Wednesday, February 5, 2020
Ask Me Your Questions
If you have a question related to personal finance, please leave me a comment on this posting. I will do my best to answer your questions and/or provide information relating to that topic.
Friday, January 27, 2012
Online Tax Software
Wow, it has been a long time since I've posted here...almost 5 years! I decided to dig up this old blog again because it is tax time.
As I mentioned in a post 5 years ago, I do my taxes myself using online software. My personal situation has changed a bit since then -- I am now married and own a house, making my tax situation a little more complex. I have been using H&R Block for the past 5 years, but after inputting my information this year, I didn't feel confident about my numbers. I was a little confused by certain things -- What exactly qualifies for a deduction? How do I calculate my energy-saving credit? I decided to take the time to input my information into TurboTax as well to see if I came up with the same result.
I went to the TurboTax website and started a Deluxe return. I found the user interface to be much better than the one H&R Block uses. I liked the way TurboTax explained things, and it helped me realize that I did, in fact, enter things incorrectly in H&R Block. The TurboTax system just seemed a lot smoother, and I liked the summary it gave me at the end:
Adjusted Gross Income (AGI)
less: Deductions
Taxable Income
Taxes Due
less: Credits
less: Withholdings
Total Due/(Refund)
This is exactly the information I wanted to know, and so much better than the convoluted way H&R Block tried to summarize my data.
After I completed my return in TurboTax, I went back into H&R Block to fix some of my errors. One thing I did not realize is that vehicle registration is not deductible for my state -- TurboTax caught this, but H&R Block did not. Also, I had input my home appraisal fee as a deduction in H&R Block, but TurboTax let me know that this is only deductible if it is an appraisal fee for an item I am donating. TurboTax also helped me figure out what the correct credit is for the tankless gas water heater we purchased (10% of purchase price + installation, up to $150) -- all H&R Block told me was "max $300." Once I went back into H&R Block to correct these items, I ended up with the same numbers using both software systems. Both software systems come out with the same result, but it all depends on the user being able to input the correct information...this is where TurboTax was a lot better.
So the next thing I compared is the price of H&R Block vs. TurboTax.
Federal State Total
H&R Block Deluxe $29.95 $34.95 $64.90
TurboTax Deluxe $49.95 $36.95 $86.90
However, being the savvy little frugalista that I am, I searched online for discount codes:
Federal State Total
H&R Block Deluxe $20.96 $34.95 $58.42
TurboTax Deluxe* $22.95 $27.70 $50.15
*(link through Fidelity for discount)
So I think I have been converted...not only is TurboTax easier to use and understand, it is cheaper! Even more importantly, I feel confident about the tax return I put together. Online software works for me because I have a fairly good understanding of taxes. If the thought of doing your taxes is overwhelming and confusing, I would advise getting a professional to help you through the process. If you do decide to use online software, I hope this post was helpful!
As I mentioned in a post 5 years ago, I do my taxes myself using online software. My personal situation has changed a bit since then -- I am now married and own a house, making my tax situation a little more complex. I have been using H&R Block for the past 5 years, but after inputting my information this year, I didn't feel confident about my numbers. I was a little confused by certain things -- What exactly qualifies for a deduction? How do I calculate my energy-saving credit? I decided to take the time to input my information into TurboTax as well to see if I came up with the same result.
I went to the TurboTax website and started a Deluxe return. I found the user interface to be much better than the one H&R Block uses. I liked the way TurboTax explained things, and it helped me realize that I did, in fact, enter things incorrectly in H&R Block. The TurboTax system just seemed a lot smoother, and I liked the summary it gave me at the end:
Adjusted Gross Income (AGI)
less: Deductions
Taxable Income
Taxes Due
less: Credits
less: Withholdings
Total Due/(Refund)
This is exactly the information I wanted to know, and so much better than the convoluted way H&R Block tried to summarize my data.
After I completed my return in TurboTax, I went back into H&R Block to fix some of my errors. One thing I did not realize is that vehicle registration is not deductible for my state -- TurboTax caught this, but H&R Block did not. Also, I had input my home appraisal fee as a deduction in H&R Block, but TurboTax let me know that this is only deductible if it is an appraisal fee for an item I am donating. TurboTax also helped me figure out what the correct credit is for the tankless gas water heater we purchased (10% of purchase price + installation, up to $150) -- all H&R Block told me was "max $300." Once I went back into H&R Block to correct these items, I ended up with the same numbers using both software systems. Both software systems come out with the same result, but it all depends on the user being able to input the correct information...this is where TurboTax was a lot better.
