Financial Plan – Annuity

College Savings Plan 2016: What has Changed?

Steve Garcia — Sat, 18 Mar 2017 14:33:08 +0000

Parents looking to save for college have long turned to 529 college savings plans as a tax-advantaged way to put away money for higher education.

According to Sallie Mae’s 2015 How America Saves for College survey, while 89% of parents believe college is an investment in their child’s future, only 27% of savers are using a 529 college savings plan. What’s more, 48% use a traditional savings account, despite the low yield on this type of savings vehicle in today’s current interest rate environment. 529 plans are attractive because parents can invest money in the stock market and, hopefully, grow their savings without facing a taxable event when they use the money for qualified higher education expenses such as tuition, books and room and board.

One of the biggest and most helpful changes to 529 plans for this year is what can now be deducted as a college expense.

According to Rick Castellano, a spokesman at Sallie Mae, in the past, parents weren’t able to deduct computers, tablets and other electronic devices as a qualified education expense, but now they can. When the rules were passed for 529s back some twenty years ago, computer equipment wasn’t found in every classroom and attached to every college student’s hip. Now, it’s almost a requirement on college campuses around the country.

In addition to giving families greater flexibility in terms of what their 529 savings can get them, the government has made it easier for students to take off from school without being penalized. Up until Jan. 1, students who used money from a 529 college savings plan and for whatever reason had to drop out of school with a full refund weren’t allowed to redeposit the money into the 529 savings plan. That meant that if an illness, family emergency or other circumstance prevented the student from attending college, the money that initially went to pay for college would be treated as income and taxed accordingly. “529s treated it as once you get the money, it is a distribution and is a completed transaction,” says Betty Lochner, chair of the College Savings Plans Network.

That all changes this year. Now, students who have to withdraw from college for whatever reason and get their tuition back can reinvest it into the 529 account and avoid a tax bill.

Tax Deductions and Credits that are often missed

Lina O'Nill — Sat, 21 Jan 2017 14:31:18 +0000

Tax filing season for calendar 2016 opened on January 20, 2017. Here is a list of tax deductions and credits that are often missed by taxpayers because they were not aware that the expenses qualified for a tax deduction or credit.

Medical Related

(Total expenses must exceed 10% (7.5% if age 65+) of Adjusted Gross Income to be deductible)

Alcoholism and drug abuse treatment
Contact lenses, eyeglasses and hearing aids
Long-term care insurance premiums
Medical transportation costs, including the standard mileage rate of 23 ½ cents
Lodging expenses incurred for medical reasons

Employment Related

Costs of looking for a new job in your present occupation
IRA deduction for contributions made after the end of 2014 but before April 15, 2015
Employee’s moving expenses
Education that is work related
Unreimbursed employee expenses, such as license fees, business subscriptions
Health care insurance premiums and 50% of self-employment tax for self-employed
Medicare premiums paid by the self-employed
Simplified Employee Pension (SEP) IRAs for self-employed

How a Little Planning can go a Long Way

Steve Garcia — Sat, 22 Oct 2016 13:51:04 +0000

What types of options do I have when it comes to saving for my children's college education, which is best and why?

While the cost of college continues to increase at a torrid pace, there are ways to prepare for one of the biggest expenditures in your lifetime. With appropriate planning, disciplined savings and thoughtful conversations with your child you can significantly improve your chances for success.

Power of Starting Early & Saving Often

Just as the case with any savings goal, the sooner you start and the more disciplined your approach to saving the better off you are. The power of compounding cannot be overstated when looking at an 18 year time horizon. As an example we've created the table below to highlight the power of compounding and the difference in total savings when someone starts saving $1,000, $500 or $250 a month at the birth of their child vs. their 5^th birthday using a tax-deferred vehicle.

Savings Amount	Savings Beginning at Child's Birth	Savings Beginning on Child's 5th Birthday	Difference in Final Account Balance
$1,000 per month	$349,345.16	$219,171.86	+ $130,173.30
$500 per month	$174,672.58	$109,585.93	+ $65,086.65
$250 per month	$87,336.29	$54,792.97	+ $35,543.32

Assuming a 5% annual return you could have approximately $130,000 more in savings when the child turns 18, while only contributing $60,000 extra dollars by starting at birth vs. age 5 (when saving $1,000 per month). As you can see, before worrying about the actual cost or which school your child will attend, the most important action you can take is to simply begin saving sooner than later.

Impact of Inflation on the Cost of Education

Just as the power of compounding can dramatically affect the amount of your savings, so too can inflation affect the cost of a college education. Recent research suggests that college tuition could continue to increase anywhere between 6% – 7% over the next several years. This is nearly three times the current rate of inflation for the majority of consumer products and services.

Balancing the cost of raising a family, saving for your own retirement and saving for your children's college education can be daunting tasks, but all of these should be considered.

Using our Financial Planning software "NaviPlan", we have created the table below to highlight the dramatic impact inflation can have on the cost of secondary education over the next 18 years. Using current tuition figures (room & board included) for a PA resident and a 6% rate of inflation, we were able to highlight the projected cost for the following four well-known schools at different cost levels.

School	Current Annual Cost	Projected Cost in 18 Years
West Chester University	$17,589	$219,627
Penn State University	$28,434	$355,045
Ohio State University	$39,031	$487,366
University of Pennsylvania	$63,526	$793,226

Do We Need a Financial Plan?

Lina O'Nill — Wed, 11 May 2016 13:43:24 +0000

Do any of these questions sound familiar to you?

Can we retire soon or how much longer do we have to work?
Should we collect Social Security at age 62 or wait until full retirement age (and what does that mean, anyway)?
We have pensions, Social Security benefits, bank accounts and retirement plans — but what is the best way to provide our retirement income?
Are we being too conservative or aggressive with our investments?
Should we pay off our mortgage so that we are debt free heading into retirement?
Why are we paying so much in taxes every year — is there anything we can do about it?
We have several life insurance policies — do we still need to have them or should we cash them in (or can we cash them in)?
What about Long Term Care insurance, do we really need that?
We want to take care of our children and grandchildren — is there a best strategy?

We acknowledge that some people are more comfortable with their own version of financial planning, whether through a true “do it yourself” mode or with a “Robo Advisor” type of experience.

Mathematical projections can be done fairly easily to account for the 25 or 30 years of living in retirement, projecting income and expenses compared to assets and liabilities for the entire period using assumed rates of return and estimated life expectancy.