Building a Future Begins Today
Higher education can be the key that opens doors to a brighter, more fulfilling future. You want to help prepare this future for those important to you, but you may not be sure where to start.
At Jennifer Lang Financial Services, LLC., we have the tools and experience to help you do it right. Our experienced advisors help you determine your saving goal, and what it takes to get there, so you can be confident in your plan.
Find out what you need to start building toward the future today – just contact us to schedule your complimentary consultation.
for Education Funding
If you are like most parents who desire for your children to attend college, you’re probably worried about the rising costs. Per an article by Newsweek, since 1969, the average cost of college (tuition, fees, and room and board for full-time students) has almost doubled compared with the median family income. According to the National Center for Education Statistics, the average cost for college in 1969 was $9,502 (after adjusting for inflation), and it jumped to an average cost of $19,339 in 2012. If you take in account, that the median income for a typical American family is $51,000 on average, then you can see that the cost of college for just one child will eat up 40% of the family’s income. Without advance college savings, coupled with possible grants and scholarships a student may receive from financial aid and other sources, many parents’ dream of sending their child to college might not be fulfilled. When deciding on what vehicle is best for you to use as a college savings plan for your child, it’s best that you get all of the facts so that you can make an informed decision.
We’re providing a chart below so that you can compare the features and benefits of using a life insurance policy for college savings versus a state-sponsored 529 plan. Both options are excellent vehicles to help save for your child’s future college education and we hope this chart will serve as a valuable guide to determining if a permanent life insurance policy is the best choice for you.
There are various types of permanent life insurance: Whole Life, Universal Life, or Index Universal Life. At Jennifer Lang Financial Services we will be able to help you with implementing a college savings plan that best fits your family’s needs to reach your goals, and help you to understand all of the types of permanent life insurance.
Life Insurance vs. 529 Plans for College Saving
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How To Shelter Assets on the FAFSA Form
Student and parent assets can affect the student’s chances of getting grants and other need-based financial aid. There are, however, several steps you can take to reduce the impact of assets on eligibility for need-based aid.
Sometimes families want to shelter assets on the Free Application for Federal Student Aid (FAFSA) to increase eligibility for need-based financial aid. Sometimes they want to preserve assets for future use for something other than higher education, such as down payment on a house or starting a business.
There are four main methods of sheltering assets on the FAFSA:
Reportable vs. Non-Reportable Assets
Strategic Positioning of Assets
Simplified Needs Test
Spend Assets Strategically
Assets must be reported on the FAFSA as of the date the FAFSA is filed. In practical terms, this usually requires reporting the net worth of the asset as of the most recent bank and brokerage account statements. However, you can make last-minute changes in your assets before filing the FAFSA, so long as you keep a dated printout from each account’s website showing the account balance after the change in assets.
Reportable vs. Non-Reportable Assets
Some types of assets must be reported on the FAFSA, while other types of assets are not reported on the FAFSA. Shifting an asset from a reportable category to a non-reportable category can help shelter the asset on the FAFSA.
Reportable and non-reportable assets are illustrated in this table.
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One of the most common mistakes on the FAFSA is to report retirement plans and net home equity as investments. These are non-reportable assets.
It is also important to distinguish assets from income. Money in a qualified retirement plan is ignored as an asset, but contributions to and distributions from a qualified retirement plan during the base year count as income on the FAFSA. Some of the income may be taxable and some may be untaxed income, but both have the same impact on eligibility for need-based aid. Even a tax-free return of contributions from a Roth IRA counts as income on the FAFSA.
Shifting an asset from a reportable to a non-reportable status may sometimes lead to income, such as realizing capital gains when an investment is sold. Generally, it is best for this to occur prior to the base year, so that it doesn’t artificially inflate income.
There may also be limits on the ability to use a non-reportable asset to shelter money on the FAFSA. For example, qualified retirement plans are usually subject to annual contribution limits, so it may take several years to shelter a lot of money. On the other hand, contributions to an annuity may allow the family to shelter more money more quickly.
Trust funds often backfire. Trust funds are reportable as an asset, even if access to the principal is restricted. The main exception is when a court placed involuntary restrictions on access to principal, such as to pay for future medical expenses of an accident victim. If the restrictions came from the grantor who established the trust, the restrictions are considered voluntary. Another exception is when ownership of a trust is being contested, such as a testamentary trust where the estate has not yet been settled. As soon as the dispute is resolved, however, the trust is a reportable asset.
