say someone else will deal with it. They’ll tell
their kid, “I had to work 27,000 hours to pay for my own college.”
Times are different.
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