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Strategies Business Owners can Deploy to Pay for Children’s College

Strategies Business Owners can Deploy to Pay for Children’s College

August 15, 2022
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Raising kids – much like owning a business – is full of ups and downs. From the time your children were young, you’ve likely been anticipating the day they head off to college and that significant expense has loomed in the distance. However, it will be here before you know it, and it’s never too early to start saving.

As a business owner, you have more opportunities than others to manage your income in preparation for large expenses. When it comes to paying for higher education, most families will need some element of financial aid, and the best way to qualify for more financial aid is by lowering your “expected family contribution” (EFC).

The EFC is an index number used to determine your eligibility for federal student aid. This number results from the financial information you provide in your Free Application for Federal Student Aid (FAFSA®) form.

Here are four strategies business owners can use to maximize available resources to pay for college.

Keep business assets separate
Your assets of small, family-owned businesses do not figure into the EFC formula. When you keep business assets in your business accounts, especially nearing or during the college years, they will not factor into whether your family qualifies for aid. By keeping your parental assets separate, your child has a better chance to qualify for financial aid.

Let’s Get to Work!
Employing your children in the business for legitimate job functions could offer benefits when it comes to college savings. By shifting income to your child, you deduct their payments on your tax returns. By compensating your child, you shift income out of your high tax bracket and into their low bracket.

The Roth Way
If possible, put your child’s first $6,000 of income into a Roth IRA account. This gives your child no deduction on the money going in but allows a tax exemption when withdrawn. * Exceptions could apply. Consult with your tax professional.

Contribute to a College Savings Plan
We encourage our clients, both business owners and not, to contribute to 529 College Savings Plans as their children grow. It’s one of the few remaining vehicles for tax-deferred growth outside of retirement plans.

Education planning is an important component of personal financial planning – because it’s a significant expense you must work toward. All financial strategies should be evaluated in light of your specific needs and circumstances, but we’d be happy to chat about whether these tactics might make sense for your family and business. Contact us today to get started!