Tag: college

If the thought of sending your child to college is making you sweat, don’t fear! While it is a major endeavor to get all the details in place, from choosing schools, navigating the application process, and planning for the transition, don’t let the worry about how to pay for all of it keep you up at night. In our last post, we provided an overview of the financial aid process and gave you ways to conquer the FAFSA. Now we are going to let you in on even more tips and tricks to maximize the financial aid your child could receive.

1. VERIFY HOUSEHOLD SIZE

The more people in your household, the better aid you will receive. If you have grandparents, nieces, nephews, or other family members living with you and relying on you for more than 50% of their support, you can include them in your household number. If you are expecting another child in the next school year, you can also include your unborn baby in the household size! Finally, if you have children who do not live with you but still rely on you for more than half of their support, they are also considered part of your household.

2. CORRECTLY REPORT YOUR BUSINESS

If you own your own business, be careful not to overvalue it on your application. Not all businesses are treated the same by FAFSA and the valuation could be quite low based on their criteria. For example, if you have small business with 100 or fewer full-time employees, you may not need to report your business at all!

3. CHOOSE WHO FILES

If you are divorced or legally separated, only one parent will file for financial aid. Since it can make a major difference in the aid received, make sure the right parent files. According to FAFSA, the custodial parent is the one who should apply, and that is the parent with whom your child has lived the most for the past 12 months. Ideally, the parent who makes the least money and has the lowest amount of assets is the custodial parent for financial aid purposes.

4. IGNORE COLLEGE LIFE INSURANCE

Many people aren’t even aware of college-oriented life insurance policies, but a salesperson may approach with this option. These policies often have high and unnecessary commissions and fees and have the potential to hurt your aid chances down the road, since utilizing these policies to pay expenses could increase your overall taxable income.

5. WATCH THE MARKETS

If you have a considerable amount of non-retirement investments, make sure you pay attention to the markets and file your aid application on a bad market day. This will lower the value of your assets and give you a chance to receive a better aid offer.

6. UNDERSTAND INCOME CATEGORIES

If your adjusted gross income is less than $50,000 and certain other criteria are met, (1) you do not have to share your non-retirement assets on the FAFSA. If you have found yourself without a job or underemployed, this can be a huge help in getting aid so your child can attend college.

7. STRATEGIZE GRANDPARENT CONTRIBUTIONS

If you are lucky enough to have parents who want to assist your kids with college, make sure you are smart about how you use that money. If a grandparent started a 529 account for their grandchild, that money will count as untaxed income for the student as soon as they take the money as a distribution. That amount could be assessed up to 50% in the aid formulas. Instead, grandparents can transfer ownership to parents where the amount will be assessed at the lower parent rate of 5.64%, or they can take a distribution in the child’s last year of school when the student will no longer be applying for aid.

8. COMPARE OFFERS

When you’ve completed the long, drawn-out application process and financial aid award letters start to roll in from your selected colleges, analyze the numbers. Your expected family contribution (EFC) should be listed on the letter, which will help you compare offers between the schools. If the award is much lower than the EFC suggests it should be, then it’s likely an inferior offer.

GET THE HELP YOU NEED

Applying for financial aid is not a simple process, but don’t let the stress and confusion stop you from making the wisest decisions and strategizing your application answers. Did you know that Archer Investment Management offers services to help you pay for college, including a specific Fafsassist package that will help you navigate financial aid roadblocks, complete and file major forms on your behalf, and help you determine which offer is best? We want to help you send your child to college with the best financial aid situation possible. Click here to schedule a phone call to get started!

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com. 

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(1) https://www.edvisors.com/fafsa/secrets/reduce-adjusted-gross-income/

Regardless of whether your child is two or twelve, the thought of college has probably crossed your mind. In the business of life and never-ending financial pressures, it is all too easy to ignore impending college years. But, your child’s education is one of the most important investments you can make, and, with today’s costs, it pays to have a plan in place.

These days, a high school graduate can expect to pay upwards of $200,000 for an undergraduate degree at a top school (1) and over $10,000 each year for in-state tuition alone at a public institution. (2) Thankfully, there are some genius ways you can maximize the financial aid your child receives to pay for their education.

FINANCIAL AID BASICS

Before we get into the tips and tricks to get as much money as possible, let’s look at how financial aid is determined. Here are the five factors that the federal student aid board takes into consideration:

• Parental income
• Number of children in college simultaneously
• Marital status of parents
• Assets in your child’s name
• Schools on your child’s list

Keep in mind that these factors are not all weighted equally. For example, income has a much greater impact than assets.

Expected Family Contribution

The FAFSA, or Free Application for Federal Student Aid, is the method used to potentially qualify for financial aid at your child’s college of choice. When you fill out this application, you will be asked to provide your financial information, which will then be calculated as your Expected Family Contribution, or ‘EFC’.

There are two types of aid available:

• Need-Based Aid: Colleges will offer need-based aid if a student can demonstrate their family has limited resources to provide for their education costs.
• Merit-Based Aid: To qualify for merit aid, students must show academic achievement, high test scores, and/or above average talents or accomplishments.

The College Factor

One of the main determinants of financial aid is the college choices on your child’s financial aid application. As an example, state universities rarely give nonresidents need-based financial aid, and many high-end colleges don’t offer merit scholarships to high-income families. For private institutions, much of the aid is in the form of loans, which only leads to a heavy debt load after graduation.

HOW TO CONQUER THE FAFSA

If you have a high-income or plenty of assets, you are not out of luck. Use these five tips to maximize the amount of financial aid your child might receive:

1. Exclude Retirement Accounts

Retirement accounts such as IRAs, 401(k)s, 403(b)s, etc. are exempt from your application. Your best bet to get the most money possible is to save as much as you can in these accounts before the college aid application base years. Also, avoid withdrawing money from retirement accounts in financial aid application years since the funds will be treated as taxable income.

