Published by Robert J Falcon, CFP®, CPA/PFS, CCFC®, MBA

As part of the Covid relief package passed by Congress in December 2020, the Free Application for Federal Student Aid (FAFSA) Simplification Act makes significant changes to the FAFSA form beginning with the 2024-2025 school year.

The good news is that more low-income families will qualify for full Pell Grants, and there will be a significant reduction in the number of questions.

However, middle-class families entering college today must be prepared for potentially significant cuts to their aid packages beginning with the 2024-2025 school year.

EFC/SAI Primer
The income and assets of parents and students on the FAFSA drive the calculation of the Expected Family Contribution (EFC), which represents the minimum amount families are expected to pay each year for college. Most families pay much more than the EFC, and since the term was seen as misleading, the EFC term is being replaced in this law by the Student Aid Index (SAI). I’ll refer to this number hereafter as the “EFC/SAI.”

Families should calculate the EFC/SAI as the first step in their college search if they do not want to overpay for college. The EFC/SAI reduces the total Cost of Attendance (COA) at a school to determine your financial need.

For example, if a student attends a college with a COA of $75,000 and the family has a $60,000 EFC/SAI, the family has $15,000 of financial need. Colleges typically “meet” 50% to 100% of that need, and they may do so with grants (free money), loans, and work-study. So, the lower your EFC/SAI, the greater your financial need and aid.

Changes Hurting Middle-Class Families

Unfortunately, there are two significant changes that will negatively affect middle-class families that do not qualify for Pell Grants and who do not have a minimal EFC/SAI.

Multiple Siblings in College
Current Rules: Today, it is beneficial to have multiple kids in college at the same time. Why? Because under current FAFSA rules, you get to divide your EFC/SAI by the number of students you have in college that year.

For example, if a family today has an EFC/SAI of $60,000 and has 3 kids in college, each would get a prorated share of the EFC/SAI equal to $20,000 ($60,000 ÷ 3 students). If one of them attended a school with a COA of $50,000, that student would have $30,000 ($50,000 – $20,000) of financial need.

New Rules:  The proration of the EFC/SAI will be eliminated starting with the 2023-2024 school year. Applying the new rules to the example above, each of the 3 students would have an EFC/SAI of $60,000.  The student attending the school with the COA of $50,000 would pay the full cost as the COA ($50,000) does not exceed the EFC/SAI ($60,000).

Divorced Families may pay More
Current Rules: Today, the spouse with which the student lives the majority of the time (> 183 days) is responsible for filing the FAFSA and reporting their income and assets. The income and assets of the other birth parent are ignored. The terms of a divorce decree or the parent providing the most financial support are irrelevant in determining which parent files and reports their income and assets on the FAFSA.

Example: Assume that a student splits her time between her divorced parents. The student spends all weekdays during the school year plus some weekends (say ~200 days/year) with Parent #1, who is a teacher making $60,000/year, has minimal assets, and rents an apartment. Parent #2 is a professional making $150,000/year, owns a condo at the beach, and is responsible (under the divorce decree) for child support of $15,000/yr. The student vacations with and spends most of the Summer at the beach with Parent #2 who provides the greater portion of the student’s support for the year.

Under the current FAFSA, Parent #1 would file the FAFSA and report their assets and income (including the $15,000 of child support received) since the student lives with them more than half the time.

New Rules: Starting in 2024-2025 school year, the divorced parent who provides the most financial support for the student must file the FAFSA and report their income and assets (Parent #2 in this example). Therefore, this family’s EFC/SAI (and the net cost of college) will be much higher than it would be if the custodial parent (Parent #1) filed the FAFSA.

But this is a good and equitable change, right? Maybe not. Consider the following situations:

Situation 1: Many divorce decrees stipulate how college costs are to be shared between the birth parents (e.g., 50%/50%, 25%/75%). Since the result of these new rules is a decrease in financial aid, the family’s total cost of college will go up. This means Parent #1 (who makes a lot less than Parent #2) will need to pay more than under current FAFSA rules.

Situation 2: Parent #2 just got remarried, and their new spouse also makes $150,000 per year. Under current (and new) FAFSA rules, the income of the new step-parent must be included on the FAFSA filed by Parent #2. Now, Parent #1’s share of the college costs will go up considerably simply because their ex-spouse got remarried. Wait, it gets worse….

Situation 3: What if the divorced couple had 2 or 3 children in college simultaneously? Then, the increase in the cost of college triggered by the change in the divorce rules is made much worse because the family doesn’t get to split the EFC/SAI amongst the siblings.

A Caution to High School Seniors
Families with high school seniors will soon select the college they will attend. They need to determine if and by how much their 4-year college costs will increase due to these changes, and possibly choose a less expensive school to attend for all 4 years.

If the family waits until their costs go up in the Fall of 2024 before addressing these changes, they will then need to make some uncomfortable decisions that may include (a) taking out parental PLUS loans, (b) asking their student to take a gap year to earn money to finish college, or (c) asking their student to transfer to a lower-cost college. Do not conclude that a college is affordable based solely on your Freshman financial aid award.

Options to Consider
These changes to the FAFSA do not affect the aid given by many private colleges that require the CSS Profile in addition to the FAFSA. The CSS Profile still permits the EFC/SAI to be prorated between multiple siblings in college simultaneously, and it treats the income and assets of divorced parents (and their new spouses if remarried) differently than the FAFSA.

While CSS colleges generally have a higher COA, they also typically award higher amounts of gift aid compared to public colleges. Families should consider CSS schools to see if their net 4-year cost is lower than at FAFSA-only schools.

