College scholarships aren’t free money

types-of-scholarshipsIt is National Scholarship Month, which means high school seniors are being exhorted to scoop up free money for college.

What they are often not told is that scholarships won from corporations, non-profits and other “outside” sources can reduce — dollar for dollar — the grants and cost-reducing financial aid they might get from colleges.

In my latest for Reuters, why college scholarships can put students who need financial aid at a disadvantage.

In my latest for Bankrate, how women can reduce the odds of ending up old and broke.

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: Important financial steps to take before the end of the year. Also in the news: Alternatives to gifting a housing down payments to your kids, making your holiday donations pay off, and how to pay for college without student loans.

Critical List: Key Financial Steps to Take Before Year End
Tick tock.

Options for Parents Helping Adult Kids Buy a Home
Alternatives to gifting a down payment.

3 Tips to Make Your Holiday Donations Pay Off
Time for end-of-the-year giving.

7 Ways to Pay For College Without Student Loans
Taking an unconventional route.

Q&A: The value of associate degrees

Dear Liz: Please continue to encourage people to look into two-year technical degrees. I got my associate’s degree in mechanical engineering and in my first job earned more than my father.

Later I worked for a company that made touch-screen point-of-sale terminals. Time and time again, I trained waiters who had bachelor’s or master’s degrees but couldn’t find better jobs. I now work for a large computer company and have folks sitting around me with those same higher degrees.

Answer: On average, people with two-year degrees are paid less than the average four-year degree holder. One in four people with associate’s degrees, however, earns more, according to the Bureau of Labor Statistics.

These jobs are often in the technical and health fields. Four of the BLS’ 30 fastest-growing job categories require two-year degrees. Those positions include dental hygienist (median annual earnings of $70,210), diagnostic medical sonographers ($65,860), occupational therapy assistants ($53,240) and physical therapist assistant ($52,160).

Other well-paying jobs with good growth prospects requiring two-year degrees include funeral service managers ($66,720), Web developers ($62,500), electrical and electronics drafters ($55,700), nuclear technicians ($69,060), radiation therapists ($77,560), respiratory therapists ($55,870), registered nurses ($65,470), cardiovascular technologists and technicians ($52,070), radiologic technologists ($54,620) and magnetic resonance imaging technologists ($65,360).

Four 529 college savings traps to avoid

imagesPutting money into a 529 college savings plan is relatively easy. Getting it out can be tricky.

This may come as a surprise to the families who have piled money into accounts, hoping to reap tax and financial aid benefits.

“People get tripped up and don’t realize it until it’s too late,” said consultant Deborah Fox of Fox College Funding in San Diego.

Assets in the plans topped $224 billion at the end of 2014, according to research firm Strategic Insight, up from about $13 billion in 2001.

In my column for Reuters, I list the four 529 traps to avoid in order to get the most from your account.

Monday’s need-to-know money news

1403399192000-retire-workToday’s top story: What you cannot ignore on your retirement statement. Also in the news: How to improve your finances in a single day, how teens can save money on car insurance, and why mental accounting can be dangerous.

4 Things You Can’t Ignore on Your Retirement Statement
Pay close attention.

10 Ways to Improve Your Finances in One Day
It only takes a day!

One way teens can actually save on car insurance
Letting your teen behind the wheel doesn’t have to cost a fortune.

Be Aware of “Mental Accounting” When You Save Money on a Purchase
Convincing yourself you’re saving money is a big mistake.

5 Simple Ways to Save Money as a New College Student
The more they save, the fewer times they’ll call looking for money.

Should you send your kid to college with a credit card?

teen-creditSavvy parents know the importance of building a good credit history. They also know that paying with a credit card can be more convenient and secure than other methods.

But personal finance expert Janet Bodnar has one word of advice for parents thinking of providing their college-bound children with a credit card: don’t.

“It’s dangerous and it’s not necessary,” said Bodnar, editor of Kiplinger’s Personal Finance and mother of three college graduates.

On the other hand, personal finance columnist Kathy Kristof—who also writes for Kiplingers and who has sent two children to college—says students who have been taught how to handle money can be responsible credit card users. She added her kids as authorized users to one of her credit cards, and said it’s worked out well.

You can read more in my Reuters column this week, “Start college kids with bank accounts, not credit cards.” Bodnar has more tips for parents at “Rules for raising money-smart kids.”

 

 

 

 

 

Social Security’s divorce and survivors benefits for same-sex married couples

gay-marriage-cake-toppers-485x320Same-sex marriage has been legal long enough in a couple of U.S. states that its pioneers may qualify for Social Security benefits even if they divorce.

Marriages that last at least 10 years before they end qualify the participants for both spousal and survivor benefits from Social Security. Spousal benefits equal up to half the benefit a spouse or ex-spouse has earned, while survivors benefits typically are equal to what the spouse or ex-spouse was receiving at death.

