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[Financial Friday] Can you separate college financial aid myths from facts?

For all you parents out there, how knowledgeable are you about college financial aid? See if you know whether these financial aid statements are myth or fact.

Can you separate college financial aid myths from facts?

1. Family income is the main factor that determines eligibility for aid.

Answer: Fact. But while it’s true that family income is the main factor that determines how much financial aid your child might receive, it’s not the only factor. The number of children you’ll have in college at the same time is also a significant factor. Other factors include your overall family size, your assets, and the age of the older parent.

2. If my child gets accepted at a more expensive college, we’ll automatically get more aid.

Answer: Myth. The government calculates your expected family contribution (EFC) based on the income and asset information you provide in its aid application, the FAFSA. Your EFC stays the same, no matter what college your child is accepted to. The cost of a particular college minus your EFC equals your child’s financial need, which will vary by college. A greater financial need doesn’t automatically translate into more financial aid, though the more competitive colleges will try to meet all or most of it.

3. I plan to stop contributing to my 401(k) plan while my child is in college because colleges will expect me to borrow from it.

Answer: Myth. The government and colleges do not count the value of retirement accounts when determining how much aid your child might be eligible for, and they don’t factor in any borrowing against these accounts.

4. I wish I could estimate the financial aid my child might receive at a particular college ahead of time, but I’ll have to wait until she actually applies.

Answer: Myth. Every college has a college-specific net price calculator on its website that you can use to enter your family’s financial information before your child applies. It will provide an estimate of how much aid your child is likely to receive at that college.

5. Ivy League schools don’t offer merit scholarships.

Answer: Fact. But don’t fall into the trap of limiting your search to just these schools. Many schools offer merit scholarships and can provide your child with an excellent education.

Important Disclosure
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10 Fun Activities to Do With the Family

Our families are very precious and we, as women, often go to the ends of the world to make sure that they are well provided and cared for. In today’s hustle and bustle however, the concept of family that used to prevail a few years ago is becoming lost. With the economy being so low and everybody in the family taking up jobs far away from the family home and kids leaving for schools in other states, the once close knit group slowly drifts apart.

The fact remains, however, that we won’t be able to understand the importance of family and taking some time out for the people we love, unless we don’t stop and take a breather first.

Sweet girl receiving kiss from her family

The members of any family, who spend time and participate in activities together, are known to build a positive outlook on life and their own self worth, children especially. After all, spending time together doesn’t require much. Activities don’t have to be costly or luxurious but they must be meaningful for the people involved. There are a number of ways that you, as a woman of 50 or above can enjoy time with your loved ones, i.e. your children, grandchildren, nieces, nephews and other members of the family as well.

10 Activity Ideas to Enjoy With the Family

This is why; when it comes to spending time with your family, experts suggest that mandatory family time should be scheduled at least once every week. When at a young age, your children are susceptible to the world around them. The following are some highly fun and creative ideas to make sure that your kids grow up into loving, caring, independent and positively driven individuals.

Bubble Catching Contest

This activity is one which includes the entire family and promises hours of laughter and amusement. You can make this into a competition; see who makes the biggest bubbles in the family and try to catch them with the round part of the bubble stick.

Happy child playing outdoors

Evolving Story

This is a very fun and entertaining activity that can be enjoyed by the whole family. Attach some pages on a clipboard and write a single sentence. The sentence will be the beginning to a story, which will be taken over by the next person with the clipboard. Continue passing the clipboard to all members, until you come up with a short story. Read it out loud and laugh your heart out at the absurd and funny story. This is also a good time to regale your grandchildren with the stories you grew up listening to, too!

Camping Trip

Remember what it felt like, going camping as a kid, with the extended family? You can ensure that the children in your family get to feel the same by planning a camping trip! Be it in an RV or an authentic tent in the woods, this is one opportunity that will not only let the whole family explore the great outdoors but also share the experience with each other.

German Shepherd Dog Sticking Head Out Driving Car Window

Dollar Store or Yard Sale Treasure Hunt

Take the whole family out for some inexpensive treasure hunting at a yard sale or dollar store. There’s no knowing what bargains you might find and at the end of the day, your slightly worse for wear pocket will be worth it.

Home Dinner and Movie Night

Having a movie family night is perhaps one sure method to bring the entire family together. Pick one night a week that works for everyone. Have everyone take turns picking a movie. You never know… you might learn something new from each other based on the movie choices!