2. File Early

Apply for aid as soon as possible after January 1st. Some schools and states award aid on a first-come-first-served basis until it runs out.

3. Move Assets

Your child’s individual assets will count for 20% for aid purposes, but yours will only count for 5.64%. (3) Take a look at your child’s assets and, if possible, move money out of their name and into yours. This step alone can affect your child’s eligibility by thousands of dollars in aid.

If your children have assets that can’t be moved or that you decide against transferring, make sure you use those assets first when paying for college expenses. This will increase financial aid opportunities in their subsequent college years.

4. Pay Down Debt

Your debt doesn’t affect your financial aid eligibility, but your cash reserves will. Consider using your excess cash to pay off debt, therefore reducing the amount of savings you have to declare on your FAFSA.

5. Double Up On College Enrollment

The more kids you have in college at the same time, the better. Having two children enrolled in college simultaneously can decrease your EFC  by 40% – 50%. (4)  If your children are close in age, think about delaying college for the eldest so they can overlap.

Hopefully this overview gives you both confidence and peace of mind as you draw closer to your children’s college years. In our next post, we’ll be discussing even more tips to help you become a genius about financial aid so you can both preserve your wealth and protect your children’s financial future. If you want to discuss your options with someone who knows the ins and outs of college planning, schedule a phone call today!

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com. 

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(1) http://blog.collegetuitioncompare.com/2015/05/ivy-league-2015-2016-estimated-tuition.html

(2) https://trends.collegeboard.org/sites/default/files/2017-trends-in-college-pricing_1.pdf

(3) https://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10089

(4) https://www.usnews.com/education/best-colleges/paying-for-college/articles/2017-08-02/explore-how-multiple-children-in-college-affects-financial-aid

If you missed the first posts in this series, find them here: “Getting Started Simply: How the College Financial Aid Process Works” & “Long-Term Strategies for Paying for College“

Section 529 plans are tax-advantaged college savings vehicles and one of the most popular ways to save for college today. I recommend them to clients often because they offer a unique combination of features that no other college savings vehicle can match.

What are the advantages of 529 plans?

• Federal tax advantages: Contributions to your account grow tax deferred and earnings are tax free if the money is used to pay the beneficiary’s qualified education expenses. The earnings portion of any withdrawal not used for college expenses is taxed at the recipient’s rate and subject to a 10% penalty.
• State tax advantages: Many states offer income tax incentives for state residents, such as a tax deduction for contributions or a tax exemption for qualified withdrawals.
• High contribution limits: Many plans let you contribute more than $300,000 over the life of the plan.
• Unlimited participation: Anyone can open a 529 plan account.
• Professional money management: College savings plans are offered by states, but they are managed by designated financial companies who are responsible for managing the plan’s underlying investment portfolios.
• Flexibility: Under federal rules, you are entitled to change the beneficiary of your account to a qualified family member at any time, as well as roll over money from your 529 plan account to a different 529 plan once per year without income tax or penalty implications.
• Wide use of funds: Money in a 529 college savings plan can be used at any undergraduate college in the United States or abroad that’s accredited by the U.S. Department of Education and, depending on the individual plan, for graduate school.
• Accelerated gifting: 529 plans offer an estate planning advantage in the form of accelerated gifting. This can be a favorable way for grandparents to contribute to their grandchildren’s education. Specifically, a lump-sum gift of up to five times the annual gift tax exclusion ($14,000 in 2016) is allowed in a single year, which means that individuals can make a lump-sum gift of up to $70,000 and married couples can gift up to $140,000. No gift tax will be owed, provided the gift is treated as having been made in equal installments over a five-year period and no other gifts are made to that beneficiary during the five years.

How do I choose the right 529 plan?

You can join any state’s 529 college savings plan. To make the process easier, it helps to consider a few key features:

• Your state’s tax benefits: A majority of states offer some type of income tax break for 529 college savings plan participants, such as a deduction for contributions or tax-free earnings on qualified withdrawals. However, some states limit their tax deduction to contributions made to in-state 529 plans only.
• Investment options: Ideally, you’ll want to find a plan with a wide variety of investment options that range from conservative to more growth-oriented to match your risk tolerance. To take the guesswork out of picking investments appropriate for your child’s age, most plans offer aged-based portfolios that automatically adjust to more conservative holdings as the beneficiary approaches college age.
• Fees and expenses: Fees and expenses can vary widely among plans, and high fees can take a bigger bite out of your savings. Typical fees include annual maintenance fees, administration and management fees (usually called the “expense ratio”), and underlying fund expenses. Compare the costs among plans using Savingforcollege.com.
• Reputation of financial institution: Make sure that the financial institution managing the plan is reputable and that you can reach customer service with any questions.

How do I open a new plan account?

Once you’ve selected a plan, you’ll need to fill out an application, where you’ll name a beneficiary and select one or more of the plan’s investment portfolios to which your contributions will be allocated. Also, you’ll typically be required to make an initial minimum contribution, which must be made in cash or a cash alternative. Thereafter, most plans will allow you to contribute as often as you like. This gives you the flexibility to tailor the frequency of your contributions to your own needs and budget, as well as to systematically invest your contributions.

What is a 529 prepaid tuition plan?

There are actually two types of 529 plans–college savings plans and prepaid tuition plans (prepaid plans are the less popular type). The tax advantages of college savings plans and prepaid tuition plans are the same, but the account features are very different. A prepaid tuition plan lets you prepay tuition at participating colleges at today’s prices for use by the beneficiary in the future. The following table describes the main differences:

Note:  Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated.

Source: Broadridge Investor Communication Solutions, 2016.