The post Middle-Class Financial Aid Cuts Coming in 2024 appeared first on How to Pay for College.

Published by Robert J Falcon, CFP®, CPA/PFS, CCFC®, MBA

As a result of the December 2020 Free Application for Federal Student Aid (FAFSA) Simplification Act, colleges that use the FAFSA to distribute financial aid will be changing how they calculate and award needs-based aid beginning in the 2024-2025 school year. That year, today’s high school seniors will just be starting their junior year in college. If the high school Class of 2022 families do not plan for these changes today, their kids could face significant reductions in financial aid, increased parental and student loan debt, gap years, and a possible transfer to a more affordable college.

I have laid out below the steps and strategy you can take today to protect yourself from being negatively impacted by these FAFSA changes.

What Families are Impacted?

Families with Multiple Students in School Simultaneously

Under current FAFSA rules, you get to divide your Expected Family Contribution (EFC, the minimum amount families are expected to pay each year for college) by the number of students you have in college that year.

For example, if a family has an EFC of $80,000 and has 2 kids in college, each would get a prorated share of the EFC equal to $40,000 ($80,000 ÷ 2 students). If one of them attended a school with a total “all in” cost (Cost of Attendance, or COA) of $70,000, that student would have $30,000 ($70,000 – $40,000) of financial need. (Note that the EFC term will be replaced with SAI, or Student Aid Index beginning with the 2024-2025 school year. For simplicity, I will use the EFC term here.)

The proration of the EFC will be eliminated starting with the 2024-2025 school year. Applying the new rules to the example above, both students would have an EFC of $80,000.  The student attending the school with the COA of $70,000 would pay the full cost as the COA ($70,000) does not exceed the EFC ($80,000).

Families with Divorced Parents may pay more
Today, the spouse with which the student lives the majority of the time (> 183 days) is responsible for filing the FAFSA and reporting their income and assets. The income and assets of the other birth parent are ignored. The current advice we give to these families is to make sure the student lives the majority of the time with the parent with lower income and assets. (Note that the terms of a divorce decree are irrelevant in determining which parent files and reports their income and assets on the FAFSA.)

Starting with the 2024-2025 school year, the divorced parent who provides the most financial support for the student must file the FAFSA and report their income and assets. Regardless with whom the student lives most of the time, this family’s EFC (and the net cost of college) will be higher than it would be under current FAFSA rules.

But this is a good and equitable change, right? Maybe not. Consider the following situations:

Situation 1: Parent #1 is the custodial parent but makes significantly less than Parent #2, who provides the most support. Their divorce decree stipulates that Parent #1 must pay 33% of college costs and Parent #2 67%. Since Parent #2 must file the FAFSA, the financial aid award will be lower. As a result, the family’s total cost of college will go up and both birth parents will pay more for college. Parent #1 (who makes a lot less than Parent #2) will need to pay more than under current FAFSA rules.

Situation 2: The parent providing the most financial support (Parent #2) gets remarried, and their new spouse also has a 6-digit salary. Under the FAFSA rules, the income of the new step-parent must be included on the FAFSA filed by Parent #2. Now, Parent #1’s 33% share of the college costs will go up even more simply because their ex-spouse got remarried. (Talk about adding some gas to the fire, no?) Wait, it gets worse….

Situation 3: What if this divorced couple had 2 or 3 children in college simultaneously? Then, the higher EFC that is triggered by the change in the divorce rules is compounded by the fact that the family doesn’t get to split the EFC amongst the siblings. Each sibling gets the new higher EFC!

A Caution to High School Seniors
Families with high school seniors will soon select the college they will attend. They need to determine if and by how much their 4-year college costs will increase in their junior and senior years due to these changes. They can find a cheap 2024 prom dress online to stick to the budget. If the family fails to plan and waits until their costs go up in 2024 before addressing these changes, they will then need to make some uncomfortable decisions that may include (a) taking out parental PLUS or private loans, home equity loans, or running up credit card debt, (b) asking their student to take a gap year to earn money to finish college, or (c) asking their student to transfer to a lower-cost college. A better option is to measure the impact these FAFSA changes will have to their financial aid over the full 4 years of college today and to plan and react accordingly.

Should the Colleges Be Warning Parents?

It remains to be seen if colleges will proactively warn parents of these financial aid changes over the upcoming months. I am sounding the alarm now because I know how the hearts of 17- and 18-year-olds can become fixated on a specific school, especially one they know is affordable under the current rules. At a minimum, I hope colleges will warn students that large changes are coming to the FAFSA in 2024-2025 (perhaps when they send out their award letters). But, I am also aware that colleges are businesses fighting for their survival.  Finally, if colleges do disclose these pending changes, I hope that the disclosure is more than a footnote in a financial aid award letter.

What Can Parents Do Now?

All families should check today to see if they could be negatively impacted by these changes. They have a number of options at their disposal:

• Families with students accepted to schools where their aid could be decreased may want to engage in a dialogue with the financial aid office before enrolling at the college. If the family knows their cost of college may go up under the new rules, they should appeal to the college to:
  1. Grandfather the family’s aid calculation methodology to remain the same as the current FAFSA methodology for the student’s full 4 years, or
  2. Keep the dollar amount of gift aid equal to the student’s freshman and sophomore year award (i.e,. prior to the FAFSA rules change).
• Consider attending one of the schools that utilize a second financial aid form called the CSS profile. The schools that utilize the CSS are mostly private schools that administer a considerable amount of their own institutional aid. So far, the CSS schools have not adopted the proposed FAFSA rules revoking the splitting of the EFC. This may make CSS schools more attractive to families with multiple students in college at the same time. Divorced families may or may not get more aid under the CSS as its calculation of EFC often (but not always) includes both birth parents’ income and assets. The CSS also includes a portion of home equity as a parental asset in its EFC calculation.

