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Higher Education Expenses Paid From an IRA

An IRA can be used to pay for higher education expenses. This avoids the penalty for early withdrawal that occurs if you’re under age 59 1/2.

Should I Pay Off My Student Loans or Start Investing?

I had an interesting question come my way from a student the other day and I thought I’d expand on my answer that I gave to the student. The question was whether he should pay off his student loans and then start investing, or if he should start investing first and pay off the student loans gradually. If we really look at it, paying down any type of debt is very similar to making an investment in a guaranteed account paying interest on the equivalent of the interest rate on the debt. This student’s interest rate on his debt was approximately 7%. Paying this off would not be unwise and would be a great way to earn 7% risk free – only this method keeps the 7% out of the lender’s pocket and puts it into the borrower’s. However, if we completely ignore investing and saving for retirement we can […]

Mutual Funds vs. 529 Plans

Saving for college is a tough job – on par with saving for retirement, and often in direct conflict with that goal as well. Adding to the difficulty of the task is the fact that there are so many different options out there (in terms of investment vehicles) that really muddy the waters for the individual college saver. One question that comes up very often is whether it is just as effective to utilize tax-effficient mutual funds instead of 529 plans as we save for college. The idea is that the mutual fund can generate a higher overall return than the 529 plan due to the additional costs associated with the administration of the 529 plan. It is a fact that most 529 plans charge management fees that have a direct impact on the overall return of the account, and it is also a fact that many tax-efficient mutual funds […]

529 Plan vs. Student Loan

When planning for the cost of college for your children, often parents and grandparents think of the 529 plan due to the tax benefits. Almost ten years ago the 2006 Pension Protection Act made the tax treatment of 529 plan college savings instruments permanent.  This will be familiar ground for most, but perhaps parents of future college students need to a refresher. It will always be cheaper to save for college than to pay for loans. If you’re in the position of most folks – with enough assets that you figure your child won’t be considered for financial aid – then it pays in spades to save now. If you saved $150 a month into a 529 plan for 10 years at 4% rate of return, you’d have just over $22,000 saved up. If, on the other hand, you didn’t save that money and had to borrow $22,000, paying it […]

Retirement vs College Saving in a Nutshell

Those of us who are parents know this conflict very well – should we put aside money for retirement, or for college saving? It may come as a surprise, but a general rule of thumb with regard to this conflict is to put money aside for retirement first, and college second. The reason behind this is that there are many ways to pay for college, such as grants, scholarships, work-study programs, student loans, parent loans, etc.. With this plethora of choices, it becomes clear that your student’s college funding needs can be met from quite a few angles, none of which should have a dramatic impact on your overall net worth (or your student’s). On the other hand, no one will give you a scholarship to retire. It is solely up to you and your savings (coupled with Social Security and any available pensions).

College Costs Increase for 2014/2015

Background Every year, the College Board releases  its Trends in College Pricing and Trends in Student Aid reports that highlight current college costs and trends in financial aid. While costs can vary significantly depending on the region and college, the College Board publishes average cost figures, which are based on its survey of nearly 4,000 colleges across the country. Following are cost highlights. Total cost figures include tuition and fees, room and board, and a sum for books, transportation, and personal expenses. Together, these expenditures are officially referred to as the “total cost of attendance.”

Avoid the Freshman 15

It’s that time of year again when students either embark on a new journey from high school to college or return to undergrad studies from their freshman, sophomore, or junior summer into a new year of college. It’s also the time when bad habits, if left unmonitored, can result in what’s called the Freshman 15 – debt and weight gain. Historically, the Freshman 15 meant that a student settled down in college and in the first few months gained weight due to poor eating habits, stress, and perhaps alcohol consumption after turning 21. Today, I’ve expanded the Freshman 15 to also mean 15% – of credit card debt. Like consuming food, consuming money and on credit can lead to bad habits and have negative consequences. I can remember when I was a freshman in college and the credit card offers came pouring in. What an amazing display of copywriting! It […]