So the next thing I compared is the price of H&R Block vs. TurboTax.
Federal State Total
H&R Block Deluxe $29.95 $34.95 $64.90
TurboTax Deluxe $49.95 $36.95 $86.90
However, being the savvy little frugalista that I am, I searched online for discount codes:
Federal State Total
H&R Block Deluxe $20.96 $34.95 $58.42
TurboTax Deluxe* $22.95 $27.70 $50.15
*(link through Fidelity for discount)
So I think I have been converted...not only is TurboTax easier to use and understand, it is cheaper! Even more importantly, I feel confident about the tax return I put together. Online software works for me because I have a fairly good understanding of taxes. If the thought of doing your taxes is overwhelming and confusing, I would advise getting a professional to help you through the process. If you do decide to use online software, I hope this post was helpful!
Wednesday, February 21, 2007
Pay Yourself First!
When I started my first "real" job, my (dear) mother encouraged me to contribute as much as I could towards my 401(k). At the tender young age of 23, I was much more worried about MAKING it to retirement, much less about how I would fund it.
Well, dear mother was correct, and I am glad I listened to her wise words. Without a reform to the current social security policy and with the changing demographics (an increasing percentage of the population in retirement and a decreasing percentage of the population contributing to the pool), it has been estimated that social security funds will be exhausted by the year 2041. This means that if I retire at the ripe, old age of 65, it will be the year 2046, and I will not be receiving any social security benefits! This means that an increasing amount of my retirement will need to be paid for through SAVINGS! I've also done enough retirement planning to know that I will need quite a hefty sum saved up for retirement to support the lifestyle I'd like to have. This hardly takes into consideration what I should also have saved up for medical costs and unexpected expenses.
Anyways, my whole point for this post was to remind you to pay yourself first! It's easiest to have a certain amount of your paycheck simply put towards your 401(k) or IRA (or both!). That way you don't even see it and don't have the temptation to spend it. If you get a raise, try keeping your spending the same and increasing your retirement contribution.
Another note: If your employer matches your 401(k) contributions, contribute AT LEAST up to the amount they match. If you don't, you're giving up free money!!! This is absolutely the easiest money you could make with very little risk!
Well, dear mother was correct, and I am glad I listened to her wise words. Without a reform to the current social security policy and with the changing demographics (an increasing percentage of the population in retirement and a decreasing percentage of the population contributing to the pool), it has been estimated that social security funds will be exhausted by the year 2041. This means that if I retire at the ripe, old age of 65, it will be the year 2046, and I will not be receiving any social security benefits! This means that an increasing amount of my retirement will need to be paid for through SAVINGS! I've also done enough retirement planning to know that I will need quite a hefty sum saved up for retirement to support the lifestyle I'd like to have. This hardly takes into consideration what I should also have saved up for medical costs and unexpected expenses.
Anyways, my whole point for this post was to remind you to pay yourself first! It's easiest to have a certain amount of your paycheck simply put towards your 401(k) or IRA (or both!). That way you don't even see it and don't have the temptation to spend it. If you get a raise, try keeping your spending the same and increasing your retirement contribution.
Another note: If your employer matches your 401(k) contributions, contribute AT LEAST up to the amount they match. If you don't, you're giving up free money!!! This is absolutely the easiest money you could make with very little risk!
The Rule of 72
The Rule of 72 can be used to estimate the amount of time it will take for you to double your money at a given interest rate.
The formula is simple -- just divide the interest rate into 72.
For example, if you put your money into an account with 8% interest, it will take you 9 years to double your money (72 / 8 = 9).
Just a handy rule to keep in your pocket! =)
The formula is simple -- just divide the interest rate into 72.
For example, if you put your money into an account with 8% interest, it will take you 9 years to double your money (72 / 8 = 9).
Just a handy rule to keep in your pocket! =)
Emotional Financial Management
We'd like to think humans are rational creatures, but in reality, we are all subject to bouts of irrational actions guided by very "human" emotions -- fear, jealousy, and greed, to name a few.