Note that loan proceeds count as an asset if the money is unspent as of the date the FAFSA is filed. Only loans that are secured by a reportable asset are treated as reducing the net worth of the asset. For example, the net worth of a brokerage account is reduced by the amount of any margin loans against the brokerage account. Any mortgages on the family home are ignored on the FAFSA because the family home is not a reportable asset.
But, if the family owns a reportable asset, such as a vacation home or rental property, any mortgages that are secured by this investment real estate will reduce the net worth of the asset. However, if the family used a mortgage on the family home to buy a vacation home, that mortgage does not reduce the net worth of the vacation home because it is not secured by the vacation home.
A good strategy for sheltering assets is to use them to pay down debt. Using assets to pay off credit card balances, auto loans and mortgages can not only make the money disappear, but it also represents good financial planning sense. If you’re paying a much higher interest rate on your credit cards than you’re earning on your bank account, you will save money by paying off the high-rate debt since you will be paying less interest.
Parents should also consider accelerating necessary expenses. For example, it is better to replace the roof on the family home before filing the FAFSA than soon afterward. Necessary expenses may include maintenance items as well as replacing a car or other equipment that is near the end of its normal life.
Although businesses are treated more favorably than investments on the FAFSA, rental properties are normally considered investments, not businesses, unless they are part of a formally recognized business that provides additional services (e.g., maid service at a hotel). A vacation home is considered an investment, even if you rent it out for part of the year.
Intentions for the use of money don’t matter. For example, if you sell your home and intend to use the proceeds to buy a new home, you must still report the proceeds as an asset until you are legally committed to buying the new home. Similarly, intending to use the money to pay for retirement does not matter, not even if you are already over retirement age.
Assets owned by a younger sibling are not reported on your FAFSA, but may be reported on the CSS/Financial Aid PROFILE form. However, money in a 529 college savings plan, prepaid tuition plan or Coverdell education savings account is reported as a parent asset if the parent or the child is the account owner. Shifting assets to a sibling may have limited utility in sheltering it from need analysis unless the sibling will not be going to college (e.g., a special needs trust).
529 college savings plans, prepaid tuition plans and Coverdell education savings accounts are not reported as an asset on the FAFSA if they are owned by someone other than the student or the custodial parent, such as a grandparent, aunt, uncle, cousin, older sibling or non-custodial parent. However, any distributions from such a plan must be reported as untaxed income to the beneficiary on the subsequent year’s FAFSA.
Paying off student loans
Graduating with student loan debt comes with tremendous responsibility, especially since interest continues to accumulate as time goes on. More than 2.5 million students have student loan debt greater than $100,000 and repaying those loans can be a significant hurdle. One way to help reduce a student loan balance is using income payments from an annuity. Over time, your premiums grow tax-deferred and then at a later date, you can elect to begin receiving payments. Depending on the type of annuity you choose, you can receive income immediately or several years later. These funds can then be used to help reduce any remaining student loan balance. Remember that annuities specify that you must be a certain age before starting income payments.
What's Best For You?
As you begin to take steps toward saving or paying for college, talk to a financial professional about which solutions can help make higher education accessible and more affordable. By starting the conversation now, you can bring the dream of your child's or grandchild's education within reach while still meeting your other long-term goals.
At JenniferLangFinancialServices.com we use unconventional thinking to bring innovative annuity solutions to you that can help make your retirement dreams a reality. Contact us today for a free no obligation consultation.
Why an Education
When the children in your life are young, it’s easy to dismiss college as a long way off. However, tuition costs for higher education continue to rise, making it more and more difficult for aspiring students to pursue the careers they want.
When you build an education fund, you’re building an opportunity for the young people you care about to reach for their dreams. We help you focus your efforts to save so that you and your sponsored student can experience the greatest benefits, and we provide support to help you stay on track toward your goals over the years. With our help, you gain fulfillment and peace of mind knowing that you’re doing the best you can for the people in your life.
The Help You Need
to Support Future Scholars
Few things can compare to the value of quality education. We’re passionate about helping you achieve your goals, so you can help others achieve theirs.
Get started saving today, and enjoy the confidence and peace of mind that comes with a solid plan. Contact us to schedule your complimentary consultation.
Information on this website is not intended as tax or legal advice. You are encouraged to seek tax or legal advice from your own personal counselors.