High School Students! Here’s How You Can Make College More Affordable.

High School Students! Here’s How You Can Make College More Affordable.

Students can earn college credits while still in high school

With the cost of college rising rapidly, it can be overwhelming to think about how to pay your way through school for either yourself or your kids. Fortunately, saving hundreds, even thousands, is possible. Teenagers can help keep down the cost of their future college tuition by taking the following classes and exams while in high school:

  1. Advanced Placement (AP) classes and exams provide the opportunity for high school students to take college-level classes at their high school and an exam at the end of the school year. Many colleges will accept AP credits as placement and/or college credit. Most will accept a passing grade of 3, but some universities may require a score of 4 or 5 to earn college credit. (AP exam scores range from 1-5.)
  2. College Level Examination Program (CLEP) tests also offer the opportunity to earn college credit by passing an exam. However, instead of taking a class, you must study on your own and schedule an exam at a testing center when you’re ready. CLEP exams receive a score between 20 and 80. A score of 50 is typically the passing score to obtain college credit, but each university sets its own requirement. It is important to note that while many colleges accept CLEP credits, some top schools do not accept CLEP credits.
  3. Dual enrollment classes allow high school students to take college courses at a local college or university and earn both high school and college credit. You must be a high school junior or senior to qualify for the program. Dual enrollment credits are widely transferable.

Cost of Exams and Potential Savings

AP exams cost $94, CLEP tests cost $85 plus an additional administrative fee while dual enrollment programs pay for tuition, fees and books. According to the College Board, the average cost of a 3-credit class at a four-year college ranges from $942 to $3,243, meaning for each 3-credit class you test out of, you save hundreds—potentially thousands–of dollars!

Additionally, earning college credit in high school can enable you to finish college in less than four years. Just make sure that when you’re choosing a college, you pay attention to whether or not the schools accept AP and/or CLEP exam scores as credit.

Ease the Pain of Repaying Student Loans

Ease the Pain of Repaying Student Loans

Student loan debt is a hot topic and for good reason. Managing the burden that comes during repayment is very difficult. Fortunately, there are ways to get some relief while taking advantage of timely tax breaks at the same time. Here are four ways to help lessen the strain of repaying your student loans.

  • Deduct your student loan interest. The IRS allows you to deduct up to $2,500 in student loan interest payments on your tax return each year. The great thing about this deduction is you can take it even if you don’t itemize! Each loan provider should issue you a Form 1098-E if you pay over $600 in interest for the year. If you pay less than that, and you don’t receive a Form 1098-E, save your monthly statements as back up for the interest you pay. Even if you are still in school, and you are making interest payments, you are eligible for the deduction.
  • Exclude cancelled debt as income. In most cases the IRS considers cancelled debt as income. However, the IRS recently announced that students would not have to report cancelled student loans as income in the following situations:
    • The school closed when you were attending, or shortly after you attended.
    • The school actions are contradictory to applicable laws.
    • You are a part of a successful legal settlement against the school.

If you receive a Form 1099-C for cancelled student loan debt, conduct research to determine if one of these exclusions applies to your situation.

  • Refinance to lower your payments. Are you making two or more different student loan payments every month? Refinancing multiple accounts into one loan can lower your effective interest rate and your monthly payment. You can also lower your monthly payment by taking an existing loan and refinancing over a greater number of years.
  • Plan for tuition costs. Utilizing student loans to finance your education is a necessity for many people. However, you can cut down on future payments with early savings. For example, parents and grandparents can create 529 college savings plans. And as soon as you start earning income, earmark a portion of every paycheck for college. Grants and scholarships are another way to reduce tuition costs, so start researching early.

College debt can seem daunting. But by combining a long-term plan while taking advantage of tax benefits, the mountain of debt can become a manageable hill.