The financial aid rules today are overly complicated, and that is before these new rules are considered. If you are overwhelmed or not comfortable with these rules, seek the help of a professional college professional financial advisor who is a fiduciary. If you choose to do nothing today, you may be kicking the can down the road and your inaction may come back to haunt you and your student. If these FAFSA rule changes are enacted as currently written, expect an outcry from many parents when they realize the impact to their wallet and their family in a few years.

Please share this information with your friends and schools and please reach out to me if you need help or have questions.

The post FAFSA Changes Force Class of 2022 to Pay More appeared first on How to Pay for College.

Published by Robert J Falcon, CFP®, CPA/PFS, CCFC®, MBA

As part of the Covid relief package passed by Congress in December 2020, the Free Application for Federal Student Aid (FAFSA) Simplification Act makes significant changes to the FAFSA form beginning with the 2024-2025 school year. The good news is that more low-income families will qualify for full Pell Grants, and there will be a significant reduction in the number of questions. However, middle-class families entering college today must be prepared for potentially significant cuts to their aid packages beginning with the 2024-2025 school year.

EFC/SAI Primer
The income and assets of parents and students on the FAFSA drive the calculation of the Expected Family Contribution (EFC), which represents the minimum amount families are expected to pay each year for college. Most families pay much more than the EFC, and since the term was seen as misleading, the EFC term is being replaced in this law by the Student Aid Index (SAI). I’ll refer to this number hereafter as the “EFC/SAI.”

Families should calculate the EFC/SAI as the first step in their college search if they do not want to overpay for college. The EFC/SAI reduces the total Cost of Attendance (COA) at a school to determine your financial need. For example, if a student attends a college with a COA of $75,000 and the family has a $60,000 EFC/SAI, the family has $15,000 of financial need. Colleges typically “meet” 50% to 100% of that need, and they may do so with grants (free money), loans, and work-study. So, the lower your EFC/SAI, the greater your financial need and aid.

Changes Hurting Middle-Class Families

Unfortunately, there are two significant changes that will negatively affect middle-class families that do not qualify for Pell Grants and who do not have a minimal EFC/SAI.

Multiple Siblings in College
Current Rules: Today, it is beneficial to have multiple kids in college at the same time. Why? Because under current FAFSA rules, you get to divide your EFC/SAI by the number of students you have in college that year.

For example, if a family today has an EFC/SAI of $60,000 and has 3 kids in college, each would get a prorated share of the EFC/SAI equal to $20,000 ($60,000 ÷ 3 students). If one of them attended a school with a COA of $50,000, that student would have $30,000 ($50,000 – $20,000) of financial need.

New Rules:  The proration of the EFC/SAI will be eliminated starting with the 2023-2024 school year. Applying the new rules to the example above, each of the 3 students would have an EFC/SAI of $60,000.  The student attending the school with the COA of $50,000 would pay the full cost as the COA ($50,000) does not exceed the EFC/SAI ($60,000).

Divorced Families may pay More
Current Rules: Today, the spouse with which the student lives the majority of the time (> 183 days) is responsible for filing the FAFSA and reporting their income and assets. The income and assets of the other birth parent are ignored. The terms of a divorce decree or the parent providing the most financial support are irrelevant in determining which parent files and reports their income and assets on the FAFSA.

Example: Assume that a student splits her time between her divorced parents. The student spends all weekdays during the school year plus some weekends (say ~200 days/year) with Parent #1, who is a teacher making $60,000/year, has minimal assets, and rents an apartment. Parent #2 is a professional making $150,000/year, owns a condo at the beach, and is responsible (under the divorce decree) for child support of $15,000/yr. The student vacations with and spends most of the Summer at the beach with Parent #2 who provides the greater portion of the student’s support for the year.

Under the current FAFSA, Parent #1 would file the FAFSA and report their assets and income (including the $15,000 of child support received) since the student lives with them more than half the time.

New Rules: Starting in 2024-2025 school year, the divorced parent who provides the most financial support for the student must file the FAFSA and report their income and assets (Parent #2 in this example). Therefore, this family’s EFC/SAI (and the net cost of college) will be much higher than it would be if the custodial parent (Parent #1) filed the FAFSA.

But this is a good and equitable change, right? Maybe not. Consider the following situations:

Situation 1: Many divorce decrees stipulate how college costs are to be shared between the birth parents (e.g., 50%/50%, 25%/75%). Since the result of these new rules is a decrease in financial aid, the family’s total cost of college will go up. This means Parent #1 (who makes a lot less than Parent #2) will need to pay more than under current FAFSA rules.

Situation 2: Parent #2 just got remarried, and their new spouse also makes $150,000 per year. Under current (and new) FAFSA rules, the income of the new step-parent must be included on the FAFSA filed by Parent #2. Now, Parent #1’s share of the college costs will go up considerably simply because their ex-spouse got remarried. Wait, it gets worse….

Situation 3: What if the divorced couple had 2 or 3 children in college simultaneously? Then, the increase in the cost of college triggered by the change in the divorce rules is made much worse because the family doesn’t get to split the EFC/SAI amongst the siblings.

