Don't Save for Your Child's Education-Craig Hill Source: Christopher Gearon, AARP Bulletin, October 2004 If a financial planner told you that it was unwise to save for your child or grandchild's future college education, you would most assuredly think that they were crazy. Starting college savings accounts is a common practice, but many financial advisors are advising against it, stating that it could actually penalize your child. If I calculate the costs for my one year old granddaughter, Grace, to attend college beginning when she is eighteen, it will likely cost more than $100,000. It is next to impossible to save that kind of money by investing in typical saving plans. New research suggests we need to think outside of the box while making such long-term investments. Parents who save for their children's college are actually often worse off than if they had never saved, under current tax and financial aid policies. All college saving plans can affect financial aid, whether it is invested in the name of the child or the parent. The complex formula used for financial aid takes into account family income, certain assets, and college costs. In this formula a much greater percent of savings placed in the child's name counts for college, compared with money saved in the parents' names. Susan Dynarski, a Harvard University researcher, found that tax-free savings plans called 529s and Coverdall education savings accounts offer the best deals in saving for college. Unfortunately, even those savings options can reduce a student's aid by 15 cents for each dollar drawn from such accounts, and there are fees if this money is not used for educational expenses. Not only is there reduction in student financial aid for every dollar saved, but experts say that couples in their 30s need to save $2-$3 million during their working years to maintain their standard of living in retirement. Not saving for your child's education is not advice for everyone, accountant Alice Orzechowski recommends caution, as many people do not qualify for financial aid based on their income alone. Many wise investors are putting their money in retirement planning. Assets such as home equity, retirement accounts, annuities and insurance policies are not included in financial aid formulas. If after saving for retirement, parents choose to pay for their child's schooling, they can do so; however, they might forego some tax benefits. Or, they could help repay student loans after graduation, or give money for the down payment on a home. Personally, I'm going on a trip and spend the kid's inheritance. Farewell to the typical college savings account and Hail to wiser investments.