Consider the Tax BEFORE You Sell

Consider the Tax BEFORE You Sell

Multiple tax rates hold the key

In times of market volatility or when a financial need arises, it is only natural to consider selling some investments.  Understanding the tax consequences is key to making an informed and planned decision. Here is what you need to know BEFORE you sell:

Investment Tax Rates

Investment Tax Classification Holding Period Tax Rate Comments
Retirement Accounts: 401(k), 403(b), traditional IRA, SEP IRA, SIMPLE IRA Ordinary income (when funds are withdrawn from the account) Determined by the account type (usually withdrawals after age 59 1/2) 0% up to 37%* There is not a tax event when an investment is sold within your account. The tax rate depends on your annual income at time of fund withdrawal
Retirement Accounts: Roth IRA and Roth 401(k) No tax on withdrawals 5 years and 59 1/2 years old or older N/A Earnings are not taxed as long as rules are followed
Short Term Capital Gains (STCG) Ordinary income 1 year or less 0% up to 37%* For investment sales such as stocks and bonds
Long-term Capital Gains (LTCG) LTCG rates More than 1 year 0% up to 20% For investment sales such as stocks and bonds
Depreciation Recapture Special Any 25% When you sell property that has been depreciated in prior years, part of your sale price may be taxed as a recapture of this prior period depreciation
Collectables Special Any 28% A special tax rate applies to gains on the sale of items you collect (like coins and baseball cards)
Investment losses Ordinary income Any Offset benefit: 0% up to 37% Losses can offset ordinary income up to $3,000 each year

* a 3.8% net investment income tax may also apply to these earnings.

As the above tax rate chart suggests, understanding the tax consequence of selling an investment can be complicated. Your tax obligation could be subject to no tax or up to 37 percent plus an additional 3.8 percent for the net investment income tax. Here are some ideas to consider:

Within retirement accounts

  • Generally not taxable. Selling investments within your retirement accounts is not usually a taxable event. The potential tax event occurs when you take the funds out of your account either by a withdrawal or occasionally as a rollover into another account.
  • Follow the account rules. Each of your retirement accounts has its own set of rules. If you follow them, you can avoid early withdrawal penalties. Following the holding period rules within Roth accounts can also make your withdrawals tax-free.

Gains and losses outside of retirement accounts

  • Losses. Your losses are first used to offset any investment gains. Any excess losses can offset your ordinary income up to $3,000 per year. So the benefit of losses can be worth next to nothing or up to 37 percent if it offsets ordinary income.
  • Non-investment losses. Unfortunately, individuals may not offset losses on the sale of non-investment property. So if you sell a car and make money, you need to report the gain. If you sell the car and lose money, there is no deductible loss unless it is part of a business transaction.
  • Long-term better than short-term. Holding an investment for longer than one year is key if you want to minimize your tax obligation. Short-term gains are taxed the same as wages.

Remember your investment decisions can often have quite different tax consequences. The best suggestion is to seek advice BEFORE you sell.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

Smart Tactics to Manage Student Debt

Smart Tactics to Manage Student Debt

According to the Federal Reserve, U.S. student loan debt is now $1.5 trillion with more than 44 million borrowers. Only mortgage debt currently has bigger numbers among types of consumer debt. Even worse, more than 10 percent of these loans are past due. Here are some tactics to help make student debt easier to manage:

  • Know the loan terms. Not all student debt is created equal. Understanding the terms of all your student loans is important. With this knowledge, select the correct loan option and know which loan to pay first. Things you should know about each loan include:Suggestion: Create a spreadsheet with a student loan in each column. Then note the terms under each loan. This will create a strong visual of your situation and show you which loans are most important.
    • The interest rate
    • The term of the loan
    • Amount of any up front fees
    • Pre-payment penalties (if any)
    • When interest and payments start
    • Payment amounts
    • Payment flexibility
    • How the interest is calculated
  • Avoid accruing interest. Some student loans accrue interest while you are in school. With the compounding of this interest, your student loan amount continues to grow with each passing year before repayment begins. Banks love this – you should not. Suggestion: Figure out how to make some or all of the interest payments while in school. This will not only lock the amount you owe, it will reduce the amount of overall loan payments.
  • Pay a little extra in the early days. The math of loans benefits banks in the early years of the repayment period. This is because the vast majority of interest is paid in the first years of repayment. By the time you get to the last year of repayment, payments are primarily the principal balance and interest is nil. Suggestion: Pay extra every month as soon as payments start. While this seems impossible as you enter the workforce, even $25 extra per month can dramatically reduce the amount of total payments you make over the life of your loan. For example, a $25 extra payment on a 10-year $50,000 student loan with 5 percent interest would cut six months off the loan, save $834 in interest, AND save $3,180 in future loan payments!
  • Make small cuts elsewhere. Having a hard time finding a few extra dollars to make extra payments? Consider observing and then changing your spending habits. Suggestion: Purchase one less latte a week. Drop one monthly service from a bill. Eat in more often. Then use these savings as a bonus payment on your student loan principal.

