The business owner’s quick start guide to college funding

As a small business owner, you’re used to having to rely on yourself for everything from retirement planning to health insurance. Saving for your children’s college fund is no different. It may seem like a daunting task, yet there are strategies you can use to help fund your children’s education.

Business owners and financial aid

A couple owns a small hometown retail store. Over the years, it’s done well—expanding, hiring locals, and contributing to the local economy. Everyone is proud of the couple’s success—especially since the business is worth more than $1 million. Now that it’s time for college for the couple’s children, the parents are concerned that the success of their business means their children won’t qualify for financial aid.

Thanks to legislation that took effect in 2006, family-controlled businesses have options. If your business has 100 or fewer employees, you may still qualify for financial aid if you meet certain income requirements and if most of your assets are tied up in the business.

This couple has 30 employees and the main value of the business is in the retail location they own and their inventory. Their child ends up qualifying for limited financial aid, and they may even end up with the ability to claim an American Opportunity Tax Credit of up to $2,500 for their eligible student.

Consult a knowledgeable financial professional to determine your eligibility for financial aid. Paying for college becomes much easier when financial aid and tax breaks are involved.

Hiring your kids

To support her young son, a single mother opens an employment agency. After eight years, the business is doing well and her 13-year-old son comes in three times a week to help with office tasks like filing and light cleaning. The single mother pays her son an hourly wage in line with local wages, and a portion of those earnings can go toward his college fund.

To the extent that your child has a tax liability, your children are in lower tax brackets, and that can mean an overall advantage. You get a tax break for paying your children, lowering your income, and your children can use their earnings to save for college or other goals.

Work with an experienced financial professional to ensure that what you pay your child (earned income) helps them avoid the “kiddie” tax.

Another way to benefit your children who work in your business is to set up an educational assistance plan. If you have a written plan, you may be able to deduct some of your child’s education costs. Just make sure you understand additional requirements, such as offering this option to other employees and obeying limits on the benefits paid. A couple with a successful restaurant business must offer the educational assistance to the entire waitstaff—not just their own kids.

Tax-advantaged college savings

A man decides to start driving for Uber part-time in order to earn extra money for his two children’s college educations. After doing some research, he realizes that his state offers a tax deduction for contributions to a 529 savings plan. When he contributes everything he earns from his Uber earnings toward his children’s 529 plans, his side hustle becomes a state tax deduction.

Tax-advantaged accounts like a 529 plan help you save for your children’s education over time. Depending on your state, and the plan you use, you can qualify for a state tax deduction when you contribute to a 529, although there is no federal tax deduction. The money is tax-free to your child when the funds are withdrawn to pay for qualified education expenses.

If you fund a 529 with your child’s earnings, that can make your money more efficient over time. The single mother paying her son for administrative tasks, or the couple with the hometown retail store, can pay their children and use a portion of the money to boost the tax efficiency of their college funds.

It’s also possible to use cash value life insurance as a vehicle for saving for your child’s education. With the right planning, cash value can be more flexible than a 529.1

You want to give your child the best start in life. And, as a small business owner, you have several options available to save for educational expenses.

Brought to you by The Guardian Network © 2019, 2021. The Guardian Life Insurance Company of America.

2021-127488 Exp. 9/2023

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1 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.


Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.