What Should Single Parents Know About College Planning?
Single parents are faced with the pressure of supporting an entire household on their own—which can often make paying for college seem like an insurmountable goal. Fortunately, there are several different ways for single parents to save, invest, and pay for their child's college education.
Learn more about some of the programs available, including some that are unique to single-parent households.
Focus on Your Tax Advantages
Several provisions of the U.S. tax code are designed to help single parents get ahead. By setting aside any refunds these tax credits generate, single parents can amass a bit of a nest egg to help launch a college-aged child. These tax breaks include:
- The Child Tax Credit, which provides parents with a tax credit of $2,000 per child (under age 17) per year. This credit doesn't phase out until a single parent hits $200,000 in annual income, and those earning between $200,000 and $240,000 will still be eligible for some amount of the credit.1
- The Child and Dependent Care Tax Credit provides taxpayers with another $3,000 per child, or up to $6,000 for two or more children.[1]
- The Earned Income Tax Credit can provide up to $6,728 for those earning an adjusted gross income (AGI) of $51,464 in 2021.[2]
Take Advantage of Tax-Preferred Savings Vehicles
If your state offers a tax refund or credit for contributions to a 529 college savings account, taking advantage of this can reduce your taxes and allow you to set aside some funds for your child. Unlike other savings vehicles, 529s are designed for higher education expenses only—if you withdraw funds to use for non-college expenses, you may be required to pay a penalty.[3]
There's no limit to the amount a parent can contribute to a 529 plan, although all states have caps on how much will count toward a deduction or credit.2 And not all states have a state income tax or provide any credit or deductions for 529 contributions, so single parents should investigate their state's rules before deciding whether this option makes sense.
Be Strategic in Filling Out the FAFSA
The FAFSA, or Free Application for Federal Student Aid, can often be the key to financing college. The FAFSA relies on a parent's income, family size, assets, and tax information to generate an "expected family contribution," or EFC. The lower the EFC, the more aid a student may qualify for, including Pell Grants, scholarships, and work-study programs.[4]
As a result, it's a good idea for single parents to do everything they can to lower their taxable income during the year or two before a child goes to college. This can include increasing 401(k) or traditional IRA contributions (since a parent's retirement assets aren't reported on the FAFSA), pushing off irregular sources of income into the next calendar year, or taking advantage of itemizing your deductions 3
College can be a stressful time for both you and your teenager. But by having a plan in place to help defray college costs, single parents can reduce the financial pressure associated with launching their teen.
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