While student debt is often an unavoidable outcome of getting a college education, it can be minimized if actively managed. Small changes can yield results if planned for in advance.

Get Your Life Back! Ideas to Unplug

Get Your Life Back! Ideas to Unplug

With endless movies, TV shows and video games available to us 24/7, it’s become too easy to spend all our free time on electronic devices. If you and your family are looking for ways to unplug this summer, consider these ideas:

  • Turn off notifications. Hey! Guess what? Bill just posted a photo of his dinner! And look at this! Minneapolis just set the world record for the largest pillow fight! Let’s be honest, most alerts you get on your phone are meaningless, yet we allow them to steal our attention several times a day. Review your phone settings and turn off all non-essential notifications to keep you focused on the things that are important to you.
  • Ration your screen time. Limiting time in front of a screen is important for both you and your kids. Setting daily screen limits is a good way to keep your media consumption under control and allow for guilt-free time when you just want to scroll through social media or watch a movie.
  • Make a summer reading goal. Set a goal (with prizes at the end!) for yourself and your children to read a certain number of books before Labor Day. According to the Chicago Tribune, because reading is an active activity (not passive, like watching TV), “it reduces stress, promotes comprehension and imagination, alleviates depression, helps you sleep, and may contribute to preventing Alzheimer’s.”
  • Schedule phone-free activities. Plan a get-together like a picnic or BBQ, but with a catch — phones need to be checked at the door. That way you and your guests can focus on each other without the constant distraction of a phone. If some of the guests don’t know each other, even better! They might leave the party with a few new friends.
  • Start a new outdoor hobby. Getting outside is a great way to separate yourself from your electronics. By finding an outdoor hobby that interests you, like hiking, gardening or camping, you’ll have an activity that takes your attention away from your phone and provides added benefits, like exercise and vitamin D.

By getting your electronic habits to a manageable level, you’ll free up more time and energy to live this summer to the fullest.

5 Things Every High School Senior Should Know

5 Things Every High School Senior Should Know

As the school year rolls into February, suddenly the realization sets in that high school seniors only have a few months left before graduation. Here are five things each graduate should understand before their big graduation day:

  1. Debt needs to be managed carefully. It is way too easy to burden oneself under a pile of debt. This is especially true with college loans and credit card debt. While college debt may be unavoidable, try to minimize the size of the loans as much as possible. Regarding credit cards, help your student find the one that best fits their circumstance. This card can be used to create a great credit score for future loans by paying off the whole balance every month. If they can’t, the card should only be used for emergencies. And they should never buy something they can’t afford.
  2. Students need to invest in themselves. As it stands right now, high school students consist of 18 years of experiences, nurturing and decision-making. Now they are faced with a big decision. “Should I pay for college or a trade school?” Just remind them, the more employable they are, the greater their life-long income potential. So while tempted to take another path, the best return on most young student’s investment is often one that is made to create a better employment future for themselves.
  3. Comfort is overrated. It is in our nature to be comfortable – to take the path of least resistance. The times where you step outside of your comfort zone are often the times you learn the most about yourself. These experiences often grow confidence to tackle more difficult challenges when they come along. So encourage your teen to work hard and gain the wisdom that comes with these early experiences.
  4. Life is expensive. Utilities, insurance, taxes, association dues and medical expenses are just some examples of typical “hidden” expenses. Before every big decision, teach your young graduate to research the costs and talk to people that have been in their shoes. In addition to recurring expenses, these new grads need to plan for unforeseen emergencies like dropping a phone in the sink or having unexpected car repairs. So teaching a student how to make a budget and save three to six months of expenses in an emergency account are two great habits to encourage.
  5. Enjoy the journey. Graduating from high school is an exciting time, but can also bring tremendous uncertainty. As your student moves on to their next phase, new emotions will arrive and others will fade away. Encourage your young adult to steal moments each day to reflect on where they’ve been and focus on the positive aspects of their current situation. Each phase of life brings its unique set of challenges to be experienced. Encourage them to enjoy their journey.