Archive for the ‘the hatchlings’ Category
March 14th, 2010 | 
Author: When your salary stops at retirement, will you have enough to pay your bills, travel and live the lifestyle that you want in your Golden Years?  Sure, you may be one of the lucky ones with a pension. Social Security may even still be around. But if you want to live your vision of retirement, then saving and investing properly is important.  And how you pay for college for your kids will impact your own retirement.  Think about this: College tuition, books, fees and housing continue to increase at a rate faster than inflation in general. Based on current trends, the cost of sending just two kids to a private or elite college for a total of eight years will cost more than $360,000 if paid after taxes. This means that those in the 28 percent tax bracket need to earn more than $500,000 in order to meet the costs from cash flow.  Regardless of where you send your kids to school, the bottom-line fact is this: How you pay for college impacts how much you save for retirement. For every dollar that you save on college costs means more for your personal retirement down the road.  There are a number of strategies you can use to improve your chances at a better retirement and a solid education at a lower personal cost.  There are more than thirteen strategies for increasing needs-based aid. There are at least a dozen cost-cutting ways that any family can use to improve their bottom line.  Ultimately, it depends on how well you know how to use the IRS code for your advantage to lower your own Expected Family Contribution (or EFC in financial aid parlance).  Regardless of whether you expect to qualify for needs-based aid or not, here are some examples of cost-cutting strategies available to you.
Strategy 1: Get College Credit Through Exams By taking Advanced Placement exams or even a “challenge” exam for basic college courses, a student can get through school quicker potentially saving thousands in tuition and fees. Opportunities are available for Advanced Placement (AP), College-Level Examination Program (CLEP) or DSST exams for 37 different courses. For more information on these, check out the CollegeBoard or search “Get College Credit.”
Strategy 2: Stay Local In-state tuition and fees at a public higher education institution is a bargain compared to the elites and even crossing the border to go to another state’s public college. If you are considering going across the border or away, consider having your child establish residency in that state. Find out what the residency requirement are ahead of time by contacting the admissions office.
Strategy 3: Get the Credit You Deserve from the IRS Use the Hope Education Credit, renamed the “American Opportunity Tax Credit.” This was recently increased to $2,500 (from $1,200) and now applies to all four years of college, not just the first two. In addition, forty-percent of the credit is now refundable. Another helping-hand comes in the form of the Lifetime Learning Credit which is available for one family member and allows you to take up to 40% credit on educational expenses up to $10,000. Income limits apply so be sure to consult a qualified tax professional or visit the IRS website.
Strategy 4: Employ Your Child If you own a business, work as an independent contractor or own rental real estate, consider hiring your child to work for you. Maybe your child can provide administrative support or help with marketing or real estate related chores. By hiring a child and paying him or her, you will lower your own personal taxable income through a business expense deduction and provide income for your child. In addition, the child can use the earnings to open a Roth IRA, a tax-favored retirement account which is not assessed as an asset for financial aid purposes. And if needed, a child can withdraw a portion of the proceeds to pay for qualified educational expenses. There are certain limits and time restrictions that apply.
Strategy 5: Establish a Section 127 Educational Assistance Plan As a business owner you can establish a Section 127 employer-paid tuition benefits program for your employees. This plan allows the business owner to pay up to $5,250 per year to employees (including employed children) as a qualified tax deductible expense. This can be used for both undergraduate and graduate programs of study. Assuming that Junior was going to work in the family business during the summer and throughout the year, Junior can earn a wage (deductible expense for the business) which he can use for his own support and Roth IRA contribution (which may be eligible for paying educational expenses) and earn a tuition benefit (another deductible business expense). If you were going to give the child the money anyway, you may as well structure it to be tax deductible.  Consider this: There are more than 110 different other strategies for you to consider. All the more reason to have a coordinated plan in place by speaking with a professional advisor who can help evaluate these options with you.  Food for thought:
Encourage your pre-teen to open a Roth IRA with earnings from their paper route or other jobs.
Consider hiring your child to work in your business or help with chores related to your investment property.
Use a CollegeSure CD issued by an FDIC-insured bank to accumulate savings
Think about using a fixed income annuity to hold a portion of money for college to avoid the potential loss in principal that can happen with a 529 plan invested in mutual funds.
Pursue private and merit-based scholarships (For more information on some of these options, check out Fast Web, the CollegBoard and the Scholarship Experts or the Scholarship Coach on the web.
Steven Stanganelli, CRPC®, CFP®, is a CERTIFIED FINANCIAL PLANNER ™ Professional and a CHARTERED RETIREMENT PLANNING COUNSELOR (sm) with an independent fee-only financial planning and investment advisory firm with offices in Massachusetts in Woburn, Lynnfield and Amesbury.
Steve is a five-star rated advisor by the independent Paladin Registry. He specializes in working with business owners, busy executives, medical professionals and their families to help them live richer lives through smarter money moves during life and business transitions.
Steve’s practice includes the areas of retirement planning, low-cost index investment strategies, divorce, college funding and asset protection for business owners and professionals.
Steve frequently writes and presents on these topics. For more information on these topics, please go to his Linked In profile at http://www.linkedin.com/in/stevestanganelli or his blog at http://www.moneylinkpro.wordpress.com.