A Caution to High School Seniors
Families with high school seniors will soon select the college they will attend. They need to determine if and by how much their 4-year college costs will increase due to these changes, and possibly choose a less expensive school to attend for all 4 years. If the family waits until their costs go up in the Fall of 2024 before addressing these changes, they will then need to make some uncomfortable decisions that may include (a) taking out parental PLUS loans, (b) asking their student to take a gap year to earn money to finish college, or (c) asking their student to transfer to a lower-cost college. Do not conclude that a college is affordable based solely on your Freshman financial aid award.

Options to Consider
These changes to the FAFSA do not affect the aid given by many private colleges that require the CSS Profile in addition to the FAFSA. The CSS Profile still permits the EFC/SAI to be prorated between multiple siblings in college simultaneously, and it treats the income and assets of divorced parents (and their new spouses if remarried) differently than the FAFSA. While CSS colleges generally have a higher COA, they also typically award higher amounts of gift aid compared to public colleges. Families should consider CSS schools to see if their net 4-year cost is lower than at FAFSA-only schools.

The post Middle-Class Financial Aid Cuts Coming in 2024 appeared first on How to Pay for College.

There are many complexities associated with sending your child off to college. With the cost of some private colleges exceeding $70,000, the cost of college is one of the biggest factors keeping parents awake at night. Divorced and separated parents often must face this financial challenge all by themselves. By understanding how income and assets of divorced and separated parents impact your financial aid award, you can strategically target those schools where you can maximize aid based on your particular situation. You can also check the online solicitors near me for more information. Divorce proceedings can be extremely stressful and overwhelming, so some have sought relief from cannabis products. Use these CBD reviews to find high-quality cbd products. Those who prefer to unwind with iqos terea sharjah may easily order their favorite sticks online. Playing ยูฟ่า333 games may also help you relax and de-stress.

Whose Financial Information Gets Reported? – Divorced Parents

If your parents are divorced, only the income and assets of the custodial parent are included on the Free Application for Federal Student Aid (or FAFSA), the financial aid form required by all schools. Do not confuse the custodial parent with the one who was entitled to take an exemption (and the child tax credit) on your federal income tax return. For financial aid purposes, the custodial parent is the parent with whom the student spends the most time (183 days or more) during the year. If the custodial parent has remarried, then the custodial stepparent’s income and assets must also be included. However, if the custodial parent is living with their significant other, only the custodial parent’s income and assets are included. Need expert divorce assistance? Get help from a high conflict divorce coach like this. You may also visit msrcc for professional guidance. If you don’t want to push through divorce, studies show that couples can really benefit from counselling. And if you need legal advice on wills and estate matters, then make sure to reach out to a wills and estate lawyer like this. If you are facing issues with setting up, changing, or enforcing child support, speaking with a knowledgeable child support lawyer can help clarify your rights and ensure your child’s best interests are protected.

What about Separated parents?

If your parents are separated and don’t live together, they are treated as if they are divorced, and you include only the financial information of the custodial parent on the FAFSA. A “legal separation” is one where the couple has filed documents and made appearances in State Court, and these couples no longer file a joint tax return. “Informally” separated couples will still file federal income tax returns as married, but only the custodial parent’s information gets reported for financial aid purposes. Informally separated couple must split out the income reported on the joint 1040 so that only the custodial parent’s income is reported on the FAFSA. Divorced or separated parents that live together are treated as married on the FAFSA and CSS Profile.

Is Divorce Treated Differently on CSS Profile?

Absolutely! Since CSS Profile schools administer significant amounts of gift aid from their endowments, they want to know a little more about mom and dad (and stepmom and stepdad). Most CSS schools require that the income and assets of the noncustodial parent be reported in addition to the custodial parent’s information. Even worse, if both biological parents have remarried, the income and assets of up to 4 parents (2 birth parents + 2 step parents) may be lumped together in calculating your “financial need.” There is good news…about one in three CSS schools exclude the noncustodial parent’s income and assets (hereafter CSS Noncustodial schools) in determining how much you should pay for college. (CSS Noncustodial schools are noted in the next to the last column on this CSS listing.)

Does Alimony and/or Child Support Need to be Reported?

Yes. Any child support or alimony received must be reported, but be careful to report it only once. Today, alimony received is reported as income on your tax return but child support is not. Therefore, child support is considered nontaxable income that must be reported for financial aid purposes on both the FAFSA and CSS. Any alimony you receive should already be reflected in the tax return information you report.

If you get divorced after 2018, be careful as the tax laws are changing. For divorce and separation agreements executed after December 31, 2018, alimony payments are not included in taxable income by the recipient. Therefore, both alimony and child support must be added to your FAFSA and CSS as nontaxable income. Regardless of the year, just make sure you are reporting both your alimony and child support income, but only include it once.

Divorce Occurring During Financial Aid Filing Period

Students entering college in Fall of 2019 will file the FAFSA & CSS beginning in October 2018, and these forms will include tax return information from calendar 2017 and the family’s assets as of the date the forms are filed (say October 2018). But what happens if the parents file a joint 2017 income tax return and divorce in June 2018? In this case, you must be consistent with your marital status as of the date you file the FAFSA or CSS. Since the custodial parent is divorced as of the filing date, only custodial parent’s portion of the income reported on the joint tax return should be reported on the forms, so their share of the income on the joint income tax return must be carved out and reported on the FAFSA and CSS Profile.