In my personal finance class we read about a study in which a group of people were asked the following question:
Would you rather recieve 10 days of vacation when all of your acquaintances get 5 days OR would you rather receive 20 days of vacation when all of your acquaintances get 40 days
In this situation, almost everyone responded "rationally," choosing to receive 20 days of vacation over 10 days.
As a follow up, the same group of people were asked the following question
Would you rather make $50,000 a year if all of your acquaintances made $25,000 a year OR woud you rater make $100,000 a year if all of your acquaintances made $200,000 a year?
A "rational" person would choose $100,000 because it is obviously twice as much money as the other option. In this study, however, an overwhelming number of people chose the first option because they would be making twice as much as other people. This shows the natural human reaction to judge your financial situation by comparing yourself to others. The emotions brought about by doing this can cause you to make a less than rational decision.
I admit that I compare my financial situation to others, but it is also important to remember that another person's financial situation may not be what you think. I look at co-workers who are buying $350,000 homes and driving nice cars and wonder how the heck they do it when I know they can't be making that much more than I do. Then I look at single parents successfully supporting a family on a single income and I wonder how the heck they do it when I am struggling to just support myself.
This is one of my favorite commercials that helps me answer my questions:
While this isn't the case in all situations, it helps me remember that I shouldn't compare myself to others...I can only keep trying to do the best that I can for myself.
In my personal finance class we read about a study in which a group of people were asked the following question:
Would you rather recieve 10 days of vacation when all of your acquaintances get 5 days OR would you rather receive 20 days of vacation when all of your acquaintances get 40 days
In this situation, almost everyone responded "rationally," choosing to receive 20 days of vacation over 10 days.
As a follow up, the same group of people were asked the following question
Would you rather make $50,000 a year if all of your acquaintances made $25,000 a year OR woud you rater make $100,000 a year if all of your acquaintances made $200,000 a year?
A "rational" person would choose $100,000 because it is obviously twice as much money as the other option. In this study, however, an overwhelming number of people chose the first option because they would be making twice as much as other people. This shows the natural human reaction to judge your financial situation by comparing yourself to others. The emotions brought about by doing this can cause you to make a less than rational decision.
I admit that I compare my financial situation to others, but it is also important to remember that another person's financial situation may not be what you think. I look at co-workers who are buying $350,000 homes and driving nice cars and wonder how the heck they do it when I know they can't be making that much more than I do. Then I look at single parents successfully supporting a family on a single income and I wonder how the heck they do it when I am struggling to just support myself.
This is one of my favorite commercials that helps me answer my questions:
While this isn't the case in all situations, it helps me remember that I shouldn't compare myself to others...I can only keep trying to do the best that I can for myself.
Tuesday, February 20, 2007
Free File
I filed my tax return yesterday. Lucky me, I don't make a lot of money, so I get to use the free file software provided to us "poor folk." About 70 percent (95 million taxpayers) are eligible, so be sure to check it out. Unless you have some complicated tax issues, filing your own taxes isn't as complicated and daunting as it may seem...and the software options available make it pretty easy. Just be sure to collect all your paperwork (W2, 1099-INT, 1099-DIV, etc.) and set aside some time to get it done. I usually expect to get a return, so I do it as soon as possible for the simple reason that I want my $$$ as soon as possible!
This year I used H&R Block's Tax Cut Free File software and found it fairly easy to use. As I was about to submit my return, I found one error, so make sure you double, make that triple, check everything. If you are itemizing deductions, there is an option to deduct either state income tax or state sales tax. If you choose sales tax, you can either use a predetermined amount based on the IRS tables or by adding up saved receipts throughout the year. Obviously, the first is easier, and if you have large purchases such as a car or boat, you can add that to the amount on the table. Anyways, since Washington is one of the states that does not collect an income tax, I chose to deduct sales tax (I believe the deduction was about $1507). The tax software I was using has a running tab at the top telling you what you owe or are owed after each step, so I was happy to see that this bumped up my return quite nicely. When I got to the end of the process, however, I noticed that my return was about $300 less than I had seen earlier. Wondering what sparked this change, I went back and found that the software had gone back and changed my deduction to deduct state income tax ($0, in my case) instead of the sales tax ($1507). I thought maybe I made a mistake (gasp!) and clicked sales tax again. It brought my retun back up $300 and I continued clicking my way through the section. When I got to the end of the section, my return dropped $300 again. I went back and found state income tax clicked again. I clicked sales tax, and this time, instead of finishing up the section, I just skipped to the summary at the end. The $300 was still there, and I triple checked it before I submitted my return. Anyways, long story, but just be sure to triple check everything because sometimes the software might be wrong!
