Considering private grammar and high school is a parent’s first introduction to a lifetime of saving for a child’s education.
Depending on where you live, you might face a decision to choose between private and public schools, and there might not be much of a choice. It’s an expensive proposition made even more complicated by the fact that you have to save for college at the same time. Some are able to pay for private school today plus save for college. For others they may have to plan on ‘paying as they go’ for all schooling – today and for college.
How do parents make it work? Some have the money to make anything work, but for those who don’t, it’s essential to plan from the time your child is very young. From the beginning, keep abreast of every possible resource for scholarships, discounts, loan programs and other forms of financial aid.
It makes sense to find a financial planner, such as a CERTIFIED FINANCIAL PLANNER™ professional, who can link a child’s pre-college education planning to the financial planning necessary for college, grad school and beyond. Here are some ideas to start with:
How much? The National Association of Independent Schools (NAIS), a national organization representing private pre-schools, elementary and secondary schools, estimates that the median tuition in 2006-07 for all grades of private day schools was $15,894. For boarding school, the price is almost double.
How much aid? A little more than 18 percent of all private school students are receiving some form of aid at an average grant of $10,871. Financial aid grants for private elementary and secondary schools works roughly the same as college – they are awarded on the basis of need. Grants are the best form of financial aid because they don’t have to be paid back.
Applying for aid: Most schools use the Parents' Financial Statement (PFS) from the School and Student Service for Financial Aid (SSS). This is a service owned by NAIS that helps schools determine how much a family can afford to pay for school tuition and other educational expenses. If the school you are considering does not use SSS, be sure to ask what steps you need to follow in order to apply for assistance. The form considers how many children you’re paying tuition for in K-12 or college and how high the cost of living is in your area.
Don’t forget to plan for retirement: You’ll do anything for your kids, but you have to pay yourself first. Talk to a financial planner to see how much you’ll need in retirement and how much you’ll need to save weekly to make that goal. Keep in mind that your greatest potential for a successful retirement comes from starting savings early and you can’t forfeit that in favor of your child’s education.
Consider a Coverdell Account: This is not a universal recommendation because some families may benefit more from savings plans customized to their situation. Coverdell Education Savings Accounts – formerly known as education IRAs – are trusts created to save money for a child’s primary, secondary or college education. Contributions are relatively small -- $2,000 per beneficiary from all sources during the year – though there may be exceptions for certain types of rollovers. Yet since Coverdell Education Savings Accounts are considered the asset of the account owner, you may want to keep it in your name since an account in the student’s name could adversely affect financial aid eligibility.
Enlist the grandparents: If your parents can afford to help, they have several options to help you save for your child’s education without triggering their gift tax obligation. First, each grandparent can give up to $12,000 tax-free to each child or they can give money up to any amount directly to the school without triggering the gift tax. Also, they can give up to $2,000 annually to a Coverdell account you’ve set up for the child. For college, they can also gift money to a 529 College Savings Plan or a Uniform Transfers to Minors Act (UTMA) account for your child.
Don’t use debt as a Band-Aid: Avoid the trap of being forced to use debt while trying to “do it all.” Stay within your means. If you find yourself close to using your debt options, enlist the help of a financial planner to talk through ways to adjust your spending or find student aid.
May 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
Tuesday, June 26, 2007
Tuesday, June 19, 2007
Lenders May Give You a Break on Debt, But Uncle Sam Might Not Be So Forgiving
There’s a good news/bad news story if you’re a borrower in trouble with mortgage debt. The good news is that your lender might be willing to renegotiate your loan to give you a break on your payments or even forgive a portion of the debt. Foreclosure is expensive and it’s also bad publicity throwing people out of their houses – lenders simply don’t like to do it.
The bad news? The IRS is watching.
Lenders are required by law to report to the Internal Revenue Service (IRS) any amount of debt forgiven to customers. That means that unless you file bankruptcy or are otherwise declared insolvent in court, you’ll very likely owe federal tax on the amount forgiven. Also, the IRS is watching if you’re a homeowner benefiting from something called a “short sale” – a quick, speedy sale of your home to avoid foreclosure. At the present time, those full proceeds would be a target for a bill from Uncle Sam as well.
There is no question that thousands of Americans are in trouble with mortgage debt, particularly those who might have gotten low- or no-down payment loans that have actually raised monthly payment amounts as interest rates have risen. Some of these loans were structured in a way that as rates have gone higher that the loans were sent into “negative amortization” – where any equity is erased and the borrower finds they actually owe more on the loan than the amount they originally agreed to.
Add a potential tax debt to that situation and you see an entire class of borrowers risking the loss of everything they own.
Congress is trying to deal with the problem. Right now, a bill in the U.S. House of Representative entitled “The Mortgage Cancellation Tax Relief Act of 2007” (HR 1876) would amend the tax code to exempt debt forgiveness on principal home mortgages from being treated as income. The legislation would also help another class of troubled borrowers who negotiate pre-foreclosure "short sales" or deeds in lieu of foreclosure, or whose foreclosure proceeds are insufficient to pay off their mortgage debt.
