Monday, March 28, 2016

Various Ways That Parents Can Save On the Cost of Their Kids’ College Tuition

Various Ways That Parents Can Save On the Cost of Their Kids’ College Tuition

A big percentage of parents in America usually put off planning for their kid’s college until the children are well into their teens. These parents often get to discover that they had waited too long and with such a late start, they have minimal time to accumulate assets they need to pay for college tuition. Moreover, due to this, they miss out on opportunities to maximize available financial aid.

Attending college and getting a degree is ultimately a worthwhile and wise investment. Paying for college, however, can be quite daunting. It is neither a one-shot nor a one-year affair. Parents will have to think in terms of about four years for a baccalaureate, seven years or more for a professional degree and an eternity if they have more than three bright children spaced a few years apart. 
According to the College Board, average college and tuition fees continue to increase at an alarming rate, almost four times that of regular inflation. This is mainly due to the following reasons.

·         Employee’s salaries must be regularly reviewed and increased to attract new professors and prevent the current ones from desiring to leave.
·          Costs incurred maintaining the school and buildings.
·          The rising cost of updating technology to retain the competitiveness of the school.

 It is therefore very crucial for parents to understand the overall college cost environment and to identify as early as possible ways that they can save on the cost of college tuition. Below are possible ways how to do this.

1.      Investing in 529 College Plans.

Over 25 states in the United States offer a 529 college savings plan to parents. This modern strategy also referred to as Qualified Tuitions Programs (QTP) allows parents to save up for their children’s university fees through a tax-free array of investment options. It is the most touted saving tool for college tuition. It typically involves investing after-tax money into the fund and you are after that allowed to withdraw the money plus any investment gains for any qualified academic expenses like tuition fees, boarding and room charges, and purchase of books. However, any money that is spent on unqualified educational expenses is subjected to a 10% penalty charge and income tax expense.

Moreover, any gains in the investment are tax-deferred, and the money can be used for any graduate or undergraduate studies at any accredited campus in America.
The parent is the sole owner of the account and can change who the beneficiary is whenever they please. This is in cases such as, if plans change along the way and the child decides not to attend college. This way, no money, and efforts go to waste, and the account owner is guaranteed that the money is used for education.

2.      Saving in a Roth IRA Account.

This one savings vehicle is often overlooked as a means of funding your kid’s college tuition. Just like the 529 Plans, after-tax money is regularly contributed, and the parent can withdraw any investment gains plus the money, to pay for any academic expenses. However, this is only after one is above the retirement age of 59 years old and after five years of investment.
One major perk of using the Roth IRA plan is because of the flexibility that it offers over the 529 Plan. This saving strategy allows individuals who have left-over money in the funds after fully paying for college fees to convert that money into retirement income with no tax consequences whatsoever. I can’t think of anything more convenient.
This savings tool, however, has several drawbacks which include:
·         Individuals with high incomes, over $114,000 are phased out and prohibited from using this strategy.
·          It comes with contribution limits. There is a fixed maximum amount beyond which you are not allowed to pay depending on your age.
·         All who participate in this savings plan are required to have earnings. This makes it virtually impossible for those who have the money but no regular flow of income to participate like retirees for instance.

3.      Use of Prepaid Tuition Plans.

Prepaid tuition strategies are exactly what they sound like. Parents are accorded an opportunity to pay for their children’s tuition fees in portions beginning now.  This majorly helps to lock in current prices and you are protected from exponential fee hikes later in future when the time comes for your child to start college. These tuition plans are similarly exempt from federal taxes and available in over a dozen states in the United States.

4.      UGMA and UTMA Custodial Accounts.

Under such accounts, financial gifts to a minor are kept in the custodial account up until the child attains adulthood. It can also be used as a saving option for your young one’s education. Unlike other saving options, such accounts belong to the child, and this implies that once they attain the appropriate age, they get to decide what to do with the money. Not necessarily on college fees.