More information on the benefits available to same-sex married couples can be found in my column for Bankrate.

Also on Bankrate, I answer a reader’s question about using her 401(k) account to delay taking Social Security benefits. And on Reuters, I take a look at why parents are spending more and worrying less about college.

Monday’s need-to-know money news

air-miles-cardToday’s top story: How your medical debt impacts your FICO score. Also in the news: Signs your parents are victims of a financial scam, what you need to know when hunting for scholarships, and how to fly first class on the cheap.

The Impact of Medical Debt on FICO Scores
A new formula treats medical debt differently.

5 Signs Your Parents Are the Victims of a Financial Scam
Older adults are more susceptible to scams.

Everything You Need to Know When Hunting for Scholarships
Helping your kids on the road to college.

How to fly first class for free (or on the cheap)
Bargain your way out of coach this summer.

Q&A: American Opportunity Credit for college expenses

Dear Liz: I am confused regarding my ability to take advantage of the American Opportunity Credit for college expenses in filing my 2014 tax return.

My accountant told me I didn’t qualify because my adjusted gross income exceeds $80,000. Yet when I researched on the IRS website, I seem to qualify. I paid qualified education expenses for my son to get an MBA and am claiming him as a dependent on my return, since he is unemployed and I support him. My adjusted gross income was $84,905.

The IRS rules discuss modified adjusted gross income less than $90,000. Is my accountant thinking of another tax credit that I don’t qualify for? Can I take advantage of any credit for providing educational expenses for my son to obtain a graduate degree? I filed for an extension in order to resolve this issue.

Answer: Education tax breaks can be baffling because each has different income limits, eligibility requirements and qualifying expenses.

Three of them — the American Opportunity Credit, the Lifetime Learning Credit and the tuition and fees deduction — are mutually exclusive. That means you can take only one per year, and you can’t use any of them for expenses paid with a tax-free 529 plan withdrawal.

It’s no wonder that many people who may be eligible to take these breaks don’t take advantage of them, even though they could shave thousands of dollars off their tax bills.

The American Opportunity Credit is usually the most valuable credit. It reduces taxes by up to $2,500 per student and is 40% refundable, which means people can get up to $1,000 back even if they don’t have any taxes to offset.

But the credit can’t be claimed for more than four years, and any year in which the old Hope Credit was claimed counts toward that limit. Since your son was in graduate school, it’s possible you already used up your ability to claim the credit.

You can qualify for the full tax break if your modified adjusted gross income is below $80,000 as a single filer or $160,000 for a married couple filing jointly. The credit gets smaller as your income goes up. After $90,000 for singles — and $180,000 for a married couple filing jointly — the tax break is no longer available.

If you can’t take the credit, your son might be able to claim it — if he had taxable income last year and you opt not to take a dependency exemption for him. Discuss this possibility with your tax pro.

You make too much money for the other two options: the Lifetime Learning Credit and the tuition and fees deduction. The Lifetime Learning Credit offsets 20% of tuition and certain other required expenses up to $2,000 per tax return.

In 2014, the credit was gradually reduced for modified adjusted gross incomes between $54,000 and $64,000 for singles, and $108,000 and $128,000 for married couples filing jointly.

The tuition and fees deduction reduces taxable income by a maximum of $4,000 for incomes up to $65,000 for single filers and $130,000 for joint filers, and by up to $2,000 for incomes over $65,000 for singles and $130,000 for joint filers. There’s no deduction for incomes over $80,000 for singles and $160,000 for joint filers.

Why “Get scholarships!” is bad advice

Student-LoansWe had a great Twitter chat today about preparing financially for college, hosted by Experian. (You’ll find the tweets using #creditchat.)

I was distressed, though, that many believe people should look for scholarships as a way to reduce college costs. That’s not how it usually works.

If you have financial need, colleges typically deduct the amount of so-called “outside” scholarships from the free aid such as grants and their own scholarships that they otherwise would give you. Schools don’t have to reduce the loan portion of your package unless your outside scholarships exceed the grants and other free aid they were planning to bestow.

They’re not just being mean. It’s what federal financial aid rules require, according to FinAid. If you don’t have financial need, outside scholarships could reduce the merit aid a school would otherwise give you.

Does that mean you shouldn’t search and compete for outside scholarships? No. But it’s certainly not a reliable solution to the college affordability problem.

A better approach for students and families is to look for generous schools. Colleges themselves are the greatest source of scholarships, but most don’t meet 100 percent of their students’ financial need. Some meet 70 percent or less. If you want a better deal, look for schools that consistently meet 90 percent or more of their students’ need. College Board and College Data are among the sites that can help you find this information.