Posts Tagged ‘applying for financial aid’

Last Minute Strategies to Help Pay for College

Posted on: April 21st, 2010 by

Financial Planning - College Savings - Rockville, MDThe biggest speed bump that lies in wait for parents on the road to retirement is paying for college.  The very utterance of the word “tuition” can strike fear in the hearts of even the most savvy retirement savers.  While much attention has been paid to the financial planning for college, many parents still can’t actually pay for college and have to use alternatives to assist them with that tuition bill.  One strategy is to have your child take on all or part of the debt themselves by taking out student loans.  This may not sound like the “nicest” thing to do, but sometimes it can instill a greater sense of value in the education if they are paying for it themselves.  Before you have your child do this though, you should all sit down with a financial adviser to discuss the implications of saddling your child with the debt and make sure they understand the repayment of those loans.

When it comes to applying for financial aid, you really need to understand what can be counted as a liability on the FAFSA form.  Many parents are unaware that cash value life insurance and annuities  of any kind are not counted as assets on the form.  This means that shifting assets can become very important to the amount of financial aid you qualify for.  This means that parents who have more than $100,000 in taxable liquid assets that they do not want to declare can move the money into an annuity, allowing it to grow tax free until retirement and improve the parents’ implied financial need for the FAFSA form.  Therefor, this strategy can help in financial planning for retirement as well as the financial needs for college.

Shifting funds from a custodial account to a 529 plan can improve financial aid chances as well.  The College Cost Savings Act of 2007 stipulates that 529 plans that are owned by a third party do not count as assets on the FAFSA.  Finally, gifting appreciated assets that you may have will allow for a step-up in cost basis when the student sells the assets and will reduce your declarable assets.  You should speak with a financial planner to determine if these strategies will work for you in the given time frame.

The Importance of Tax Shelters

Posted on: April 2nd, 2010 by

Rockville CPA - IRSWith the economy in the state that it is in and Americans seeing a sea of red figures on their investment portfolios, we tend to put our tax management issues on the back burner and focus on the here and now.  That may seem like the best option, but any good CPA will tell you that tax shelters aren’t as important as they were before, they are more important.  The reasons are quite simple:

1) They are sheltered from creditors as well as taxes. Avoiding bankruptcy is always favorable, and having money in shelters will help strengthen your hand if you have to negotiate with lenders at any point.

2) Taxes are likely to rise. Rising taxes will make these shelters much more valuable.

3) Money in tax shelters like IRAs or 401(k)s doesn’t count against you in the federal formula when your children are applying for financial aid for college.  Parents are expected to contribute a certain percentage of their assets to their child’s education, but money in retirement accounts is ultimately invisible to the formula.

With these three things in mind, you should consider speaking to a financial planner about how to invest your income and protect what little you may have left even if you don’t have a lot of extra cash lying around.  Tax shelters will protect your money in the long run.