If you think you’re running into this kind of trouble, it’s essential to speak with a CERTIFIED FINANCIAL PLANNER™ professional or a tax professional not only to estimate your tax risk, but also to find out if there might be other approaches to your individual situation. It’s not wise to count on a guaranteed break from Congress, particularly since the bill is in the early stages.
Some things you might want to discuss with your tax expert or financial planner:
Is refinancing an option? If you haven’t made a late payment and your credit is in relatively good shape, you may still have the option to refinance instead of going for loan forgiveness. Make sure you’ve checked your credit reports for accuracy before you make this application.
Selling the house quickly. If you have some equity in your home and your credit is still in relatively good shape, it makes the most sense to get out from under your house payments before you risk default or your payments go higher. You’ll be able to pull out some of your equity to put in savings to reinvest in another home or condo someday.
Set a budget, rent cheap and rebuild your savings. There’s no shame in getting rid of a massive loan and starting over. Granted, renting doesn’t have the same tax advantages as owning, but with proper planning, you can pick up the pieces and start again.
May 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
The bad news? The IRS is watching.
Lenders are required by law to report to the Internal Revenue Service (IRS) any amount of debt forgiven to customers. That means that unless you file bankruptcy or are otherwise declared insolvent in court, you’ll very likely owe federal tax on the amount forgiven. Also, the IRS is watching if you’re a homeowner benefiting from something called a “short sale” – a quick, speedy sale of your home to avoid foreclosure. At the present time, those full proceeds would be a target for a bill from Uncle Sam as well.
There is no question that thousands of Americans are in trouble with mortgage debt, particularly those who might have gotten low- or no-down payment loans that have actually raised monthly payment amounts as interest rates have risen. Some of these loans were structured in a way that as rates have gone higher that the loans were sent into “negative amortization” – where any equity is erased and the borrower finds they actually owe more on the loan than the amount they originally agreed to.
Add a potential tax debt to that situation and you see an entire class of borrowers risking the loss of everything they own.
Congress is trying to deal with the problem. Right now, a bill in the U.S. House of Representative entitled “The Mortgage Cancellation Tax Relief Act of 2007” (HR 1876) would amend the tax code to exempt debt forgiveness on principal home mortgages from being treated as income. The legislation would also help another class of troubled borrowers who negotiate pre-foreclosure "short sales" or deeds in lieu of foreclosure, or whose foreclosure proceeds are insufficient to pay off their mortgage debt.
If you think you’re running into this kind of trouble, it’s essential to speak with a CERTIFIED FINANCIAL PLANNER™ professional or a tax professional not only to estimate your tax risk, but also to find out if there might be other approaches to your individual situation. It’s not wise to count on a guaranteed break from Congress, particularly since the bill is in the early stages.
Some things you might want to discuss with your tax expert or financial planner:
Is refinancing an option? If you haven’t made a late payment and your credit is in relatively good shape, you may still have the option to refinance instead of going for loan forgiveness. Make sure you’ve checked your credit reports for accuracy before you make this application.
Selling the house quickly. If you have some equity in your home and your credit is still in relatively good shape, it makes the most sense to get out from under your house payments before you risk default or your payments go higher. You’ll be able to pull out some of your equity to put in savings to reinvest in another home or condo someday.
Set a budget, rent cheap and rebuild your savings. There’s no shame in getting rid of a massive loan and starting over. Granted, renting doesn’t have the same tax advantages as owning, but with proper planning, you can pick up the pieces and start again.
May 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
Wednesday, June 6, 2007
An Annual Insurance Checkup Can Save You Money Without Hurting Your Coverage
As we go through life, our insurance needs change. It makes sense to put certain dates on the calendar each year to see if your home, auto, umbrella liability, life, health, business and disability coverage not only fit your current needs at the right cost but protect you and your family in case of a disaster.
It really hasn’t been that long since Hurricane Katrina underscored the need for individuals and families to think about how insurance fits into an overall financial plan. Weather-related disasters, however, should be only one part of your assessment – it’s wise to consider if you are adequately insured in case a spouse or partner dies suddenly or becomes disabled or if your business is damaged or destroyed.
Here are some ways to examine the coverage and cost issues unique to your situation:
Homeowners’ insurance: It’s always good to see if you can afford to take a higher deductible to get a lower premium, but first, review whether you have the maximum home replacement coverage on your house and its contents. Go to several agents to see what you would get for maximum replacement coverage in your community. This particular coverage is particularly important since so many homeowners carry big mortgages and probably won’t have enough in savings to cover the difference of what insurance won’t. Also, be clear that “replacement cost” means the amount that it will cost to replace your home on the land where it stands – that usually means an amount considerably less than the market value of your home.