Group of children with 3d glasses and popcorn

Family Walk

This activity isn’t only ideal when it comes to exercising but is also ideal for spending time with your family; walking, talking, and just being able to enjoy the fresh air together. Not many people take the initiative to walk outside, in their gardens, the local park or the sidewalk; just for the sake of walking! Plan a walk or better yet, enroll the whole family into a charity walkathon where you can enjoy together and do some good for the needy as well.

Cooking Together

Cooking together with your grandchildren is a very good way to teach them about their culture, family values and the food that has been cooked in their family for generations. The kitchen can also become a place for experimentation, where your grandchildren might very well discover their hidden talents in the culinary arts.

Mother and daughter prepare dough home cake

Room Painting and Decorating

Looking at the same walls and décor for years tend to bring out negative feelings that quickly surround the entire home. This is why redecoration and repainting walls and rooms should be done from time to time. This too, can be taken up as a group activity, where everyone can give their input. You can help give the grandchildren give them their “dream room.”

Plant a Garden

If you have been thinking of picking up a hobby that can be shared with the rest of the family and your grandchildren especially, planting and working in a garden is a very good idea. You can even make this into a lesson about nature and teach your grandkids about flowers, edible plants, etc; as you work on your vegetable or plant garden together.

Kid on a lawn with garden tools

T-Shirt Painting or Dying

Start a home project of designing T-shirts for just about every occasion. For this, you will need fabric paints or dyes and lots of creative ideas and fancy designs to come up with the coolest, funkiest personalized T-shirts. They can also be given as ideal presents.

 

Happy cute little girl with colorful painted hands

One thing to remember is, life doesn’t end after 50. In fact, the fun is just beginning with you being able to indulge in a variety of activities along with the future generations of your family, so enjoy this time to the fullest!

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Three College Savings Strategies with Tax Advantages

To limit borrowing at college time, it’s smart to start saving as soon as possible. But where should you put your money? In the college savings game, you should generally opt for tax-advantaged strategies whenever possible because any money you save on taxes is more money available for your savings fund.

Daughter going to college

529 plans

A 529 plan is a savings vehicle designed specifically for college that offers federal and state tax benefits if certain conditions are met. Anyone can contribute to a 529 plan, and lifetime contribution limits, which vary by state, are high–typically $300,000 and up.

college bound girlContributions to a 529 plan accumulate tax deferred at the federal level, and earnings are tax free if they’re used to pay the beneficiary’s qualified education expenses. Many states also offer their own 529 plan tax benefits, such as an income tax deduction for contributions and tax-free earnings. However, if a withdrawal is used for a non-educational expense, the earnings portion is subject to federal income tax and a 10% federal penalty (and possibly state tax).

529 plans offer a unique savings feature: accelerated gifting. Specifically, a lump-sum gift of up to five times the annual gift tax exclusion ($14,000 in 2015) is allowed in a single year per beneficiary, 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 if 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. This can be a favorable way for grandparents to contribute to their grandchildren’s education.

Also, starting in 2015, account owners can change the investment option on their existing 529 account funds twice per year (prior to 2015, the rule was once per year).

Infographic - College is expensive. Your grandchildren need help

1 Survey of grandchildren and their grandparents performed by KRC Research on behalf of TIAA-CREF, April 2014.
2 CollegeBoard Trends in College Pricing 2013 http://trends.collegeboard.org
3 U.S. Department of Education, National Center for Education Statistics (2013). Digest of Education Statistics, 2012 http://nces.ed.gov/fastfacts/display.asp?id=76
Image source: https://www.aarpcollegesavings.com/help-your-grandchildren-save-college

Note: Investors should consider the investment objectives, risks, fees, 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. Finally, there is the risk that investments may lose money or not perform well enough to cover college costs as anticipated.

Coverdell education savings accounts

A Coverdell education savings account (ESA) lets you contribute up to $2,000 per year for a child’s college expenses if the child (beneficiary) is under age 18 and your modified adjusted gross income in 2015 is less than $220,000 if married filing jointly and less than $110,000 if a single filer.

Statistic - Early college planning

Image source: http://lajollamom.com/scholarshare-529-california-college-savings-plans/

The federal tax treatment of a Coverdell account is exactly the same as a 529 plan; contributions accumulate tax deferred and earnings are tax free when used to pay the beneficiary’s qualified education expenses. And if a withdrawal is used for a non-educational expense, the earnings portion of the withdrawal is subject to income tax and a 10% penalty.

The $2,000 annual limit makes Coverdell ESAs less suitable as a way to accumulate significant sums for college, though a Coverdell account might be useful as a supplement to another college savings strategy.

