Friday’s need-to-know money news

Today’s top story: Know your rights if the IRS breaks the rules. Also in the news: How to avoid an early withdrawal penalty on a CD, could Amazon Go change the way we shop, and how much community college students save by state.

Know Your Rights if the IRS Breaks the Rules
You can fight back.

How to Avoid a CD Early Withdrawal Penalty
Look for more flexible options.

Tap, Shop, Walk. Could Amazon Go Change the Way We Buy?
Stores without checkout lanes?

How Much Money Community College Students Save, Depending on the State
Where does yours rank?

Wednesday’s need-to-know money news

types-of-scholarshipsToday’s top story: Most families don’t plan ahead for college costs. Also in the news: The Brexit effect on mortgages begins to fade, the pros and cons of partial payments, and common money mindsets that are holding you back.

Most Families Don’t Plan Ahead for College Costs, Study Finds
High school graduation is just around the corner.

Brexit Effect Fades; Loan Applications Fall
The Brexit effect on mortgages begins to fade.

Does Making Partial Payments Help?
Is paying someting better than paying nothing?

Common Money Mindsets That Hold You Back
Breaking out of old misconceptions.

Q&A: Best way to pay for college

Dear Liz: We have two children in college, both entering their junior years. We have two more in high school. The two currently in college need additional financial assistance, as they’ve tapped out their federal student loans.

We are middle class, grossing about $125,000 a year, so we don’t qualify for much financial aid. We’re considering a cash-out refinancing of our home, but we feel as though we can do it only once, since each time we refinance it will cost us some fees, plus interest rates are likely to start edging up soon.

However, if we take out a big chunk of cash that could last us for the next two years for the first two children, and possibly some for the other two, we’re concerned that having that much cash sitting in the bank will reduce the amount of financial aid we receive, which would be counterproductive.

Is there a way to earmark the extra cash clearly for education expenses so that it doesn’t count negatively on our Free Application for Federal Student Aid (FAFSA)? Or do we just need to take this year’s cash out now, and refinance again each year (which seems crazy)?

As an aside, now that we have a little experience with this college thing, we will guide the two younger ones to community college or living at home while attending a less expensive public college, or something along those lines.

The first two just sort of went — without a lot of financial forethought.

Answer: The chunk of cash from such a refinance would be counted as a parental asset, provided the savings account is in your names and not those of your child.

So a maximum of 5.64% of the total would be included in any financial aid calculations. That’s not a big bite, but if you’re not getting much financial aid it could offset or erase the small amount you’re getting.

The bigger danger is that you’re taking on debt for something that won’t increase your own wealth or earning power. If you should suffer a severe-enough financial setback, such as a layoff, you could wind up losing your home.

In general, parents shouldn’t borrow more for their children’s college educations than they can afford to pay back before retirement — or within 10 years, whichever is less.

This rule of thumb assumes that you’re already saving adequately for retirement and will continue to do so while paying back the debt. If that’s not the case, you shouldn’t borrow at all.

If you’re going to borrow and can pay the money back quickly, a home equity line of credit may be a better option than a refinance. Interest rates on lines of credit aren’t fixed, but the costs are significantly less and you can withdraw money as needed.

Yet another option: parent PLUS loans, which currently offer a fixed rate of 6.84%. Approach these loans cautiously. It’s easy to borrow too much, since the program doesn’t consider your ability to repay. And like federal student loans, this debt typically can’t be erased in Bankruptcy Court.

Q&A: Tuition gifts and tax breaks

Dear Liz: You recently answered questions about tax breaks for college education expenses. We are contributing $20,000 to our grandson’s college education yearly. He is not our dependent. We are senior citizens with a gross income of about $110,000. Is there any deduction for this expenditure that we might qualify for?

Answer: Your grandson is a lucky young man. Since he’s not your dependent, though, you can’t take any of the available education tax credits or deductions.
The good news is that you don’t have to worry about filing gift tax returns. Each person is allowed to give any other person up to a certain limit each year without triggering the need to file such returns.

This amount, called the annual gift exclusion, is $14,000 this year. Together, you and your spouse could gift up to $30,000 to one person. You wouldn’t actually owe gift taxes until the amounts exceeding this annual exclusion totaled $10.86 million as a couple.

Even if you were giving more than $30,000, there would be a way to avoid filing gift tax returns, and that’s to pay the college directly. Amounts you pay directly to a college or to medical provider are exempt from the limits.

Monday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to protect yourself from credit card breaches. Also in the news: The best ways to pay for college, how to avoid year-round tax scams, and what happens to your debt after you die.

Shelter yourself from payment card breaches
How to protect both your finances and your identity while shopping.

The Best Ways to Pay for Your Child’s College Education
How to combat the rising cost of a college education.

Tax-related scams don’t hit just during tax season
Beware of these year-round scams targeting your taxes.

Who Will Inherit Your Debt When You Die?
One thing you don’t want to leave behind.

Why These 4 Personal Finance Myths Perpetuate Money Problems
Monday mythbusting.

Q&A: Financing a career change

Dear Liz: I am 48 and planning on a career change. I was looking at a culinary school website and it looks pretty exciting. It is a two-year, full-time program and the cost is about $65,000, which doesn’t cover the dorm or apartment expenses for living nearby. Of course, the institute’s counselor told me they have financial aid and asked, “How can you put a price on your future?” Right.

What would be the payback on something like that compared with an average salary of a chef? I will be 50 or so when I complete the program, and I’m not sure I want the big payment plan on my back. Can you help?

Answer: The counselor’s question is ridiculous. How can you not put a price on your future, particularly when it involves such a huge expense? Smart students consider the price not only of their educations but the incomes that education will bring them.

Many students sign up for these for-profit schools with visions of being the next Gordon Ramsay dancing in their heads. A little research would show them that this field is not exactly lucrative or booming.

According to the Bureau of Labor Statistics, the median pay for a chef or head cook was $42,480 in 2012. Employment is expected to grow 5% in the next decade, which is “slower than average for all occupations.”

So the payback isn’t great, especially if you have to borrow money to foot the bill — and most of the financial aid you get at these schools is loans rather than grants or scholarships. Even for someone with a 40-year working career ahead, taking on that level of debt isn’t smart.

You would have much less time to make an investment in a second career pay off — 15 years or so, and that’s if you can tough it out in a hot, hectic environment into your 60s.

If you really want to take this chance, at least minimize your investment by getting trained at a community college. Even better, get a part-time job in a restaurant and see how you like the work first before you commit to the field.

A more thoughtful approach to a career change would involve meeting with a career counselor to consider your strengths and experience, then looking into jobs in which those are an asset. Any training you would need should be reasonably priced and preferably something you could do while hanging on to your day job. Just think about that culinary expression “Out of the frying pan and into the fire,” and try to avoid getting burned.

Wednesday’s need-to-know money news

imagesToday’s top story: Ten YouTube channels that can help you make and save money. Also in the news: How your 401(k) plan can help you decide when to take social security, how the seven deadly sins can hurt you financially, and what to do when you’re too rich for financial aid but too poor to afford college.

10 Must-Watch YouTube Channels for Making and Saving Money
Things to watch in between cat videos.

When to take Social Security? Your 401(k) plan may know best
Help from an unlikely source.

How the 7 Deadly Sins Can Send Your Finances ‘South’
Envy especially.

Restaurant Apps That Will Save You Money
Just in time for summer dining.

Too Poor For College, Too Rich For Financial Aid
What to do when you’re stuck in limbo.