Also, if you are trying to access the IRS website, remember that it is http://www.irs.gov (NOT .com!) irs.com provides some tax links and forms, but I'd much rather get it from the official source!
Also, one more note about tax returns. Many people think of tax returns as free money from the government, but really, it's just the government giving you your own money back that they have been holding and borrowing interest-free. This means that in the strictest sense, you should set your W4 witholdings so that you get $0 back on your tax return. That would mean that you paid the government only as much as you owed. If you get a large return back, it means that you let the government make money on this money instead of saving and investing it and making some money for yourself. In reality, most people will end up spending this money instead of saving it, so it might be better for some to let the government hold their money for them. It can be looked at as a "forced savings account" (except you don't get any interest). So, I guess the lesson is, if you are good about saving your money, increase your witholdings to minimize your tax return. If you are not so good about saving your money, go ahead and keep the withholdings low so you can get a nice return each year. Hopefully when you get your return, you'll put a good chunk of it back into savings.
This year I used H&R Block's Tax Cut Free File software and found it fairly easy to use. As I was about to submit my return, I found one error, so make sure you double, make that triple, check everything. If you are itemizing deductions, there is an option to deduct either state income tax or state sales tax. If you choose sales tax, you can either use a predetermined amount based on the IRS tables or by adding up saved receipts throughout the year. Obviously, the first is easier, and if you have large purchases such as a car or boat, you can add that to the amount on the table. Anyways, since Washington is one of the states that does not collect an income tax, I chose to deduct sales tax (I believe the deduction was about $1507). The tax software I was using has a running tab at the top telling you what you owe or are owed after each step, so I was happy to see that this bumped up my return quite nicely. When I got to the end of the process, however, I noticed that my return was about $300 less than I had seen earlier. Wondering what sparked this change, I went back and found that the software had gone back and changed my deduction to deduct state income tax ($0, in my case) instead of the sales tax ($1507). I thought maybe I made a mistake (gasp!) and clicked sales tax again. It brought my retun back up $300 and I continued clicking my way through the section. When I got to the end of the section, my return dropped $300 again. I went back and found state income tax clicked again. I clicked sales tax, and this time, instead of finishing up the section, I just skipped to the summary at the end. The $300 was still there, and I triple checked it before I submitted my return. Anyways, long story, but just be sure to triple check everything because sometimes the software might be wrong!
Also, if you are trying to access the IRS website, remember that it is http://www.irs.gov (NOT .com!) irs.com provides some tax links and forms, but I'd much rather get it from the official source!
Also, one more note about tax returns. Many people think of tax returns as free money from the government, but really, it's just the government giving you your own money back that they have been holding and borrowing interest-free. This means that in the strictest sense, you should set your W4 witholdings so that you get $0 back on your tax return. That would mean that you paid the government only as much as you owed. If you get a large return back, it means that you let the government make money on this money instead of saving and investing it and making some money for yourself. In reality, most people will end up spending this money instead of saving it, so it might be better for some to let the government hold their money for them. It can be looked at as a "forced savings account" (except you don't get any interest). So, I guess the lesson is, if you are good about saving your money, increase your witholdings to minimize your tax return. If you are not so good about saving your money, go ahead and keep the withholdings low so you can get a nice return each year. Hopefully when you get your return, you'll put a good chunk of it back into savings.
Friday, February 9, 2007
Free Application for Federal Student Aid (FAFSA)
I received my first Reader's Question from Aunty J who is in the process of completing the Free Application for Federal Student Aid (FAFSA) and wanted some help understanding what she can do to maximize the amount of loan she can get.
It's been a while since I've had to fill out the FAFSA, so let's start with the basics.
What is the FAFSA?