ScholarShare-529-California-Saving-Statistics

Image source: http://lajollamom.com/scholarshare-529-california-college-savings-plans/

Roth IRAs

Though traditionally used for retirement savings, Roth IRAs are an increasingly favored way for parents to save for college. Contributions can be withdrawn at any time and are always tax free (because contributions to a Roth IRA are made with after-tax dollars). For parents age 59½ and older, a withdrawal of earnings is also tax free if the account has been open for at least five years. For parents younger than 59½, a withdrawal of earnings–typically subject to income tax and a 10% premature distribution penalty tax–is spared the 10% penalty if the withdrawal is used to pay a child’s college expenses.

Roth IRAs offer some flexibility over 529 plans and Coverdell ESAs. First, Roth savers won’t be penalized for using the money for something other than college. Second, federal and college financial aid formulas do not consider the value of Roth IRAs, or any retirement accounts, when determining financial need. On the flip side, using Roth funds for college means you’ll have less available for retirement. To be eligible to contribute up to the annual limit to a Roth IRA, your modified adjusted gross income in 2015 must be less than $183,000 if married filing jointly and less than $116,000 if a single filer (a reduced contribution amount is allowed at incomes slightly above these levels).

And here’s another way to use a Roth IRA: If a student is working and has earned income, he or she can open a Roth IRA. Contributions will be available for college costs if needed, yet the funds won’t be counted against the student for financial aid purposes.

Important Disclosure

 

Infographic - Saving for college

Source:
http://cgi.money.cnn.com/tools/collegeplanner/collegeplanner.jsp
http://blog.classesandcareers.com/education/2014/01/08/infographic-saving-for-college-tuition-expenses/

Scenario #1: If you start saving at your child’s birth, you must put away $2,121 per year into a 529 plan, and then other plans once that’s maxed out, in order to have enough for your child to begin college at 18 and finish in four years.

Scenario #2: If you start saving at your child’s sixth birthday, you must put away $3,059 per year into a 529 plan, and then other plans once that’s maxed out, in order to have enough for your child to begin college at 18 and finish in four years.

Scenario #3: If you start saving at your child’s 12th birthday, you must put away $5,101 per year into a 529 plan, and then other plans once that’s maxed out, in order to have enough for your child to begin college at 18 and finish in four years.

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When Your Child Asks for a Loan, Should You Say Yes?

You raised them, helped get them through school, and now your children are on their own. Or are they? Even adult children sometimes need financial help. But if your child asks you for a loan, don’t pull out your checkbook until you’ve examined the financial and emotional costs. Start the process by considering a few key questions.

money pie slices handed out

Why does your child need the money?

Lenders ask applicants to clearly state the purpose for the loan, and you should, too. Like any lender, you need to decide whether the loan purpose is reasonable. If your child is a chronic borrower, frequently overspends, or wants to use the money you’re lending to pay past-due bills, watch out. You might be enabling poor financial decision making. On the other hand, if your child is usually responsible and needs the money for a purpose you support, you may feel better about agreeing to the loan.

Statistic - Support goes to grown children more often than aging parents 2012 results

Source: http://www.pewsocialtrends.org/2013/01/30/the-sandwich-generation/

Will your financial assistance help your child in the long run?

It’s natural to want to help your child, but you also want to avoid jeopardizing your child’s independence. If you step in to help, will your child lean on you the next time, too? And no matter how well-intentioned you are, the flip side of protecting your child from financial struggles is that your child may never get to experience the satisfaction that comes with successfully navigating financial challenges.

Statistic - More middle-aged adults now supporting grown children - 2012 results

Source: http://www.pewsocialtrends.org/2013/01/30/the-sandwich-generation/

Can you really afford it?

Perhaps you can afford to lend money right now, but look ahead a bit. What will happen if you find yourself in unexpected financial circumstances before the loan is repaid? If you’re loaning a significant sum and you’re close to retirement, will you have the opportunity to make up the amount? If you decide to loan your child money, be sure it’s an amount that you could afford to lose, and don’t take money from your retirement account.

Statistic - Middle-aged adults sandwiched between aging parents and kids

Source: http://www.pewsocialtrends.org/2013/01/30/the-sandwich-generation/

What if something goes wrong?

One potential downside to loaning your child money is the family tension it may cause. When a financial institution loans money to someone, it’s all business, and the repayment terms are clear-cut. When you loan money to a relative, it’s personal, and if expectations aren’t met, both your finances and your relationship with your child may be at risk.