Article Source: Pay For College Without Busting Your Retirement Nest Egg
Posted in 
Having children isn’t cheap these days, especially in the long term – the older they get, the more they cost. Higher education prices continue to soar and it’s almost impossible to get onto the housing market without having some capital or homeowner loans. All of these things may seem so far ahead, especially if your child is very young, but now’s the time to start saving to ensure you can provide what your children need further down the line.
Surveys suggest that we’re starting to realise this. A report published by Mintel in October 2005 found that 75% of British parents with children under 14 are now saving for their children’s futures. Nearly six million parents are now saving for their children, compared to just under five million in 2003. So it’s evident that we understand the need to save, but it’s not always easy to do so. The day-to-day family finances can be difficult enough to manage without having to think about the future. This article provides some information on how to save for children and explains some of the financial products available.
Bank accounts
The first step that most parents take towards saving for their children is to open a savings account on their behalf and start making cash deposits. Most banks and building societies have accounts specially tailored for children. They often have a higher rate of interest and offer incentives such as membership of a kids’ savings club with regular newsletters, piggy banks, toys and badges. Even if you’re not sure how often you’ll be able to make deposits into the account, it’s a good idea to set one up as soon as possible after your child is born so that it’s there whenever you do have money to put aside. Try to get into the habit of putting in at least a small amount on a regular basis – setting up an automatic transfer from your bank account will make this much easier. Alternatively, simply depositing the government child benefit on a weekly basis will get you off to a good start – it’s amazing how quickly it builds up.
Tax
Children are subject to income tax on bank accounts just like adults. They receive a tax allowance and as long as their total income including interest doesn’t exceed this allowance in the financial year, they will not be taxed on their interest. (The allowance for 2006-2007 s £5,035.) However, this only applies when the savings are gifted by a relative or friend. Interest on money gifted by parents will be subject to tax if the amount of interest earned in a year exceeds £100 per parent. (This prevents parents from taking advantage of children’s accounts for their own savings.) If your child’s annual income will be less than their tax allowance and the money you give them in a year will amount to less than £100 in interest, you can fill out an R85 form from the Inland Revenue to apply to have the interest paid without tax being deducted. It may be worth opening separate bank accounts if your child will be receiving money from yourself as well as relatives or friends, to save any confusion.
Child trust funds
The introduction of child trust fund by the government in 2005 has made a big difference in helping parents to save for their children. In the scheme, new parents are given a minimum of £250 to invest in a long-term savings and investment account on their children’s behalf, plus a further £250 when the child turns seven. The proceeds are held in trust for them until their 18th birthday. It’s not subject to tax and up to £1,200 can be invested each year by parents, family or friends.
There are three types of account – a savings account, a shares account and a stakeholder account. The choice you make will depend to a great extent on your attitude towards risk. Savings accounts are the safest method as you won’t lose money this way, but the returns on the investment tend not to be very high.
The shares account invest your child’s money by purchasing stock market shares. Investing in shares can be risky, especially in the short term, although on the whole the stock market can produce a good long-term returns as share values tend to rise more than they fall over a long period. As saving for children is normally a long-term approach, shares accounts can be an attractive option. However, shares can go down as well as up at any time and past performance isn’t necessarily an indicator of future performance. It’s also important to note that the account provider will normally charge an annual fee for managing the shares.
The stakeholder account is a medium risk option, which invests in shares until the child turns 13 and then the money is transferred to lower risk investments and assets, helping to limit potential losses in the lead-up to the child’s 18th birthday. However, if the stock market performs well over this period, the returns won’t be as high as they would have been if the money had remained in the higher risk investments.
You’ll need to choose not only which account you want for your child, but also which provider. Various different banks, buildings societies and financial organisations provide approved child trust fund accounts. The government simply sends you a voucher for £250, which you’ll invest in the account and provider of your choice. All providers are of course regulated and must meet the terms and conditions stipulated by the government. However, there may be differences in the products they offer. Look out for fees charged and any requirements relating to how much you deposit and how frequently.
Other government-backed savings options
The National Savings and Investments Bank (formerly the Post Office Bank) is an agency of the Chancellor of the Exchequer. It was set up in 1861 by the Palmerston Government to help working people save for their futures and as a means of raising government funds for public spending. It offers various safe and secure options for saving. Premium Bonds, for example, are a monthly large-value prize draw in which you can enter anything from £100 to £30,000. The jackpot can be up to £1million, but prizes of between £50,000 and £100,000 can be won for every bond number held. The prizes are tax-free and bonds can be bought by parents, relatives or friends on behalf of children under 16. Alternatively, indexed linked savings certificates are a great method of tax-free saving in which the value of your money increases in line with inflation (linked to the Retail Prices Index) at guaranteed interest rates. Between £100 and £15,000 can be invested per issue, and they are available to anyone over the age of seven (or can be bought on a child’s behalf if they are under seven).
There are lots of other possibilities for saving for your children – investments, stocks and shares, bonds, savings accounts, trust funds – not all of which are specifically designed for children. In such cases, you’ll need to manage the money on the child’s behalf until they reach 18 (or sometimes 21). To find out how you can best provide for your child’s future, you should visit a financial advisor who will be able to outline the most suitable options for you and your family.
Benedict Rohan works as a freelance finance writer. Commercial Mortgage, Homeowner Loans, Remortgages
Article Source: Saving For Your Child’s Future