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Presented by MidAmerica Financial Resources. You can reach them at 618.548.4777 or greg.malan@lpl.com or on the web at www.mid-america.us

 

Ways to Ease the Cost of College

Ways to Ease the Cost of College

A look at grants, scholarships, 529 plans, and other methods.

Provided by MidAmerica Financial Resources

 

How much could a college education cost in the 2030s? You may want to take a deep breath and sit down before reading the next paragraph.

 

A MassMutual analysis projects that four years of tuition, room, and board at a private college will cost nearly $369,000 in 2031. An article at CNBC offers a slightly cheaper estimate, putting the total expense at $303,000 for a freshman setting foot on campus in 2036. (Today, the cost of four years at a private university is less than half that.) How about the price tag for four years of tuition, room, and board at a public university in that year? The same CNBC article says that it may reach $184,000.1,2

 

Even today, finding enough money to pay for college can be an enormous challenge. There are obvious ways to counter the cost: a student can work full time and apply much of the income toward school or assume student loans. Fortunately, there are other ways – ways that you may want to explore if you do not want your child to take a hard-scrabble path through school or get soaked with debt.

 

Ideally, you use money you never have to repay. Grants and scholarships are more plentiful than many students (and parents) realize, and some go begging for applicants. Grants are based on need; scholarships, on merit. Grants can be issued incrementally or in lump sums to a student; most are awarded on a first-come, first-serve basis, which is why it is so crucial to fill out the Free Application for Federal Student Aid (FAFSA) early. A school accepting your student will evaluate your student’s FAFSA, then send an award letter detailing his or her eligibility for federal and state grants. As for scholarships, there are literally millions of them. Sallie Mae provides a convenient online search tool to explore more than 5 million such awards, and you can use it to drill down to opportunities that are strong possibilities for your student.3

   

Through a 529 plan, you can invest to meet future college costs. 529 plans come in two varieties, and both varieties have common tax advantages. 529 plan earnings are exempt from federal income tax, and 529 plan assets may be withdrawn, tax free, so long as the money pays for qualified education expenses. While there are no federal tax breaks linked to 529 plan contributions, more than 30 states offer state income tax deductions or credits for them.4

 

Some 529 plans are prepaid tuition plans, giving you the potential to prepay up to 100% of your student’s future tuition at a public university within your state (most of these plans do not pay for housing costs). You may be able to convert a prepaid tuition plan so that the assets can be used to pay tuition at an out-of-state university or private college. (There is also the Private College 529 Plan, which 250+ private colleges and universities collectively support.)4

 

The great majority of 529 plans are college savings plans, analogous to Roth IRAs. In a college savings plan, you can direct your contributions into equity investments, which offer you the possibility of tax-advantaged growth and compounding. (If the investments perform badly, your college fund may shrink.)4

 

You may choose to fund a 529 plan account incrementally or with a lump sum. States put different limits on the amount of money that a 529 account can hold, but six-figure balances are often permissible. You can invest in any state’s 529 plan and pay for higher education expenses with 529 plan assets at any qualified U.S. college or university.4,5

   

Whole life insurance could help. If you have a permanent life insurance policy with some cash value, you could take a loan from (or even cash out) the policy and apply the amount toward college costs. The value of a life insurance policy does not factor into a student’s financial aid calculation (which many parents do not realize). If you take a loan from a life insurance policy, you will reduce the death benefit; repay the loan in full, and you will restore its full value.6

 

Some families use Roth IRA assets to pay for college. A Roth IRA gives you a degree of flexibility that a 529 plan does not. Suppose your child does not go to college. (While this may seem highly improbable, some young adults do start successful careers without a college education.) In that event, you still have a Roth IRA: a tax-favored retirement savings account with the potential for tax-free withdrawals.7

 

A Roth IRA is not a perfect college savings vehicle, however. First, the annual contribution limit is low compared to a 529 plan. Second, while you may withdraw an amount equal to your contributions without penalty at any time of life, a Roth IRA’s earnings represent taxable income when withdrawn. Third, while Roth IRA assets are not countable assets on the FAFSA, tax-free Roth IRA contributions, once withdrawn, still amount to untaxed income for your student (i.e., the Roth IRA beneficiary), and they lower a student’s eligibility for need-based aid.7

 

Going to college should not mean going into debt. Would you like to plan, save, and invest to reduce or avoid that consequence? Then talk with a financial professional who is well versed in college planning. The variety of options available may pleasantly surprise you.