Planning for Divorced & Legally Separated Parents

Families with divorced and legally separated parents need to leverage their situation to maximize the student aid they receive. These families should do the following:

1. Students with divorced & separated parents seeking to increase their needs-based should apply to FAFSA-only and CSS Noncustodial schools and live at least 183 days each year with the parent that has lower income.
2. Parents who divorce or separate during the financial aid filing period should report their income consistent with their marital status on the date they file their financial aid forms.
3. With all due respect to Cupid, a divorced custodial parent may want to consider delaying getting remarried if the impact on college aid is significant. They should not remarry until after they file the last FAFSA and CSS for their youngest dependent.
4. On the flip side, don’t wait until after the kids are out of college to get that divorce. If you are going to get divorced anyway, there is no financial reason to wait, and there may be a financial benefit to do it sooner rather than later.

Planning to pay for college is extremely stressful and complicated no matter your situation. If divorce or separation complicates your life, make an informed decision with the above information and make lemonade out of lemons. Tens of thousands of dollars may be at stake, so plan well!

The post An Advantageous Divorce? appeared first on How to Pay for College.

I have one of the best jobs in the world. In my role as President of College Funding Solutions, I get to hear the dreams of teens planning to go to college, and it allows me to flash back to when I was in their shoes. While I play the “bad cop” and “financial responsibility” cards on behalf of mom and dad, I revel in helping to shape the college decision process of these young adults. That sure beats being a Tax Accountant any day of the week!!

Hiring a good accountant will help you in preparing balance sheets and ensure that you have good credit control and cash management policies in place so that you have all the possible funds and information available to you. Make sure to reach out to accountantmelbourne.com.au for professional accounting services.

Saving for college using 529s can be daunting. You must accumulate a large amount of money in less than 18 years, then you burn through it in 4 to 5 years. For these reasons, you have little room for error. Follow these tips to maximize the amount of funds you will have available for your kids.

1. Transfer 529 Ownership & Maximize Financial Aid – Many folks are a little miffed when they discover that after saving in 529 plans for years that their Expected Family Contribution or EFC (the minimum amount the government feels you should pay for college) goes up by 5.64% of amounts held in those 529 plans. This includes 529s for the student’s siblings! Therefore, consider transferring account ownership to the student’s grandparent or aunt or uncle so that the 529 assets do not get reported on the FAFSA. The downside of these “outside” 529 funds is that withdrawals will be treated as student income on the FAFSA and will increase the EFC by 50% of the amount withdrawn!! But, you can avoid this FAFSA income by waiting until the student’s sophomore/junior calendar year or later to use the 529 funds.

2. Lower your 529 volatility as you get closer to college – In retirement, the spenddown of your retirement assets hopefully will last 30 or more years, so your retirement portfolio may be able to recover from a market correction. With a short college payout period of only 4 or 5 years, your 529 investment recovery time is minimal. You might be able to weather the volatility while your child is a toddler, so you may have your 529 invested in stock funds. But as your child gets within 10 years of college, you may want to gradually decrease your equity exposure and lock in those equity gains. You can also decrease volatility by rolling over your 529 funds into a prepaid tuition account, as I suggested in a previous blog.

3. Invest in a Prepaid 529 Tuition Plan – Prepaid tuition plans allow you to purchase college credits at today’s cost, and your investment will essentially grow at the inflation rate of college. College costs today are rising at 3% or so per year, so investors in these plans are typically more concerned with not losing their college savings than in maximizing potential returns. Additionally, consider enhancing your financial strategy by choosing to buy premium bonds online for added diversification in your investment portfolio.

Vigilant Wealth Management offers investors help with more than just their investment portfolios. In addition, they also will provide different financial services, specifically catered to meet your needs, learn more about Vigilant Wealth Management.

4. Pay Private K-12 Through Your 529 – The Tax Cuts and Jobs Act enacted in December 2017 permits families to use up to $10,000 of 529 funds to pay for private K-12 each year. (Check first with your state as some have not adopted the federal rules pertaining to K-12.) If your state permits you to use 529 funds for private K-12, you can get an easy tax deduction by “routing” your private school tuition through your 529. In other words, instead of writing that $10,000 check to your private high school, make it payable to your 529 plan, then direct your 529 plan to pay the school. Here in Pennsylvania, this technique would save you $307 on your Pennsylvania income tax return at our 3.07% tax rate. However, don’t just focus on K-12 as college arrives shortly thereafter, and you don’t want to be left with an empty 529 account at high school graduation.

5. Sign up for the Free Sage Scholars Program – While you are contributing to you PA 529, please sign up for the Sage Scholars program. This program functions like a free “frequent flyer” (dollars) program that you can use at certain private colleges. There is no cost to join. Since the PA 529 program is a participant in the Sage Scholars program, each quarter you earn Tuition Rewards equal to 2.5% of the value of your PA 529 account – adding up to over 10% per year. The earlier you sign up, the more points Tuition Rewards you can rack up before college. In a similar way, exploring the best UK altcoins can open doors to rewarding opportunities for traders looking to maximize long-term growth.

Like any investment vehicle, 529 Plans have their pros and cons. However, if leveraged appropriately, they can be very effective in helping you to pay for your son or daughter’s educational expenses. Regardless of your 529 account balance, you still need to target those colleges that minimize your out-of-pocket cost (after aid). Contact me directly at bob@collegefundingsolutions.net to find out how.

The post 5 Ways to Maximize Your 529 appeared first on How to Pay for College.

Small business owners have plenty of challenges and worries to occupy them. A recent survey performed by the National Federation of Independent Business noted that 9 of the top 10 small business challenges directly relate to government, with health care for prostate cancer and excessive regulation #1 and #2, respectively. The #3 worry (federal income tax on business) is one that business owners don’t perhaps understand well enough, and it can actually be a big asset to them and their families when it comes to paying for college. What helped me most was signing up to TaxNav, which has become an essential part of my financial toolkit. It’s rare to find software that’s genuinely intuitive while still ticking all the boxes for compliance and tax efficiency. Whether you’re filing for the first time or just tired of the usual confusion, it’s a tool worth exploring. I’ve recommended it to three friends already.