For example, how will you feel if your child treats the debt casually? Even the most responsible child may occasionally forget to make a payment. Will you scrutinize your child’s financial decisions and feel obligated to give advice? Will you be okay with forgiving the loan if your child is unable to pay it back? And how will other family members react? For example, what if your spouse disagrees with your decision? Will other children feel as though you’re playing favorites?

three generations of women

If you decide to say yes

Think like a lender
Take your responsibility, and the borrower’s, seriously. Putting loan terms in writing sounds too businesslike to some parents, but doing so can help set expectations. You can draft a loan contract that spells out the loan amount, the interest rate, and a repayment schedule. To avoid playing the role of parent-turned-debt collector, consider asking your child to set up automatic monthly transfers from his or her financial account to yours.

Pay attention to some rules
Having loan documentation may also be necessary to meet IRS requirements. If you’re lending your child a significant amount, prepare a promissory note that details the loan amount, repayment schedule, collateral, and loan terms, and includes an interest rate that is at least equal to the applicable federal rate set by the IRS. Doing so may help ensure that the IRS doesn’t deem the loan a gift and potentially subject you to gift and estate tax consequences. You or your child may need to meet certain requirements, too, if the loan proceeds will be used for a home down payment or a mortgage. The rules and consequences can be complex, so ask a legal or tax professional for information on your individual circumstances.

If you decide to say no

Consider offering other types of help
Your support matters to your child, even if it doesn’t come in the form of a loan. For example, you might consider making a smaller, no-strings-attached gift to your child that doesn’t have to be repaid, or offer to pay a bill or two for a short period of time.

Don’t feel guilty
If you have serious reservations about making the loan, don’t. Remember, your financial stability is just as important as your child’s, and a healthy relationship is something that money can’t buy.

Important Disclosure

American Consumer Credit Counseling polled a question at ConsumerCredit.com. In September 2013 they asked:
“Would You Loan Money to Family or Friends in Need?”

They found that the majority of people would, but there were various reasons and various amounts that respondent’s were willing to lend. Check out some interesting stats in the infographic…

Infographic - Would you load money to a family member or friend in need?

Source: http://talkingcents.consumercredit.com/2013/11/14/poll-results-infographic-loaning-money-to-family-and-friends/

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Beneficiary Arrangements

As you prepare your financial strategies, it’s important to spend some time considering beneficiary arrangements. Whether it’s through an IRA, life insurance, wills or trusts, anytime you want to leave money to others, you want make sure that you have in your mind a good understanding of how you want to designate the beneficiary.

For example, let’s say you’re a husband and a father and you have money in a retirement account — an IRA. Typically, your primary beneficiary will be your wife. What does that mean? It means that if you die and your wife is still alive, your wife will receive all the proceeds of that account. The wife in this scenario is considered a primary beneficiary. But what if your wife dies before you?

Or what if you and your wife die at the same time? In this scenario you may want what are called secondary or contingent beneficiaries. Let’s say you and your wife have three children: child one, two and three. These children can be named as a second line of beneficiaries, or contingent beneficiaries, so just in case your wife dies before you do, or you and your wife die at the same time, you’ve got the second line of beneficiaries, the three children. You may choose to divide the proceeds of your retirement account evenly between the three children — a third/a third/and a third.

But here’s something else to consider. What if your children have children of their own, your grandchildren? Let’s say child No. 1 has 3 children child No. 2 has no children at all and child No. 3 has two children — meaning you have a total of five grandchildren. Now, you may want to start asking some additional questions about designating beneficiaries.

Let’s assume your wife dies before you. Now there is only you. Therefore, when you die, the proceeds are designated to go to your three children who you have named as contingent beneficiaries. Well, what if one of your children dies before you? Let’s say your third child, the one with two children, dies before you .Then what happens? Well, if you haven’t set up your beneficiaries appropriately, you could end up disinheriting those two grandchildren. All of the proceeds could end up going to child one and child two, cutting out your third child’s surviving children.

That’s generally not what people want. Instead, they may say, “We want this child’s share to go to his/her two children.” This is generally referred to as a per stripes distribution, meaning that each branch of the family is to receive an equal share. If that is your objective, you would want to incorporate that term into your beneficiary designations. Then, should both your wife and one of your contingent beneficiaries die before you, the beneficiary designation would direct that contingent beneficiary’s share of the proceeds to go to his/her heirs.

This content is provided for informational purposes only and should not be construed as advice designed to meet the particular needs of an individual’s situation. No statement contained herein shall constitute legal advice. Consult with your attorney about your personal situation.