The FAFSA is one of the most important forms you will need to fill out for receiving federal aid for higher education. By filling out the application, the government is able to assess the student's and parents' ability to afford college. The amount of aid that they will award is based on the family's financial need. It is different from scholarships (also a great way to get money for college) in that it is based strictly on financial need, not on scholastic merit. It can be a time-consuming process, but is definitely worth the time and effort.
How do you apply?
The FAFSA can be applied for on paper or online. I recommend filling out the paperwork on the web and applying for a Federal Student Aid Personal Identification Number (PIN) so that you can electronically sign your document and submit electronically. I recommend this because the web version will help to double-check that you did not miss anything, your information will be saved to aid in completing the FAFSA the following year (you need to fill out the FAFSA each year you want to apply for aid), and your application will generally be processed faster.
The hardest part about applying will be collecting all of the necessary financial documents needed to complete your application. Here is a checklist of items you will need:
- Student's Social Security Number
- Student's driver's license
- Student's W-2 forms and other records of money earned
- Student's (and spouse's, if married) Federal Income Tax Return (i.e. IRS FOrm 1040)
- Parents' Federal Income Tax Return (if student is a dependent)
- Student's untaxed income records (i.e. Social Security, Welfare, etc.)
- Student's current bank statements
- Student's current investments information
- Student's alien registration number or permanent residence card if not a US citizen
The official FAFSA website is located at http://www.fafsa.ed.gov/
Now, for the "important stuff"...how can you get the most money?!
I'm not an expert on this, but I did some research on the Internet and found this website quite informational: http://www.fafsaonline.com/. This site provides "FAFSA Secrets," which I've summarized below.
1. Reduce Your Adjusted Gross Income (AGI)
The amount of aid you receive is inversely proportional to your AGI -- the more money you make, the less aid you will receive. Your AGI is the amount of money you make per year after standard adjustments. So what do you do if you make too much money (hahaha)? Well, in order to reduce your AGI, you don't necessarily want to lower your income, rather you want to increase your adjustments. AGI = income - adjustments. You can do this by redistributing your assets to your advantage. Examples of this include increasing contributions to retirement accounts (i.e. 401(k)s, IRAs, etc.) and utilizing flexible savings accounts if offered by your employer. A flexible spending account will allow you to put money aside pre-tax to go towards healthcare or childcare expenses. It is important to estimate these costs as accurately as possible, because in most cases, you need to use all the money set aside in the given tax year. Check with your specific policy for more details.
2. Get Rid of All Your Cash
Well, not all of it...but you can stragegically get rid of liquid assets by putting money towards things you know you will need prior to submitting your FAFSA application. Examples of this could be buying things such as computers and books that you know the student will need for college. You can also do things such as paying bills such as car insurance in a lump-sum rather than monthly to get a large amount of cash out of your name. Some insurance companies will offer you a discount for doing this. You can also put a large amount of money towards your mortgage to get rid of liquid assets while retaining the money as equity in your home. Another option is transfer assets to another person. It is cautioned, however, that your friend/relative may not be as trustworthy as you think. Grandparents' money is invisible on the FAFSA until they make a payment towards the student's education, at which time it will be counted against the parents' contribution. A better strategy if you are lucky enough to have grandparents who want to help pay for education is to have them hold the money and help pay off the student loans once the student graduates.
3. Ensure you are Insured
Line 44 of the 2007 FAFSA asks you to detail the worth of your investments, but will exclude the following: mortgage on your principal residence, retirement plans, IRAs, prepaid tuition plans, and the value of life insurance. While whole life insurance can provide a greater storage for assets, benefiting your FAFSA, it is expensive and often advised against by many financial advisors.
4. Sell Bad Investments
Best advice: sell off bad investments, take the loss, and reap the tax benefit of the loss as well as having the investment (and whatever net worth it had) off the books.
Important reminder: you must unload any bad investments prior to the end of the previous tax year! If you wanted to take the loss and deduction in 2008, you would need to complete the sale prior to December 31, 2007.
5. Assets Should NOT be in Student's Name
Assets, savings, and cash carried in the student's name carries more weight than if the assets are held in the parents' name. Students assets are assessed at 20%, while parents' assets are assessed at 6%. This means that any savings for college should not be saved in the student's name.