5 Essential Financial Planning Steps for Your 30s and 40s

(jb note: the article below is from my friend Roger Wohlner, who blogs at The Chicago Financial Planner.) Many of the calls that I receive are from folks in their 50s or 60s who are either within sight of retirement or already retired.  Many of these callers are pretty well-prepared for retirement and are seeking my help to fine-tune their situation and/or to help them through this next phase of life.  This type of financial readiness doesn’t just happen it takes planning and preparation.  Here are 5 essential financial planning steps for those of you in your 30s and 40s to help you reach your retirement goals and more importantly to help you achieve financial independence. Get started  If for whatever reason you haven’t done much of anything to ensure your financial future it’s time to get going.  Today is the best day to get started, tomorrow is the second best […]

Book Review: Strategic Capitalism – The New Economic Strategy for Winning the Capitalist Cold War

Author Richard A. D’Aveni has written a very compelling book with Strategic Capitalism, a book that provides some very important information for Americans to review and consider due to the coming economic cold war between the United States and China.  Mr. D’Aveni asserts that the United States’ traditional version of capitalism must be adapted in order to compete with China’s conglomeration of various types of capitalism. The beginning of the book details the many different pure types of capitalism – Laissez-Faire, social-market, managed, and philanthropic – and how these have been used over the years in many different economies.  Mr. D’Aveni points out that rarely is a single pure type of capitalism ever the only type of capitalism in use in an economic system, but rather that many different forms of capitalism are blended together to work in the economic and political interests of the country or union in question. […]

Why Designations Matter

Throughout my career I have had the occasion to talk with several financial advisors, planners, insurance agents, brokers, and other industry professionals about some of the reasons why people choose to pursue or not to pursue designations. I have heard differing views on the topic and thought I’d share some of my insights as to why I chose and still choose to pursue designations and degrees. Before I do, let me start by talking about some of the reasons why the advisors I have spoken to decide not to earn a designation. More often than not, the typical answers that I receive are not having enough time, not sure which designation to pursue, lack of funding to afford the designation, and lack of support on earning the designation – either from their employer or family. On the latter two points, some companies may not be able to “support” the designation […]

Student Loan Interest Rates Won’t Increase, For Now

On June 29, 2012, Congress approved legislation to stop the interest rate on federal subsidized Stafford Loans from increasing from the current 3.4% to 6.8% on July 1, 2012, for new college borrowers.  The rate had been scheduled to increase under provisions in the College Cost Reduction and Access Act of 2007. The rate freeze is effective for one year – and will (unless extended) increase to 6.8% on July 1, 2013. Under the new legislation: Rates on subsidized Stafford Loans will remain at 3.4% for undergraduates for one more school year, until July 1, 2013. As of July 1, 2013, undergraduate students with a subsidized Stafford Loan will have a maximum of six year of in-school status when the federal government will pay the interest on the loan while the student is in school.  Previously, the government paid the interest for as long as it took a student to […]

IRA Rollovers and College Financial Aid

Here’s an impact of an IRA rollover that you may not have thought of:  depending upon how you handle your rollover, you could impact college financial aid – either your own if you’re working and attending college, or more likely, that of your child. How could this happen?  Since a rollover doesn’t cause you to incur taxable income, how might it cause an impact on financial aid? Well, if you don’t do a direct, trustee-to-trustee transfer, that is, if you take possession of the funds from a rollover and complete it within 60 days, you’ll have to declare those funds as part of your gross income on your tax return.  This is where many colleges get their information for financial aid calculations. So, this is another case where it makes good sense to always do a rollover by way of a direct trustee-to-trustee transfer rather than the 60-day rollover. Photo […]

Tax Benefits for College

When faced with the high cost of college, you want to find and take advantage of every opportunity that you can to cut down on your out-of-pocket expenses, before you give in and take out loans.  So after you’ve applied for all of the grants, scholarships, and other non-loan financial aid that you can, it’s time to consider what sorts of tax benefits may help out with your situation. Credits There are two different kinds of tax credits currently available in tax year 2010 and 2011: American Opportunity Credit – This credit is available for students (and parents of students) that are in their first four years in a degree program at college.  The credit is a maximum of $2,500, and is calculated as:  100% of the first $2,000, and 25% of the next $2,000 of Qualified Higher Education Expenses (QHEE) paid for that student.  QHEE is limited to tuition, […]