As strange as it may sound, there are at least two ways that small business owners might be able to help their children obtain funds for college, and get a tax deduction in the process. There are some loopholes to jump through, but the benefits are clear. Employing your children in your business and/or utilizing educational deductions under Sections 127 and 132 permit significant tax savings that can then be channeled into the college fund. Some businesses even use staffing agencies like agence d’intérim nancy to help with hiring. If your business needs to improve its marketing processes, the persuasive copywriting Conversion Factory is legit one of the best for high-converting copy.

Navigating the labyrinth of small business challenges often leads entrepreneurs to seek innovative solutions. Amidst the regulatory hurdles and tax complexities, strategic accounting practices emerge as invaluable allies. Embracing Cloud-Based Accounting Software proves to be a game-changer, offering streamlined financial management and real-time insights. With its user-friendly interface and automation capabilities, it empowers small business owners to efficiently track expenses, manage payroll, and maximize deductions. Alternatively, you may outsource professional tax preparation services so you can focus on your studies or business.

Comprehensive management tools have become essential for bail agencies handling complex daily operations and client relationships. Features like defendant tracking, payment processing, document management, court date reminders, and financial reporting are standard in bail bond software. This technology helps bondsmen reduce administrative burden, minimize forfeiture risks, maintain accurate records for regulatory compliance, and improve customer service profitability. Building on the importance of technical knowledge in legal matters, there’s also the reality that computer-related allegations can stem from misunderstandings or insufficient evidence that needs expert scrutiny. In situations involving accusations of unauthorized network access or data manipulation, having representation that can challenge the prosecution’s technical claims becomes essential. My own experience taught me that experienced computer crime lawyers in New Jersey who understand forensic analysis and digital evidence can identify weaknesses in the state’s case that a general practitioner might miss entirely. They were able to explain the technical aspects of my situation in terms that made sense to the court while simultaneously protecting me from self-incrimination during the initial investigation phase.

Moreover, this accounting software facilitates seamless integration with other business tools, enhancing productivity and decision-making. By harnessing technology to simplify financial operations, entrepreneurs can devote more time and resources to nurturing their core business endeavors. With comprehensive reporting features and customizable dashboards, this digital solution empowers proactive financial planning, including optimizing tax strategies and maximizing college fund contributions through innovative avenues like employing family members.

Put Them To Work

Employing your children in the family business is perhaps the easiest way to shift income to your child. Under the new Tax Acts and Jobs Cut Act in place for 2018, the student will pay $0 federal income tax on the first $12,000 earned in 2018, thanks to the expanded standard deduction. Assuming the parents are in the 24% tax bracket (MFJ income between $165,001 and $315,000), they would save $2,880 per year (or $11,520 over the 4 years) in federal taxes. Since the single tax rate is 10% for the next $9,525 of income, a student earning $21,525 would pay less than $960 in income tax, and the parents will save over $5,100 in taxes each year. The student should consider putting $5,500 of this into a Roth IRA to prevent the cash from increasing the family’s Expected Family Contribution on their financial aid forms.

Leverage Employee Benefits

Better yet, Section 127 of the Internal Revenue Code allows employers to offer an educational benefit of up to $5,250 per year that is tax-free for the employee and tax deductible for the employer (you can learn more about the north carolina ein here). The benefit must be made available to all employees, and the plan must be written. One significant limitation of these plans is that the employee must be at least 21 and cannot be a dependent of the owner. To meet the dependency requirement, the student must provide for more than half of his or her support. The age limitation means this might be better for students in their 4^th or 5^th year of college or for graduate school. The education provided does not need to be job related, making Section 127 plans ideal for college. At the 24% tax rate, the employer could save $1,260 in federal tax, which would cover the $1,200 annual cost of books at college.

Section 132 permits certain tax-free fringe benefits to be paid and deducted by the employer, including educational expenses. However, unlike the education under Section 127, Section 132 educational expenses must be job related, and the education can’t qualify the employee for a new trade or business (which is what an undergraduate degree typically does). However, the education will qualify if it maintains or improves skills required by the job or if the education is required or imposed in order to maintain his or her job. A business owner may want to consider “upgrading” the educational requirements of certain positions held by their children if (for example) the company is growing out of its “mom and pop” status. The plan does not need to be written, and there is no limit to the amount of benefits provided to the employee.

Many parents have set up LLCs and side businesses since the 2008/2009 financial crisis. Don’t think you need to have a brick and mortar business to hire your student. Almost any “1099” business has services that need to be performed, and as long as you document the services performed and the rate paid is reasonable, you should be able to incorporate an offshore company bank to shift income to your student and save significant tax dollars that can then be used for college.

Why wouldn’t you want to take advantage of the benefits offered in the tax code to save a few thousand here and there? And by the way, you don’t really have to put the tax savings towards your student’s tuition. Nobody said you couldn’t use the savings to take your own Spring (or Fall or Winter) Break!!

PHOTO CREDIT  Stephen Bergin on Unsplash

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I was at a pharmaceutical networking event a few months ago discussing college financial planning with pharmaceutical executive. She was boasting to me that she had just “invested” in an insurance policy recommend by her “advisor,” and as a result, her son was going to qualify for thousands of dollars in needs-based financial aid. Really? This situation was extremely uncomfortable, because my options were to tell her she likely made a huge mistake or to smile and say nothing at all. First, let me give you a little context. People can check out Utilitysavingexpert.Com, if they need the best  insurance information.