 

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@lpl.com www.mid-america.us

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities and advisory services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC.
MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to LPL.

Citations.

1 – forbes.com/sites/megangorman/2018/08/23/balancing-the-high-cost-of-child-care-and-college-savings [8/23/18]

2 – tinyurl.com/y9on33n6 [6/23/18]

3 – salliemae.com/college-planning/financial-aid/understand-college-grants/ [11/15/18]

4 – savingforcollege.com/intro-to-529s/what-is-a-529-plan [8/29/18]

5 – thebalance.com/529-limits-contributions-balances-taxes-4138359 [9/19/18]

6 – nextavenue.org/life-insurance-pay-childs-college/ [9/18/18]

7 – savingforcollege.com/article/can-a-roth-ira-be-used-to-pay-for-college [8/1/18]

Social Security Gets Its Biggest Boost in Years

Social Security Gets Its Biggest Boost in Years

Seniors will see their retirement benefits increase by an average of 2.8% in 2019.

 

Provided by MidAmerica Financial Resources

 

Social Security will soon give seniors their largest “raise” since 2012. In view of inflation, the Social Security Administration has authorized a 2.8% increase for retirement benefits in 2019.1

 

This is especially welcome, as annual Social Security cost-of-living adjustments, or COLAs, have been irregular in recent years. There were no COLAs at all in 2010, 2011, and 2016, and the 2017 COLA was 0.3%. This marks the second year in a row in which the COLA has been at least 2%.2

 

Not every retiree will see their benefits grow 2.8% next year. While affluent seniors will probably get the full COLA, more than 5 million comparatively poorer seniors may not, according to the Senior Citizens League, a lobbying group active in the nation’s capital.1

 

Why, exactly? It has to do with Medicare’s “hold harmless” provision, which held down the cost of Part B premiums for select Medicare recipients earlier in this decade. That rule prevents Medicare Part B premiums, which are automatically deducted from monthly Social Security benefits, from increasing more than a Social Security COLA in a given year. (Without this provision in place, some retirees might see their Social Security benefits effectively shrink from one year to the next.)1

 

After years of Part B premium inflation being held in check, the “hold harmless” provision is likely fading for the above-mentioned 5+ million Social Security recipients. They may not see much of the 2019 COLA at all.1

 

Even so, the average Social Security beneficiary will see a difference. The increase will take the average individual monthly Social Security payment from $1,422 to $1,461, meaning $468 more in retirement benefits for the year. An average couple receiving Social Security is projected to receive $2,448 per month, which will give them $804 more for 2019 than they would get without the COLA. How about a widower living alone? The average monthly benefit is set to rise $38 per month to $1,386, which implies an improvement of $456 in total benefits for 2019.1

 

Lastly, it should be noted that some disabled workers also receive Social Security benefits. Payments to their households will also grow larger next year. Right now, the average disabled worker enrolled in Social Security gets $1,200 per month in benefits. That will rise to $1,234 per month in 2019. The increase for the year will be $408.1

 

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@lpl.com www.mid-america.us

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Securities and advisory services offered through LPL Financial, a Registered Investment Adviser, Member FINRA/SIPC.
MidAmerica Financial Resources and Malan Financial Group are separate and unrelated companies to LPL.

 

Citations.

1 – fool.com/retirement/2018/10/26/heres-what-the-average-social-security-beneficiary.aspx [10/26/18]

2 – tinyurl.com/y9spspqe [8/31/18]

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