Taxes & Financial Aid - Saving for Your Kids' Education. Maryland schools are ranked highly.

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Plan for Taxes    and Financial Aid Here's a little-known secret for parents planning to send their children to college in the future: Some of the tax-saving moves you make now could hurt your student's chances for getting financial aid later.  It's because of the way the financial aid system treats different assets. Retirement plans and IRAs don't count for college aid purposes. You're not expected to break into these accounts to pay for tuition. Another key point: The college aid formula requires 35 percent of the assets in your  child's name to be used for college costs. But the government-mandated formula only expects about 5.5 percent of the money in the parent's name to be spent. You're better off keeping accounts in your own name, especially during the last two years of high school, which is generally when you'll be asked to start providing tax returns. Don't assume you're not eligible for assistance. With the high cost of college today, many schools now have programs available to relatively well-off families if they meet certain qualifications. For example, your child might be able to get a "merit award" based on high standardized test scores and superior grades.  The best strategy: If you expect to apply for financial aid, don't hold back placing money in your own retirement plan to put away savings in a college account in your child's name. Contributions to retirement accounts are usually tax-deductible and the earnings are tax deferred until withdrawn. On top of these tax breaks, your family may also become eligible for more financial aid. Remember that you can usually tap retirement accounts for college money. Many 401(k) plans allow loans to be taken. And you can generally withdraw a limited amount from your IRAs penalty-free to pay higher education costs for yourself, children or grandchildren. Tax laws and tax rules are constantly being updated and interpreted. This article contains general information, so please discuss your individual situation with a trusted tax adviser before making tax decisions.