The Downside of Prepaid Tuition

When planning to save for future college expenses, you may run across several options – including insurance policies, savings bonds, retirement accounts and specific education accounts, such as Coverdell Education Savings and Section 529 plans. Among the options for Section 529 plans are two types of account:  savings and prepaid tuition.  Following is a brief explanation of the two types of account. Savings-Type 529 Plan The savings type of 529 plan works much like an IRA or 401(k): contributions are made and the amounts contributed to the plan are allocated among various sorts of investment options, mostly mutual funds or derivatives of mutual funds.  Over time, assuming that you’ve made appropriate allocation choices and the investments grow, the balance of the account will in turn grow, increasing the amount of funds available to pay for college expenses.  Growth in the account is tax-free when used for qualified higher education expenses […]

20 Questions About 529 Plans

Below is a reprint of an interaction that I had with an anonymous individual several years ago on a web bulletin board, as I thought the 20 questions that the individual listed might be interesting to you.  I’ve reviewed the list and updated responses where laws have changed or where I was more snarky than necessary in my response.  Let me know if you have more questions to add to the list! Keep in mind as you read this, the questions are one individual’s specific concerns about his situation.  The person asking the question has simply put this list of questions out on a public bulletin board hoping for responses – that’s part of why some of the questions aren’t fully answered or clarified, since the original poster didn’t come back to clarify his questions or respond to my responses… The original questions are numbered, and my response is italicized. […]

401(kids)? A Rehash of the Coverdell

With much fanfare, Illinois congressman and US Senate candidate Mark Kirk (R-Illinois) has pushed his plan, adorably referred to as 401(kids) (see news story here).  But what is this plan he’s referring to?  Unless I’m missing something, this is the Coverdell ESA (Education Savings Account) that has been in existence for quite some time now. Kirk’s primary beef is with the Illinois-based BrightStart 529 plan – which is mostly a swipe at one of his main opponents in the Senate race, Illinois’ Treasurer Alexi Giannoulias, since BrightStart falls under Giannoulias’ responsibility.  Last year, one of the funds in the BrightStart plan, managed by Oppenheimer, was severely impacted by the fallout in the bond market due to overexposure in the derivatives market.  Negotiations between Oppenheimer and Giannoulias’ office are continuing, and investors are expected to receive some sort of remuneration soon. So anyhow, as is often the case, in the heat of […]

Six Important Facts About the American Opportunity Tax Credit

The IRS recently posted a tax tip (Tax Tip 2009-11) regarding the provisions of the American Opportunity Tax Credit, which was created as a part of ARRA 2009. The six facts reported in the IRS notice are as follows: The American Opportunity Tax Credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010.  Qualified tuition and related expenses include tuition, related fees, books and other required course materials. The credit is equal to 100% of the first $2,000 spend and 25% of the next $2,000 per student each year.  Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student. The full credit is generally available to eligible taxpayers who make less than $80,000 (single taxpayers) or $160,000 (married taxpayers […]

Changes to Student Aid 7/1/2009

Every year on July 1, annual changes come into play in the education aid arena, and this year is no exception, with lots of changes.  As of July 1, 2009, several changes for Student Financial Aid went into effect.  Highlights are: Increase in maximum Pell Grants to $5,350.  The old maximum amount for Pell Grants was $4,700, a number increased by the College Cost Reduction and Access Act (CCRAA) and the American Recovery and Reinvestment Act (ARRA).  The minimum Pell grant has been increased – in the past the minimum was $400, and now the minimum has been pegged at 10% of the appropriated maximum… so, to really confuse matters, the “appropriated maximum” for 2009-2010 is $4,860, with a CCRAA addition of $490 to all Pell awards (hence the maximum reported above of $5,350).  What this means is that the effective minimum for school year 2009-2010 is $976, which is […]

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