You should complete your finanacial aid planning prior to your child's junior year of high school. While the financial aid application process starts 2nd semester of senior year of high school, any financial aid planning for the freshman year of college should be in place by 2nd semester of junior year of high school. For the application process you will gather the financial aid forms, all your financial records and the tax returns you just got back from your accountant. However, those tax returns are based on the previous tax year - the tax year that began 2nd semester of junior year and includes first semester of senior year. This is known as the base income year.

If you plan to liquidate stocks, bonds, mutual funds, EE savings bonds or IRAs to pay for college, you should do so prior to the base income year. Doing so avoids the realization of income or capital gain which in turn would increase your EFC and thereby reduce aid eligibility.