Also, make an effort to inventory your collectibles, home office equipment or additional furniture or assets you’ve acquired since you last took an inventory of your home. Make a list of those changes to review with your agent. Then take photos of all significant items and keep them in a safe place -- possibly outside the home.
Auto insurance: If you’re driving an older car that if totaled wouldn’t result in a financial burden to you, you might want to drop collision coverage and/or boost the size of your deductible. Take the money you save and put it in an account for your next new car in case your car is totaled. Also, if you consolidate your home and auto insurance at the same company, you’ll generally get a discount.
Health insurance: Do you fully understand all your deductibles and co-pays? If you’re getting ready to have kids, emergency room visits happen. Does your current plan provide for out-of-network care? Check your prescription coverage -- see what options your health coverage provides you for prescription discounts and prescription-by-mail availability so you can have uninterrupted access to important medications wherever you are. Also, if you travel frequently for work or vacation, check to see what your employer or individual health plan provides in the way of coverage across state lines or outside the country. One uncovered travel-related medical bill can leave you thousands of dollars in debt.
Disability insurance: Many people get disability coverage through work, but some advisors think you should have separate coverage because group policies can be more restrictive and therefore inadequate if you’re out of work for a considerable period of time.
Life insurance: Talk to a trusted advisor, such as a CERTIFIED FINANCIAL PLANNER™ professional, about the right coverage to protect your spouse and children with enough money to help them continue their lifestyle and their educational goals if you die. That includes money for ongoing expenses, mortgage payment and tuition. Your spouse should also consider similar coverage, particularly if he or she is working. You might also consider life insurance for the children if only for burial coverage.
Lastly, remember how external forces affect your ability to buy insurance. For instance, if you buy in a high-crime area or an area hard-hit by weather disasters, you’ll find home and auto insurance tougher to afford. Separate of all local factors, though, you’re going to have to keep a very close eye on your credit report. Your ability to handle credit is pricing your attractiveness as an insurance buyer, a homebuyer, even as a prospective employee. If you really want to save money on insurance, keep your credit record clean.
May 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
It really hasn’t been that long since Hurricane Katrina underscored the need for individuals and families to think about how insurance fits into an overall financial plan. Weather-related disasters, however, should be only one part of your assessment – it’s wise to consider if you are adequately insured in case a spouse or partner dies suddenly or becomes disabled or if your business is damaged or destroyed.
Here are some ways to examine the coverage and cost issues unique to your situation:
Homeowners’ insurance: It’s always good to see if you can afford to take a higher deductible to get a lower premium, but first, review whether you have the maximum home replacement coverage on your house and its contents. Go to several agents to see what you would get for maximum replacement coverage in your community. This particular coverage is particularly important since so many homeowners carry big mortgages and probably won’t have enough in savings to cover the difference of what insurance won’t. Also, be clear that “replacement cost” means the amount that it will cost to replace your home on the land where it stands – that usually means an amount considerably less than the market value of your home.
Also, make an effort to inventory your collectibles, home office equipment or additional furniture or assets you’ve acquired since you last took an inventory of your home. Make a list of those changes to review with your agent. Then take photos of all significant items and keep them in a safe place -- possibly outside the home.
Auto insurance: If you’re driving an older car that if totaled wouldn’t result in a financial burden to you, you might want to drop collision coverage and/or boost the size of your deductible. Take the money you save and put it in an account for your next new car in case your car is totaled. Also, if you consolidate your home and auto insurance at the same company, you’ll generally get a discount.
Health insurance: Do you fully understand all your deductibles and co-pays? If you’re getting ready to have kids, emergency room visits happen. Does your current plan provide for out-of-network care? Check your prescription coverage -- see what options your health coverage provides you for prescription discounts and prescription-by-mail availability so you can have uninterrupted access to important medications wherever you are. Also, if you travel frequently for work or vacation, check to see what your employer or individual health plan provides in the way of coverage across state lines or outside the country. One uncovered travel-related medical bill can leave you thousands of dollars in debt.
Disability insurance: Many people get disability coverage through work, but some advisors think you should have separate coverage because group policies can be more restrictive and therefore inadequate if you’re out of work for a considerable period of time.
Life insurance: Talk to a trusted advisor, such as a CERTIFIED FINANCIAL PLANNER™ professional, about the right coverage to protect your spouse and children with enough money to help them continue their lifestyle and their educational goals if you die. That includes money for ongoing expenses, mortgage payment and tuition. Your spouse should also consider similar coverage, particularly if he or she is working. You might also consider life insurance for the children if only for burial coverage.
Lastly, remember how external forces affect your ability to buy insurance. For instance, if you buy in a high-crime area or an area hard-hit by weather disasters, you’ll find home and auto insurance tougher to afford. Separate of all local factors, though, you’re going to have to keep a very close eye on your credit report. Your ability to handle credit is pricing your attractiveness as an insurance buyer, a homebuyer, even as a prospective employee. If you really want to save money on insurance, keep your credit record clean.
May 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
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