Needs-Based Financial Aid Primer

Financial aid is awarded by colleges primarily for academic achievement (merit aid) and for financial need (needs-based aid). People consider CWPP solution online for financial security. My friend was trying to increase the latter. To get needs-based aid, families need to fill out the FAFSA (Free Application for Federal Student Aid) form, and the output from the FAFSA is the Expected Family Contribution (EFC). The EFC is the starting point for what the family is expected to contribute for college, but the actual amount is almost always higher. So if you want to maximize your needs-based aid, you will want to minimize your EFC.

Here’s how a needs-based award is calculated: If the total cost of attendance at a particular college is $45,000 and your EFC is $20,000, then you have $25,000 of financial need. A college will typically meet only a portion (40% – 70%) of that need with a combination of grants, loans, and work study. So for every dollar you lower your EFC, you get only a fraction of that back in financial aid, and most or all of it could be in the form of loans and work study. In this example, a college that meets 60% of need would provide $15,000 of “aid” in the form of grants, loans, and work study. The family’s bill for college will be (at a minimum) the $20,000 EFC plus the “unmet” need of $10,000 ($25,000 – $15,000).

How Buying Insurance Lowers EFC

The EFC calculation is very complex, but it includes 5.64% of the parent’s assets plus 22%-47% of the parent’s income. (A portion of the student’s income and assets is also included, but that is not relevant to this discussion.) Assets such as cash, stocks, bonds, mutual funds and other investments (including 529 assets) are assessed at 5.64%, while 401(k)s, IRAs, and retirement assets are not assessed. Cash value life insurance and annuities are also not included, and here is where the insurance salespeople make their pitch. If you have a family, a business, or others who depend on you, the life insurance benefit of a whole life policy acts as a financial safety net. Get a free quote at Life Cover Quotes’ website that can be found here.

Life insurance policies offer a unique combination of investment and protection that can be beneficial for families looking to secure their financial future. Unlike term life insurance, whole life insurance with guarantees provides lifelong coverage, ensuring that your beneficiaries will receive a death benefit no matter when you pass away. This type of policy also accumulates cash value over time, which can be borrowed against or withdrawn if needed, making it a flexible financial tool for managing unexpected expenses or funding long-term goals.

Moreover, the cash value component of whole life insurance grows at a guaranteed rate, providing a reliable and stable investment option. This can be particularly appealing for those who are risk-averse or looking to diversify their financial portfolio with a conservative asset. Additionally, whole life insurance policies often include dividends, which can further enhance the policy’s value and provide additional financial security. Contact an insurance company if you’re looking for insurance policies for you and your family.

For every $100,000 my pharma friend moved into the insurance product, her EFC would drop by $5,640 and she would have additional financial need in the same amount. But here is what she missed:

1. The insurance agent failed to take into account the executive’s salary, which approached $200,000 per year. According to Edvisors.com, EFC is increased by approximately 30% of the executive’s income over her $26,000 income protection allowance. Therefore, her $200,000 salary alone would trigger an EFC of over $50,000.
2. The insurance salesman has no idea how much of my friend’s financial need would be met by the colleges the family was considering, or if the need would be met through loans or grants.
3. Since she sold investments at a gain to buy the insurance, her EFC would rise even higher by 30% of the taxable gain.
4. The cost of attendance still must exceed the EFC for the family to have financial need. If her EFC dropped from (say) $90,000 to $84,360, she still would not have any financial need because the cost of attendance at college does not (yet) exceed $84,360!

Very intelligent professionals can make very big financial mistakes if they don’t have all the facts. Get financial advice from a professional who is a fiduciary and who legally must put your interests ahead of their own. Needless to say, insurance agents don’t have a fiduciary duty to their customers.

Should I have told my pharma friend she made a mistake in this social situation? Doing so would not have remedied her situation, so I held my tongue. However, by sharing this story, I hope that I can prevent others from making a similar expensive mistake.

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Since 2002, many families have taken a deduction on their tax return for tuition and fees related to higher education. For tax year 2016, families could deduct up to $4,000 of these expenses “above the line,” which means they did not have to itemize deductions to deduct these expenses. The tax law allowing the deduction was not permanent. While it was extended many times since 2002, it effectively expired for tax years after 2016. Those holding out hope that the deduction would be part of the December 2017 Tax Cuts and Jobs Act were disappointed when it was not included as part of the bill, so many assumed the deduction was effectively “dead.”

However, on February 9, 2018 (coincidently just one week after Groundhog Day), the deduction came back once again through the Bipartisan Budget Act of 2018 retroactive to 2017! The IRS has yet to update Form 8917 (Tuition and Fees Deduction) and Line 34 of Form 1040 to allow you to report these expenses. Look for software updates to your tax software soon which will allow you to take the deduction. Note that this deduction has been resurrected only for 2017, so we will need to “wait and see” if it is extended for 2018 and later years.

There are limitations, however. The deduction is limited to $4,000 for taxpayers whose Adjusted Gross Income (AGI) doesn’t exceed $65,000 ($130,000 for joint filers) or $2,000 for taxpayers with an AGI that doesn’t exceed $80,000 ($160,000 for joint filers). Note also that you cannot take both a tax credit (American Opportunity Tax Credit or Lifetime Learning Credit) on the same $4,000 of college expenses upon which you take the deduction. Given the choice, the tax credits will save you more in tax dollars than the deduction.