5.      Coverdell Education Savings Account.

This savings account is similar to the 529 college plan. However, it covers a wider range of educational expenses including K-12 costs such a room and board, and private school tuition. The money is also tax advantaged. One major limitation that comes with using this college savings account is that you can only contribute a certain amount, $2000, per child every year and couples earning over $190,000 are not eligible. Moreover, any funds set aside for education that is not utilized by the time your child is 30, become subject to taxation.

Shockingly, the amount of student debt in the United States has reached epidemic proportions. The tab is at 1.5 trillion and growing. What makes the matter more disturbing is the fact that the tuition fees continue to increase despite this. It appears the only way the average-income family can stay afloat is to figure out a way to beat the system, or go bankrupt. Discussed below are possible alternatives students can look into to avoid student debt.

     Choose to attend a tuition-free school. These are schools that cover all tuition costs for each admitted student. Typical academies that offer such include the Air Force, Coast Guard, Military School, Bible schools and music institutions
     Seek tuition waivers in your academic institution. Such waivers allow you to forgo paying college tuition.  Categories of such offered by schools include those for Peace Corps workers, teachers, veterans, and students whose parents work for the civil service.
      Attending schools which have fixed-price tuition fees. Such institutions guarantee the student that the amount they pay as a freshman will be the exact amount they pay during their final year. This protects them from hikes due to inflation or any other unexpected reasons.
     Negotiate for a tuition discount. Many colleges, especially colleges provide discounts primarily to attract applicants to their institutions. This could be through scholarships, merit aids or grants.

Bottom Line.
Putting up children through college can be overwhelming. Many of them graduate but with a massive debt loan whereas many others fail to complete school due to financial burdens. It is therefore highly crucial to weigh in all options available to you and make the wisest decision regarding your child’s college education even before they are of age.

Tuesday, March 15, 2016

Top Tips For Investing In 2016

Knowing the ins and outs of what’s happening in investments, is something everybody should keep up to date on. If you’re the kind of person that would like to stay financially responsible, then it’s really important to keep your eye on the current markets.  There is simply no excuse for not knowing these things…

We’re now well into 2016, and this year will see investors having to contend with heightened volatility as the Federal Reserve Board nudges interest rates toward more-normal levels, the unparalleled election-year circus, and economic growth both in the US and internationally with it’s starts and stops. Corporate profits will grow slowly, and price-earnings ratios (how much investors are willing to pay for each dollar a company earns) are doubtful to grow.

Many experts are betting on closed-end bond funds, financial and energy stocks. But, many are bearish (Investors who believe that a stock price will decline) on long-term treasury bonds and biotechnology stocks. Analysts are 50/50 over junk bonds.

"Following the 3rd-quarter sell-off, a number of closed-end bond funds with solid assets are selling at unusually deep discounts," says Martin Fridson, chief investment officer at wealth management firm Lehmann Livian Fridson Advisors. He personally prefers those funds with high-yield and investment-grade bonds. An example of this being the BlackRock Credit Allocation fund. Like many other funds it uses leverage (borrowed money), which can boost returns when interest rates are low, but on the other hand it can depress returns when rates are higher.

Dividend stocks won't completely shield you from downturns, so please don’t see them as somehow replacing the fixed-income part of your portfolio. Of course, they have historically done quite a good job at reducing any volatility.

One area that was really negatively effected in 2015 was retail. The S&P Retail ETF slumped nearly 10% due to many retailers suffering weak sales on top of falling profits. With the sustained growth of ecommerce added to worries about shrinking consumer spending, many retail stocks fell.

All of this has helped to push prices down, and lead to shares of good companies selling at very low prices. But beware: Many retailers are facing issues that are that are forecast to last for quite some time.

Two stocks, Best Buy and Kohl's, are looking to be really fool-proof places to invest in 2016.
They have both kept costs low, spending less than competitors, and in Best Buy’s case, by more than $1 billion.

It’s almost a foregone conclusion that the Federal Reserve will raise interest rates next year, so financial stocks as a result will become more attractive.

An increase in rates in 2016 will also allow banks to earn more on their loans. But, banks are generally able to fall behind the Fed in raising rates for depositors, banks' interest margins should therefore increase. Treasury bonds are not a good place to allocate capital, as bond yields will need to get higher. When yields get higher, bond prices fall.