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College Planning for High-Net-Worth Families

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5 Tips to Help You Save 

If your family falls into the high-net-worth (HNW) category, you may be under the impression you’ll have to pay full price for your children’s college education. Fortunately, that’s not always the case. The following tips can help you save on college expenses.

Tip #1 – Save in a tax-advantaged account.

Even if you have the cash on hand to pay for your children’s college education expenses, it may make sense to set aside funds in a tax-advantaged college savings account, such as a 529 savings plan. Contributions to a 529 plan are made with after-tax dollars that grow tax-deferred within the account, and withdrawals for qualified educational expenses are tax free.

(Note: Coverdell education savings accounts are another tax-advantaged way to save for college tuition expenses, but contributions to these accounts are phased out for higher-income earners.)

Tip #2 – Establish a trust.

Establishing a trust to cover college expenses is a flexible solution that allows you, the donor, to specify how assets may be used. The main benefit of using a trust for college savings is there is no limit to the amount of assets you can contribute. The downside is that trust administration can add more complexity, and any contributions in excess of the annual gift tax exclusion ($16,000 in 2022) must be reported on one’s gift tax return, reducing individuals’ lifetime estate tax exemption amount ($12,060,000 in 2022). Also, trusts don’t provide the same tax advantages as a 529 plan, as investment gains are taxed annually and distributions are taxable either to the beneficiary or the grantor (the person who has set up the trust).

Tip #3 – Complete the Free Application for Federal Student Aid (FAFSA).

Many HNW families skip this important step in the college application process because they believe their child will not qualify for needs-based assistance due to the family’s income and net worth. While it’s true that needs-based assistance is typically reserved for lower-income families, there are many merit-based scholarships and grants that are awarded to students based on their responses to the FAFSA, so it’s smart to complete the FAFSA every year.

Tip #4 – Pursue other merit-based scholarships.

There are many merit-based scholarships available to students that are not tied to the family’s income and savings. These awards may be granted based on your child’s academic or athletic interests or to support a certain area of study. A great source for available scholarships is fastweb.com. The key is to start the process early, as many scholarships enforce strict application deadlines.

Tip #5 – Negotiate.

Many families are surprised to learn that college expenses are negotiable. If your child’s first-choice school’s financial package isn’t as good as another school’s package, ask the admissions officer at the first-choice school to match the grant/scholarship amount of the other school. Regardless of the tuition rate your child is offered, you may still be able to negotiate. Many schools are willing to lower their costs by 5% to 15%[1], so it never hurts to ask. Your child will be in a stronger position to negotiate if he/she is a strong candidate, as illustrated by:

  • Good test scores
  • A strong GPA
  • Multiple extracurricular activities
  • Job experience
  • Leadership experience

Important Note:

For ultra-affluent families with estates approaching or exceeding lifetime estate tax exemption amounts ($12,060,000 per person or $24.12 million per married couple), consider paying tuition directly and using your annual exclusion to remove assets from your estate.

Families in this situation should think twice before establishing college plans. This is because one way for a gift to be exempted from reporting requirements, no matter its size, is to pay for someone else’s medical care or educational tuition. Tuition payments must be made directly to the school (schools include not just colleges but also nursery schools, private grade schools and private high schools). Payments must be for tuition only—they cannot cover room and board or books. This strategy removes assets from your already large estate and allows your family to gift more than the annual exclusion amount of $16,000 per child.

Consider funding custodial accounts or irrevocable trusts for your children or grandchildren in order to remove assets (and future growth on those assets) from your estate — but remember the annual exclusion amount would apply to these accounts.

At Creative Planning, we help HNW families incorporate tax-efficient college savings strategies into their overall financial plans. Our teams consider your current financial situation, any challenges you face and your specific financial objectives as they work to develop strategies to help you achieve your personal financial goals. If you would like help with education planning for your children, schedule a call with a member of our team.


  1. https://www.fultonbank.com/Education-Center/Saving-and-Budgeting/Negotiate-College-Tuition-Cost

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.


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