37 When Actual Inflation Is Less Than Expected Inflation Pay For College Without Busting Your Retirement Nest Egg

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Pay For College Without Busting Your Retirement Nest Egg

When your salary retires, will you have enough to pay your bills, travel and live the lifestyle you want in your golden years? Sure, you can be one of them luck with the pension. Social Security may still exist. But if you want to have your vision for retirement, then saving and investing properly is important. And how you pay for college for your children will affect your retirement. Consider this: College tuition, books, wages and housing continue to increase faster than inflation. Based on today’s trends, the cost of sending just two children to a private or elite college for eight years will cost more than $360,000 after taxes. This means that those in the 28 percent tax bracket must earn more than $500,000 to meet the income tax. Regardless of where you send your kids to school, the bottom line is this: How you pay for college affects how you save for retirement. Every dollar you save on college costs means more for your retirement down the road.

There are a number of ways you can take advantage of retirement opportunities and a solid education at a low cost. There are more than thirteen ways to increase need-based aid. There are a dozen ways to cut costs that any family can use to improve their finances. In the end, it depends on how well you know how to use the IRS code to find the benefit to reduce your Expected Family Income (or EFC in financial terms). Regardless of whether you hope to receive needs-based care or not, here are some examples of cost-cutting options available to you.

Method 1: Get College Credit Through Tests By taking the Advanced Placement or “challenge” test for early college courses, a student can graduate school faster which can save thousands in tuition and fees. Opportunities are available for Advanced Placement (AP), College-Level Examination Program (CLEP) or DSST exams in 37 different courses. For more information on this, see CollegeBoard or search for “Get College Credit.”

Option 2: Stay Local In-state tuition and fees at an in-state public college are more expensive than elite and cross-border transfers to a public college in another state. If you are thinking of moving across borders or further afield, consider having your child set up in the area. Find out what needs to be done in advance by contacting the admissions office.

Step 3: Find a Loan You Qualify for from the IRS Use the Hope Education Credit, formerly known as the “American Opportunity Tax Credit.” This was recently raised to $2,500 (from $1,200) and now applies to all four years of college, not just the first two. In addition, 40 percent of the loan is now being repaid. Other help comes in the form of the Lifetime Learning Credit, which is available to one family member and allows you to borrow up to 40% of tuition fees up to $10,000. Income limits apply so be sure to consult a tax professional or visit the IRS website.

Step 4: Employ Your Child If you own a business, work as an independent contractor or own a rental property, consider hiring your child to work for you. Maybe your child can provide administrative support or help with marketing or real estate related projects. By employing a child and paying them, you will reduce your income by deducting business expenses and giving the money to your child. In addition, the child can use the money to open a Roth IRA, a tax-advantaged retirement account that is not considered a taxable income. And if necessary, the child can withdraw part of the money to cover eligible educational expenses. There are certain restrictions and times that apply.

Step 5: Establish a Section 127 Education Assistance Plan As a business owner you can set up a section 127 employer paid program for your employees. The plan allows business owners to pay up to $5,250 a year to employees (including employed children) as tax-deductible income. This can be used for both undergraduate and graduate study programs. Assuming that Junior works for the family during the summer and year-round, Junior can earn wages (business deductions) that he can use for self-support and Roth IRA contributions (which may be eligible to pay educational expenses) and receive education benefits (other business deductions). ). If you give the money to the child, you can arrange for it to be tax-deductible. Consider this: There are more than 110 alternatives to consider. More reasons to have a joint plan by talking to a professional advisor who can help you analyze this with you. Foods to consider:

  • Encourage your teen to open a Roth IRA with earnings from their savings or other jobs.
  • Consider hiring your child to work in your business or help you with household chores related to your merchandise.
  • Use a CollegeSure CD issued by an FDIC-insured bank to save money
  • Consider using fixed income to have a portion of your college expenses to avoid the large losses that can occur with a 529 plan that is invested in general funds.
  • Pursue private and merit-based courses (For more information on some of these options, see Fast Web, CollegBoard and Scholarship Experts or Scholarship Coach online.

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