Financial aid for college: Does getting a job help or hurt your student’s eligibility?

August 19, 2013

Remember the good ole days? Back when you could have a summer job working as a camp counselor, a babysitter or a lifeguard, and help fund a significant portion of your college expenses?

While these were – and still are – noble endeavors that can teach young adults valuable lessons about social and financial responsibility, when it comes to paying for college these days, they’re simply not that useful anymore.

In fact, depending on how much one makes, it may actually be doing some harm.

Why? Because the federal financial aid formula factors in a student’s income. In fact, a student’s income and assets are the biggest piece of the financial eligibility formula. Any income over a base protection amount ($6,130 earned in 2012 for the 2013-14 school year) is heavily assessed, and all assets held in the student’s name are assessed at a maximum of 20%. Student assets can include things like their own bank accounts, trust accounts, UGMA/UTMA custodial accounts and education trusts. Retirement assets like Roth IRAs are not included.

For example, if Junior has $10,000 in a Roth IRA, it won’t impact his financial aid eligibility one iota. If he has $10,000 in his bank account, though, his eligibility may drop by $2,000.

This isn’t to say that Junior shouldn’t take that amazing (paid!) internship at a local law firm, but from a college planning perspective, it may be in both his and your best interest to take the income he receives from that job and place it in an account in your name, since parental assets are assessed at a much lower rate than a student’s (approximately 5% versus 20%).

Junior can also avoid taking a major financial aid hit by getting a work-study position on campus, which doesn’t factor into financial aid considerations. He’ll still get the benefits of a regular job – income and discipline – without the financial aid penalty. Moreover, since most work-study positions are on campus, he likely won’t have to take a portion of his income to pay for transportation to and from his job.

Planning for college funding is complicated – and we’re here to help. If you feel overwhelmed by the number of options available to you, consider attending our upcoming webinar, “Education Planning and Funding: 4 Steps to Help Ensure Your Plan Makes the Grade,” on August 21, 2013.


Deciding when to retire

August 1, 2013

For many working Americans, the most important financial decision they will ever make is deciding when to retire.

Retirement age can vary greatly from one person to another. Obviously, very wealthy professionals, executives, business owners and others may have the means to retire comfortably whenever they’ve had enough of the daily grind.

But for the vast majority of working Americans, retirement is something that must be planned and paid for through a lifetime of saving and investing. Until you’ve saved sufficient assets to fund a viable retirement, your options are very limited.

There are a number of factors to consider in planning for your retirement. Whether you work through these issues on your own or with the help of a financial advisor, you need to give serious consideration to when and how you wish to retire.

Here are several questions you need to answer before you can set a retirement date:

How much money will you need each month to pay your bills? In some cases, you may be able to live on less than you did during your working years, but in my experience working with clients, I find that they often spend more in retirement because they have more leisure time. They may travel more and become involved in more outside activities. The other factor to keep in mind is inflation. The cost of living tends to double about every 25 years, so you’re going to need twice as much money to cover your expenses in 25 years than you need now.

How’s your health? If your health is declining, you may have no choice but to retire as soon as possible. But if your health is still good and you have the interest and energy to continue working, you might want to work beyond age 65—either full- or part-time. By working longer, you can use your earnings to live on rather than tap into your retirement savings, and can even add to that savings and give your investments more time to grow.

What is your family’s history of longevity? If your parents or most of your family has a history of living well beyond age 65, it will be important for you to build up an investment nest egg that can sustain you for two or three more decades. That may mean that you’ll have to work well into your sixties and possibly beyond to build up a large enough retirement account to get you through your golden years.

The biggest mistake would be to retire too soon. While the lure of carefree retirement days may tempt you to leave the work force early, you need to be sure you have enough assets and income to pay the bills for two or three decades to come.

Before you take any action, you might want to discuss your situation with your tax advisor or financial advisor to see which course of action would make the most sense for you.