Breaking the Small Business Code

New Stimulus Bill 's Housing Related Benefits & College

     We don't know all the details yet but the recently passed Stimulus Package looks to have three potential benefits for families thinking about buying or refinancing a home. I wanted to share how these items can have possible benefits for college planning:

• In 2008, the conforming loan limits were increased to $729,750.  The American Recovery and Reinvestment Act of 2009 (ARRA 09) reinstates the $729,750 conforming loan limits until December 31, 2009.  This means lower interest rates for loans up to this amount. Higher rates come with "jumbo loans" that exceed this amount.  If your home still has equity, this could be a good thing to take advantage of lower interest rates for college planning!

• The 2009 bill will offer first-time home buyers a tax credit in the amount of $8,000 providing you purchase a home between January 1, 2009 to December 31, 2009.  The credit does NOT have to be paid back to the government unless the buyers sell their home within 3 years after the date of close of escrow on the home.  If you have the means, this could be a great time to help your student(s) buy their first home in lieu of a dorm. 

• The American Recovery and Reinvestment Act of 2009 offers incentives to existing home owners for going Green.  A tax credit of up to $1500 is given to home owners who make some “Green” home improvements.  These Green home improvements include, but not limited to, energy efficient windows, doors, and furnaces.  So doing something to save energy costs could help reduce taxes both of which can improve tax flow for college.

     As I learn more about ARRA 09, my team and I will look for ways to help college-bound families use the benefits to help pay for college!

Paying for College When Your 401K becomes a 1K

     Good morning.  You just woke up to yet another bank being bought out, news of the bailout plan being used as a political football, your house value (and your home equity) has fallen another 10%, and your 401k has been reduced to a 1k.   And tonight's dinner table conversation will be about which $20,000 to $50,000 a year college your high school senior should be applying to. 

     Welcome to the new American nightmare -  paying for college while the financial world you were planning to use seems to be falling apart before your eyes.

     So what is a college-bound family supposed to do in today's chaos?

     First, slow down, take a deep breath and focus on what you can control and create a plan.  The reason firefighters seem so in control during an emergency is they have plans for what to do in various situations.  Families who have a plan will not react in panic when something outside their control happens -- they move onto plan B and then plan C.

     I am counseling my families to think of college planning in these turbulent times as a road trip.  You know you want to get from New York to California for a particular budget.  You decide to drive and begin the trip.  You get 30 miles away from home when traffic stops and the radio tells you about a crash on the main highway ahead.  You can choose to wait it out OR take an alternative route.  You probably wouldn't turn around to go home and decide to fly would you?  If you don't know an alternate route you may pull out a map or pull off the highway and ask someone.  College planning in these strange financial times is the same way!

     Have a TRIP (College) PLAN!  Know where you want to go, how much you can afford to spend to get there, and alternatives in case of an emergency.  If you don't know the alternative routes, find someone who does!  And like driving across the desert, I wouldn't recommend listening to advisors who aren't experienced in that dangerous part of the journey.  I often end up fixing college plans that were based on heresay from friends, family and "professional" advisors who are well-meaning but have never successfully created college plans.

     So where should you turn for professional help on your "road trip"?  You can hire college financial planners like me to be your personal chauffer and take over the trip.  But that's an expensive option and not for everyone.  Instead, I would suggest you consider joining a  "AAA" for college planning.  That's why  I am suggesting that all families learn more about the not-for-profit College Leadership Foundation's College eCoaching program. 

     I am proud to be one of the Technical Advisors to the CLF's eCoaching Club.  I feel they are the most cost-effective way I have ever seen for getting help for the college journey for virtually every college-cound family.  They are unbiased and independent so there is no risk that they will send you down a "road" that only benefits a lender or a mailing list company!

     If you can't find or afford a local "Linda" to be the chauffer, I suggest looking into the CLF eCoaching program to help you on your journey.  For a modest monthly fee, you get the information you need sent direct to your family's inbox several times per month. Compared to the ultimate cost of the trip you and your student(s) are about to take, having a college planning "AAA" will be a small but valuable investment.

     In the meantime, if you have questions or concerns about your college future in today's economy, respond to this blog or contact me through my webpage at www.LindaPTaylor.com. 

    

Using Retirement to Pay for College - Should You Do It?!

ORIGINAL DATE: 04/16/2008 08:59:08 AM

Congratulations, your student got into a great college.  Hopefully they qualified for a great aid package based on need and/or merit.  But there is always something left for you to pay for.  How do you do it? The first place most people look is student and parent loans.  But that means a new monthly payment that grows every year of college.  Rule of thumb is your monthly payment on a 10-year Parent Loan for Undergraduate Students (PLUS) is the amount you borrow divided by 80.   So if you borrow $24,000 for 1 year at a state university, you would pay $300 per month.  At the end of 4 years you have a payment of $1,200 -- $1,500 if your student goes 5 years.  Borrow $50,000 per year for an elite ivy and your monthly payment is $2,500 or $30,000 a year!  And you add it for each loan for each student you have. If loans aren't your thing, it is VERY tempting to turn to your retirement accounts for help pay some of the costs.  IRAs require you to withdraw the money – no loans.  Some 401(k) and 403(b) accounts allow loans as well as withdrawals.  But let’s talk about withdrawals – retirement money you take it with no plan to pay it back. When you take no more than the total cost of attendance (COA) for the college year in a calendar year, you will only pay income tax on the total amount.  Good news is there is no 10% penalty for being under age 59½ as long as you don’t take more than the COA.  But you need to consider that you are losing money from your retirement.  Rule of thumb is if what you withdraw would have gotten a 7% return, what you withdrew would have doubled every 10 years.  So if you are 45 years old, taking $100,000 means you could be losing $400,000 in retirement assets!!  NOTE - If you have ROTH IRA, there is no tax or penalty as long as you only withdraw the COA.  But you still lose the growth potential. Borrowing from your 401k/403b may seem a better idea if loans are allowed. BUT there is a bigggggg catch.  If you leave the company for ANY reason, you have to pay all the money back in 60 to 90 days.  If you don't put it back, the loan becomes a withdrawal and you face taxes AND penalties on whatever exceeds that year's COA.  And borrowers rarely put money into their account at the same rate as before when making loan payments!  So you could have a double-whammy problem. BEFORE YOUR TOUCH a 401(k), have a financial advisor DO THE MATH to calculate how much money you have lost in growth for borrowing and/or not putting money into the account from now through retirement.   I think you’ll be shocked at how much you could potentially lose. Borrowing just $8,000 ($2,000 per year) for 5 years and not deferring the same $2,000 each year means a loss of $63,000 in 30 years.  Take more and for longer and you take a bigger hit! So before you touch your retirement, make sure you look at ALL the ways to pay for college – loans, work study, home equity, lifestyle, start a home business, tax planning, scholarships, college choices, get out in 3 years, use summer school, etc., etc.  the best way to pay for college is to do PLANNING for college at any age and any time in the process!   I strongly urge you to get coaching from a college planning professional if you are thinking about spending retirement money for college. Or you may want to consider joining the nonprofit College Leadership Foundation's "College eCoaching Club"  at www.CollegeLeadershipFoundation.org.