6. Leave No Entry Blank
Remember that if you don't know the answer to something on the FAFSA, do not leave it blank. Put a zero there insteaed. If you take nothing else away from this FAFSA secrets tutorial, remember that a blank space is your worst enemy and a zero is your best friend. Why? The FAFSA EFC is computed using a formula, and blank spaces may yield a different result than zeroes. Additionally, if too many blanks are left on the FAFSA, the computer system may reject your FAFSA as erroneous.
Best advice: Check your work early and often. When you're done with the FAFSA on paper, have someone else with fresh eyes look at it for mistakes - do this even if you file it online.
7. Apply As Close to January 1st As Possible
It is always advised to apply for as many scholarships as possible, but because any scholarships you receive before applying for the FAFSA will decrease the amount of federal aid you will receive, it is advantageous to apply for the FAFSA as early as possible to get it in before applying for scholarships. The FAFSA application controls access to student loans and grants, and the earlier your FAFSA gets in, gets processed, and gets done, the more eligible you are for grants and scholarships which have a limited pool of money that's first come, first served.
Best advice: File your FAFSA on January 1 and file applications for scholarships beginning January 2. However, if you have to choose between scholarships and the FAFSA, make scholarships a priority. Why? Scholarships == money you don't have to repay for college.
8. Do the Practice FAFSA Form
http://www.fafsaonline.com/fafsa-form/draft-fafsa-form.pdf
9. Other Financial Aid Options
Not really a FAFSA tip, but often times we can get so wound up over the FAFSA that we forget about the other options. You should also be on the look out for available scholarships and be applying for as many as possible. If you do not qualify for aid, you can also apply for a private loan which is non-need-based.
On a related note:
Once the student graduates, consolidate student loans to lock in a low interest rate. This can be done through the US Department of Education or through various private companies.
I hope this information was helpful. It was definitely a great learning experience for me. Keep your questions coming!
It's been a while since I've had to fill out the FAFSA, so let's start with the basics.
What is the FAFSA?
The FAFSA is one of the most important forms you will need to fill out for receiving federal aid for higher education. By filling out the application, the government is able to assess the student's and parents' ability to afford college. The amount of aid that they will award is based on the family's financial need. It is different from scholarships (also a great way to get money for college) in that it is based strictly on financial need, not on scholastic merit. It can be a time-consuming process, but is definitely worth the time and effort.
How do you apply?
The FAFSA can be applied for on paper or online. I recommend filling out the paperwork on the web and applying for a Federal Student Aid Personal Identification Number (PIN) so that you can electronically sign your document and submit electronically. I recommend this because the web version will help to double-check that you did not miss anything, your information will be saved to aid in completing the FAFSA the following year (you need to fill out the FAFSA each year you want to apply for aid), and your application will generally be processed faster.
The hardest part about applying will be collecting all of the necessary financial documents needed to complete your application. Here is a checklist of items you will need:
- Student's Social Security Number
- Student's driver's license
- Student's W-2 forms and other records of money earned
- Student's (and spouse's, if married) Federal Income Tax Return (i.e. IRS FOrm 1040)
- Parents' Federal Income Tax Return (if student is a dependent)
- Student's untaxed income records (i.e. Social Security, Welfare, etc.)
- Student's current bank statements
- Student's current investments information
- Student's alien registration number or permanent residence card if not a US citizen
The official FAFSA website is located at http://www.fafsa.ed.gov/
Now, for the "important stuff"...how can you get the most money?!
I'm not an expert on this, but I did some research on the Internet and found this website quite informational: http://www.fafsaonline.com/. This site provides "FAFSA Secrets," which I've summarized below.
1. Reduce Your Adjusted Gross Income (AGI)
The amount of aid you receive is inversely proportional to your AGI -- the more money you make, the less aid you will receive. Your AGI is the amount of money you make per year after standard adjustments. So what do you do if you make too much money (hahaha)? Well, in order to reduce your AGI, you don't necessarily want to lower your income, rather you want to increase your adjustments. AGI = income - adjustments. You can do this by redistributing your assets to your advantage. Examples of this include increasing contributions to retirement accounts (i.e. 401(k)s, IRAs, etc.) and utilizing flexible savings accounts if offered by your employer. A flexible spending account will allow you to put money aside pre-tax to go towards healthcare or childcare expenses. It is important to estimate these costs as accurately as possible, because in most cases, you need to use all the money set aside in the given tax year. Check with your specific policy for more details.
