KFA Blog

Education Expenses

 

School is right around the corner and some of the questions we often receive involve tax benefits regarding education expenses and personal budgeting discussions to have with your child. Sending your child off to college can be an expensive ordeal and we are here to help you save every penny possible. A misconception in regards to education expenses is that every expense is 100% tax deductible. Expenses are limited to the IRS guidelines for what classifies as “qualified”. http://www.irs.gov/Individuals/Qualified-Ed-Expenses  Items required for enrollment are tax deductible such as textbooks, supplies, and equipment but costs associated with room and board, insurance, and transportation are non-deductible.

According to College Board, the average cost of a four-year public university is currently $42,544 and $107,416 for private colleges. Over the previous decade, costs have risen by about 40% and one would expect costs to continue to rise. Savings options were highlighted in KFA’s last newsletter and we are always here to assist you in helping your child reach their fullest potential. If your child is considering majoring in education, social work, or criminal justice you may want to consider a loan instead of dipping into your hard earned savings. Oftentimes, generously backed federal student loan repayment programs pay 100% of a graduate’s student loan debt if they work in a needed capacity over a set number of years. Even after graduation some cities and states offer monetary incentives to come work there because those skills are necessary for their community. This essentially means that college could cost nothing depending on certain local and federal guidelines pertaining to after graduation employment. Careful research and financial planning is necessary to deem if this is the right route for you and we are always here to assist you.

At the end of the day, college is more than just academia. Your child is learning how to live on their own and helping them establish a budget is critical for financial success post-graduation. Help your child understand the importance of knowing where their money is going. Reward them for demonstrating financial responsibility and always encourage them to stay on track. The earlier you teach your student to budget, the better. If you need any tips for teaching your child about financial planning, would like to start saving for college expenses, or have any questions feel free to contact any member of the Kabarec team. We hope you enjoy the school year and remember a better tomorrow starts by saving today.

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Education Funding Options

 

Planning for college is imperative to financial success. Through savings, you can ensure that your child's future education options are not limited by financial considerations, you can avoid the stress of student debt, and open up options for special programs such as studying abroad. At Kabarec, we can help you and your child achieve their dreams.  Your dreams of higher education for your child can become a reality through sound financial planning.

There are several investment vehicles that can be used to attain your education goals. 529 plans, Uniform Transfers to Minors Acts (UTMAs) and even ROTH IRAs can help you save for college. 529 plans are popular options for parents because earnings grow tax free when the money is taken out to pay for college. Distributions taken out for anything but college can result in hefty tax penalties, erasing the tax free growth benefit of a 529 plan. This becomes important when thinking about potential scholarships your child may receive.

Unlike a 529 plan, distributions from a UTMA can be used for any purpose. If your child decides to join the military, earns generous scholarships, or doesn’t attend college at all an UTMA may be the best option. The biggest downside of an UTMA are potential taxes your child may face alongside issues surrounding ownership.  The earnings are taxed at your child’s tax rate, but over a certain amount are taxed at the parent’s tax rate.  In Illinois, your student or nonstudent acquires full ownership of the UTMA account at age 21. This means they can spend your investment in whichever fashion they see fit, they could buy books for college or buy a new car stereo depending on their desires.

Roth IRAs and 529 plans allow parents or grandparents to totally control their investment distributions. Unlike 529 plans, Roth IRAs can be used for college expenses and retirement income. For most people, the biggest downside of using a Roth is that only contributions can be withdrawn tax free. Those with high incomes may be excluded from participating in a Roth IRA.  You must have earned income to contribute and there are annual contribution limits.  Although Roth IRAs are much more flexible than 529 plans and offer a greater array of investment options, not everyone can participate.

Deciding which investment vehicle works best for your child is a case-specific task that we can assist you with at Kabarec. Weighing all of your options and deciding which one works best for your family is essential to your child’s success in college. At Kabarec, we offer comprehensive financial planning so that when your daughter or son turns 18 you have nothing to worry about. A better tomorrow starts today. 

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Protecting Yourself through Estate Planning

By:  Heather G. Walser, Lavelle Law, Ltd.

You’ve no doubt heard how important it is to have an estate plan including a will, living trust, and other related documents in place.  A common misconception about estate planning, however, is that its only purpose is to distribute your assets to your surviving family and friends when you die.  While taking care of your loved ones after your death is one of the goals of an estate plan, a comprehensive plan should also take care of you.  In fact, a well-drafted estate plan anticipates not just your death, but your incapacity as well.

Today, the likelihood of becoming incapacitated has increased dramatically.  In fact, statistically speaking, at age 30, you are almost twice as likely to become injured or incapacitated as you are to die.  This risk of incapacity grows with age – nearly doubling by the time you reach the age of 50.  Today in the United States, 40.3 million Americans are age 65 and older – an estimated 13% of the population, according to the U.S. Census Bureau.  Indeed, the fastest growing segment of the population of the United States is people over the age of 65, and the risk of incapacity increases substantially with age. The U.S. Bureau of the Census estimates that as many as 47% of individuals over the age of 85 will develop Alzheimer’s disease, which ultimately results in incapacity.  In light of these statistics, it is more important than ever to ensure that you – and your assets – will be appropriately managed in the event that you become incapacitated.

The State of Illinois recognizes two specific documents to plan for incapacity:  (1) the Power of Attorney for Property, and (2) the Power of Attorney for Health Care.  In a Power of Attorney for Property (“POAP”), you name an agent to manage your financial matters, keeping your best interests in mind, while you are incapacitated.  The agent under the POAP can handle virtually any financial matter you would be able to handle yourself if you were not incapacitated, including paying your bills, managing your accounts, and even dealing with government or other agencies concerning benefits you receive. Similarly, a Power of Attorney for Health Care (“POAH”) names an agent to make decisions concerning your health care while you are incapacitated, including decisions concerning life support and other life-sustaining measures.  The agent under the POAH is also empowered to make anatomical gifts and provide for the disposition of your remains upon your death.