Unfortunately, calculating the tax benefits available to families with college expenses is not for the faint of heart. Seek help from your CPA or a college financial adviser if you have questions.

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Many anxious families will begin to prepare the Free Application for Federal Student Aid (FAFSA) and possibly the CSS Profile starting October 1 (it’s for the 2018-2019 school year). Utilizing your family’s income and asset information, this form calculates the Expected Family Contribution (EFC), or the minimum amount each school will expect a family to contribute towards their dependent’s college education. The income portion of this EFC will utilize family’s 2016 tax return information, which is final for most families. But the asset information should reflect assets held by the parents and student on the date the FAFSA and CSS Profile are submitted. Since October 1 is the first date you can submit these forms, you have some time to make some very cost effective changes.

Move Assets out of Student’s Name

Assets held in the student’s name are assessed at 20%/25%, and parent’s assets at 5.64%/5% for FAFSA/CSS respectively. A student holding $10,000 in savings increases the EFC by up to $2,500, while parents holding the same amount would increase EFC by only $500. The result of the EFC would be $2,000 more each year (or $8,000 over a 4-year education) if the assets were held in the student’s name vs their parents.

Student could gift $10,000 to their parents, who in turn could fund a PA 529 on the student’s behalf with that money. PA residents would get a PA state tax deduction for their contribution, raising the savings in the first year an additional $307. The student could gift the money to other relatives, if the parents have already funded the maximum to the 529 for 2017.

Send multiple children to college in same year

Middle and upper income parents, pay attention here. The EFC for each student’s school is reduced the more students you have in school at the same time. EFC under FAFSA/CSS is multiplied by 50%/60% and 33%/45% (respectively) if you have 2 and 3 students in school simultaneously. So if you have a $30,000 FAFSA EFC with 3 kids in college that would equate to $10,000 EFC per student. If your kids were born 2 years apart, consider a gap year for your older student (if they are not college ready) while they work and take a few inexpensive community college courses. (The student could fund a Roth IRA with the earnings, as IRAs are not included in the EFC calculation.) This way, you will have 3 years where you have 2 students in college at the same time.

Pay outstanding bills, lower home equity

Parents should minimize liquid assets by paying off any credit card bills or car loans before filing the FAFSA and CSS Profile. Schools that utilize the CSS profile (generally private colleges) will include all or a portion of your home equity into your EFC calculation. Therefore, if you were planning on converting your student’s bedroom into a den or office, use your home equity to pay for it now. Similarly, if you were planning on finishing the basement or redoing your master bathroom, tap your home equity before filing the forms. In general, you will lower your EFC by 5% for every dollar of home equity you can eliminate.

Planning to maximize college financial aid is not a simple process, but by employing a few of these techniques, you can save considerable money over your student’s 4-year education.

Photo credit:

© Nikola Hristovski | Dreamstime Stock Photos

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I spend most of my time as a Financial Advisor telling my clients not to try to time the market. Study after study shows that no advisor can consistently time the market, as you have to be right not once, but twice. First, you have to guess when the market will begin to tank, sell it all, then know when to jump back in after the market has bottomed out and is ready to take off again. But there is one exception to when I can confidently say that you should and could time the market, and that is with respect to your contribution to Pennsylvania 529 Guaranteed Savings Plan (GSP).

Pennsylvania has two different types of 529 plans. Investing in the PA 529 Investment Plan (IP) is similar to investing in mutual funds. Your contributions can be invested in funds that are age-based, or you can invest in various funds that invest in stocks, bonds, money market, buy gold with the scrap gold price Adelaide, or a combination. Read reviews at https://augustapreciousmetals.reviews/ to find a trusted company that offers gold assets you can invest in. If you need to quickly sell your gold assets for cash, you may visit local pawn shops. Click for more information on how to get higher profits from investing stocks.

The second 529 option in Pennsylvania is the GSP. The GSP acts as a prepaid tuition plan, so you can essentially pay for a semester of college today, and your 529 account beneficiary can use that prepaid semester anytime in the future. In effect, GSP funds will grow at the rate of increase of college tuition, which have risen between 3% and 6% per year (depending on the type or level of school) in the 5 years ended in 2015-2016.

On September 1 of each year, Pennsylvania applies the tuition “inflation” to the balances in the GSP accounts. That means a full year’s worth of interest is credited to those accounts. Therefore, if you planned to make lump contribution to a GSP during 2017, you want to make sure that contribution is in place by late August. A contribution made on Labor Day will have to wait an entire year to earn “tuition inflation”, but one made a week earlier earns a full year’s worth.

While you are contributing to you PA 529, please sign up for the Sage Scholars program. This program functions as a free “frequent flyer” points (dollars) that you can use at certain private colleges. There is no cost to join. Since the PA 529 program is a participant in the Sage Scholars program, each quarter you earn Tuition Rewards equal to 2.5% of the value of your PA 529 account – adding up to approximately 10% per year. The earlier you sign up, the more points in Tuition Rewards you can rack up before college.

If you end up attending one of the nearly 400 colleges that participate in the Sage Scholars program, you can use the Tuition Rewards to offset the tuition there dollar for dollar. Tuition Rewards can pay for up to 25% of the cost of tuition (based on freshman year tuition), spread equally over four or five years.

Why do colleges participate in the Sage Scholars program? Many of these schools are smaller and lesser-known private schools that are competing to attract talented students, and this is one way they can differentiate themselves. If your oldest student chooses not to attend a Sage Scholar school, the points can be transferred to a younger sibling your grandchildren, nieces or nephews. What do you have to lose?

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