2. Get Rid of All Your Cash
Well, not all of it...but you can stragegically get rid of liquid assets by putting money towards things you know you will need prior to submitting your FAFSA application. Examples of this could be buying things such as computers and books that you know the student will need for college. You can also do things such as paying bills such as car insurance in a lump-sum rather than monthly to get a large amount of cash out of your name. Some insurance companies will offer you a discount for doing this. You can also put a large amount of money towards your mortgage to get rid of liquid assets while retaining the money as equity in your home. Another option is transfer assets to another person. It is cautioned, however, that your friend/relative may not be as trustworthy as you think. Grandparents' money is invisible on the FAFSA until they make a payment towards the student's education, at which time it will be counted against the parents' contribution. A better strategy if you are lucky enough to have grandparents who want to help pay for education is to have them hold the money and help pay off the student loans once the student graduates.
3. Ensure you are Insured
Line 44 of the 2007 FAFSA asks you to detail the worth of your investments, but will exclude the following: mortgage on your principal residence, retirement plans, IRAs, prepaid tuition plans, and the value of life insurance. While whole life insurance can provide a greater storage for assets, benefiting your FAFSA, it is expensive and often advised against by many financial advisors.
4. Sell Bad Investments
Best advice: sell off bad investments, take the loss, and reap the tax benefit of the loss as well as having the investment (and whatever net worth it had) off the books.
Important reminder: you must unload any bad investments prior to the end of the previous tax year! If you wanted to take the loss and deduction in 2008, you would need to complete the sale prior to December 31, 2007.
5. Assets Should NOT be in Student's Name
Assets, savings, and cash carried in the student's name carries more weight than if the assets are held in the parents' name. Students assets are assessed at 20%, while parents' assets are assessed at 6%. This means that any savings for college should not be saved in the student's name.
6. Leave No Entry Blank
Remember that if you don't know the answer to something on the FAFSA, do not leave it blank. Put a zero there insteaed. If you take nothing else away from this FAFSA secrets tutorial, remember that a blank space is your worst enemy and a zero is your best friend. Why? The FAFSA EFC is computed using a formula, and blank spaces may yield a different result than zeroes. Additionally, if too many blanks are left on the FAFSA, the computer system may reject your FAFSA as erroneous.
Best advice: Check your work early and often. When you're done with the FAFSA on paper, have someone else with fresh eyes look at it for mistakes - do this even if you file it online.
7. Apply As Close to January 1st As Possible
It is always advised to apply for as many scholarships as possible, but because any scholarships you receive before applying for the FAFSA will decrease the amount of federal aid you will receive, it is advantageous to apply for the FAFSA as early as possible to get it in before applying for scholarships. The FAFSA application controls access to student loans and grants, and the earlier your FAFSA gets in, gets processed, and gets done, the more eligible you are for grants and scholarships which have a limited pool of money that's first come, first served.
Best advice: File your FAFSA on January 1 and file applications for scholarships beginning January 2. However, if you have to choose between scholarships and the FAFSA, make scholarships a priority. Why? Scholarships == money you don't have to repay for college.
8. Do the Practice FAFSA Form
http://www.fafsaonline.com/fafsa-form/draft-fafsa-form.pdf
9. Other Financial Aid Options
Not really a FAFSA tip, but often times we can get so wound up over the FAFSA that we forget about the other options. You should also be on the look out for available scholarships and be applying for as many as possible. If you do not qualify for aid, you can also apply for a private loan which is non-need-based.
On a related note:
Once the student graduates, consolidate student loans to lock in a low interest rate. This can be done through the US Department of Education or through various private companies.
I hope this information was helpful. It was definitely a great learning experience for me. Keep your questions coming!
Tuesday, February 6, 2007
In Work...
Receive Three Free Credit Reports Annualy (1 from each of the reporting agencies)
http://www.annualcreditreport.com
Why you need to check your credit reports.
Tons of financial information and some of the best financial calculators I have found online
http://www.bankrate.com
Suze Orman - The personal financial guru herself
http://www.suzeorman.com
http://www.annualcreditreport.com
Why you need to check your credit reports.
Tons of financial information and some of the best financial calculators I have found online
http://www.bankrate.com
Suze Orman - The personal financial guru herself
http://www.suzeorman.com
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