In addition to the POAP and POAH, you can also protect yourself by creating and funding a revocable or “living” trust.  Generally speaking, a trust is a legal entity that you establish during your lifetime to accomplish a particular tax or estate planning objective.  The purpose of a living trust is to manage your property both during life and after death.  During life, you act as trustee and manage the revocable trust for your own benefit.  Assets in the trust can be spent, sold, traded, loaned and used as collateral just as they would if you owned them in your individual capacity.  Once you are unable to act as trustee, whether due to incapacity or death, the successor trustee named in the trust instrument steps in to manage the assets in the trust, allowing for a seamless transition and no interruption in the management of trust assets.  

In the event that you become incapacitated without a trust, POAP, or POAH in place, it can be very difficult for your loved ones to manage your affairs – particularly in the case of your finances.  In order to manage your affairs, your loved ones could be forced to seek guardianship over you.  Obtaining guardianship requires court proceedings that can be complex, lengthy, and costly, and the court may even name a guardian that you would not choose.   To avoid this result, you can take simple steps today to protect yourself in the future by preparing valid Powers of Attorney for Health Care and Property.  If you haven’t already done so, contact an attorney today to ensure you are prepared for what may happen tomorrow.

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What If....

By:  Lisa Thuer - Senior Trading and Research Specialist

No one ever wants to talk about the day your loved one passes away and what needs to be done when the day comes.  It is the “elephant in the room”. Everyone knows they will be faced with it one day, but how many times have we said “We will talk about it tomorrow”.  Then it happens, now what?? We never had“the talk”. What do I do? Who do I call? Is there a Trust? Is there a Will? Who are the beneficiaries? Who gets the house? What happens to the investments? Why did we not have “the talk”?

Make one phone call to Kabarec Financial Advisors, Ltd.; we should be the first call before you call an attorney.  We deal with these questions on a daily basis and will help you every step of the way. Our clients are not only our customers but they are part of our family. We know more about our clients than just their investments and will be able to guide you through this most difficult journey. The majority of the time we will know who the beneficiarie(s) are and who the successor trustee(s) are on the account(s). Once this is established, the rest is routine paperwork as long as we have a certified death certificate. If there is an investment, life insurance policy, etc. outside of our office, KFA will be able to point you in the right direction.

Throughout our relationships with clients, we have made it our priority to give clients piece of mind should something happen to them. We have as much information of their financial life that has been shared with us in confidence. Knowing our clients for their lifetimes, helps us in preparation for when something does happen, we are there for their family in any capacity that is needed. 

Some families may have “the talk” in preparation of the inevitable and some families may not. The time may have come too soon and there was not time for the discussion. In any event, please do not hesitate to make Kabarec Financial Advisors, Ltd. your first phone call when something does happen. We are also available should you need help in preparation of “the talk”, we can also assist with this difficult situation.

 

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Communication is Key…

By:  Michelle Smalenberger, CFP® - Director of Client Services and Financial Advisor

Where there is a grey area or lack of clarity, confusion, frustration, and unmet expectations are much more likely to occur.

Whether you are a newlywed or going through a life transition such as retirement, you can find yourself clarifying financial details with your spouse frequently.  I was recently asked to share about common things couples fight about when it comes to finances. Below is a list of the most common topics couples can fight about. Listed in no particular order:

  1. Expenses and who spends on what
  2. How much is saved  
  3. When to spend on items 
  4. Having a budget
  5. Bills and who pays them
  6. Conflicting or unrealistic goals
  7. Debt and how much is manageable 
  8. New vs. used items
  9. Joint or separate accounts
  10. Whether or not to seek out professional help

Many of the topics listed above can become tough to talk about because of learned habits or behaviors.  A few short conversations to talk about the list above can save much frustration.  For example, if one person is responsible for buying all of the household goods or paying all of the bills, the other person should know what the normal amount for a spending trip to the store is or what the normal electricity bill is each month.  This way the one person won’t be shocked if they see a large amount spent on toiletries or groceries and begin to blame the other for spending too much of the couple’s hard-earned money.

Another tip is to balance the duties so both people are aware of normal monthly expenses and income.  Someone may do all the shopping but the other person tracks all of the expenses each month.  This allows for both people to cut back on spending when it’s necessary but allow for normal and common expenses too. 

Just sitting down over a cup of coffee or dinner to talk about things, like debt, is healthy too!  Maybe one person really likes new cars and the other only likes to buy used cars.  If you don’t talk through how you will decide when it’s time to replace a car you can dread the process every time it comes up. 

Keeping "my" money that "I" earned separate from "your" money that "you" earned does not really instill any type of team accomplishment toward any goals.  There are definitely times where this is very important, but consolidating accounts and talking about income versus expenses can allow both people to work together because they both have access to see what is coming in and going out of the accounts.

If couples can just get started you will have a higher likelihood for success because you are developing good behaviors for years to come.  Dare I say that talking finance could become fun?! 

For some couples, this may mean getting help sooner instead of waiting to fix it on your own.  

By getting a professional involved, just the physical act of speaking what you need help with helps to clear any tension between the couple and begins the path toward making positive progress.  A professional can help provide concrete steps toward what needs to be done.  Then the couple can depend on the professional for help working through this list instead of fighting with each other.

If you’ve had any stories of success you would like to share, please send them our way.  We always like to have positive stories to help build confidence in those who are working through these questions.

 
 
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