The Graduation Guaranteed Summary Report Wage Earner

Our First Step Together – Shared Commitment Toward Your Student Success

Curiously, Thomas Jefferson didn’t ask to be remembered for his service as our nation’s third president. Rather, his epitaph includes founding the University of Virginia among his accomplishments. Education has long been a pathway to success, since the founding of our country. The Guaranteed Graduation™ is designed to help your family along that path.   … Page 1

The Founding “Keystone” of our Coaching Process

Graduate on Time

The US Department of Education recently began publishing statistics on 8-year graduation rates. Since just one additional year of enrollment increases college costs by 25%, managing graduation times can save you a fortune.   … Page 7

Funding Impact: You don’t lose up to $49,324 of total reduced college costs over a four-year college career.

Financial Aid

The Basic Federal Method Formula

The Federal financial aid formula considers four separate areas of family resources. Before applying for aid, understand what your family is and is not expected to contribute towards education costs.   … Page 11

Concepts & Principles of Financial Aid

Knowing the Federal government believes families to be primarily responsible for funding college for their children causes the financial aid system to make a little more sense.   … Page 12

 The FAFSA

It all begins with the Free Application for Student Aid or FAFSA form. In order to receive any Federal aid including loans or grants, families must complete the FAFSA. Most schools also require the FAFSA before students are eligible for any aid provided by the college.   … Page 13

The Federal Financial Aid Marginal Rates for Parents

Just like the tax system, the financial aid system uses progressively higher rates. However, financial aid rates consider not only income but also assets.   … Page 16

The Three Ways to Calculate Aid Eligibility

Families often worry that their assets will disqualify them from meaningful financial aid. However, of the three alternative formulas the federal government uses to calculate aid eligibility, only one even considers assets.   … Page 18

Eligible Financial Aid Income

Many advisors concentrate their college planning efforts on helping you reposition assets. However, the aid formulas count your income more heavily than your assets so it’s important to understand how income is calculated and reported for aid purposes.   … Page 20

Appealing a Financial Aid Award

Don’t call it negotiation and don’t rely primarily on emotion when seeking an increased financial aid award. Document the facts supporting your “special circumstances” that the aid formulas do not accurately reflect your true ability to pay.   … Page 28

Strategy Tips and Traps

Basic Ways to Increase Financial Aid

Every tactic designed to increase a family’s financial aid eligibility falls into one of five general categories.   … Page 32

Timing is Everything

If location is everything when buying real estate, timing is everything (almost) when applying for financial aid. Doing the FAFSA a day earlier or later can make a world of difference in your potential aid award.   … Page 33

Personal Debt Doesn’t Help You

The financial aid formulas don’t give you a break for non-mortgage debt. So, using otherwise assessable assets to pay personal debt could increase your family’s aid eligibility.   … Page 34

Funding Impact: Up to $0 of increased financial aid eligibility.

Spend Student Money First

It’s important to take a family holistic approach to financing college. Since the aid formulas penalize student assets at a much higher rate than parental assets, using student assets to purchase that car for college or new computer could increase your family’s aid eligibility.   … Page 35

Funding Impact: Up to $1 of increased financial aid eligibility.

Spend Money NOW

If it seems strange for a financial advisor to counsel against saving money, remember that the financial aid formulas are all about timing. Making essential expenditures now rather than later could increase your financial aid eligibility.   … Page 36

Funding Impact: Up to $56 of increased financial aid eligibility for every $1,000 of eligible assets purchased prior to completing the FAFSA questionnaire.

Take Care with Retirement Plan Withdrawals

Withdrawing money from your retirement plan to pay college expenses can be doubly expensive if you don’t time the withdrawals properly. Not only can withdrawals reduce your financial aid eligibility but you could also find yourself owing additional Federal income taxes.   … Page 38

Funding Impact: Up to $470 of increased financial aid eligibility and $250 of reduced Federal income taxes for every $1,000 of postponed retirement plan distributions.

Delay Income

Postponing taxable income until after your final financial aid application can both defer taxes and increase potential aid eligibility.   … Page 40

Funding Impact: Up to $470 of increased financial aid eligibility and $250 of reduced Federal income taxes for every $1,000 of delayed income.

Avoid Capital Gains

Diversifying your portfolio or selling an appreciated asset can make good financial sense. However, if you won’t otherwise jeopardize your net worth, waiting to sell your appreciated assets until after your child graduates could increase your aid eligibility and reduce your current income tax burden.   … Page 41

Funding Impact: Up to $470 of increased financial aid eligibility and $200 of Federal income taxes for every $1,000 of long-term gain deferred.

  Borrow Smart Repay Smart™

What is a Student Loan?

Most families think student loans carry some special designation identifying them as student loans. However, that’s not necessarily the case.   … Page 43

Stafford Undergraduate Loans – Subsidized

Subsidized Stafford Loans’ favorable terms make them a great choice for spreading college costs over a more manageable period. And, the Federal interest subsidies save you lots of interest versus other student loan options.   … Page 45

Funding Impact: About $11,080 in total interest versus private education loans.

Stafford Undergraduate Loans – Unsubsidized

Even if you don’t qualify for need-based financial aid, you should consider using an Unsubsidized Stafford Loan because its terms are often more favorable than those of other loan options. That means you could reduce your total interest costs over the life of the loan.   … Page 46

Funding Impact: About $3,950 in interest as compared to a private student loan using a ten-year repayment option.

Intra-Family Loans

Intra-family loans can be a great way for family members such as grandparents to help pay for college with great flexibility. However, be sure to document your intra-family loans properly to avoid serious tax problems and potentially more serious hurt feelings.   … Page 50

Student Loan Interest Deduction

Tax law usually prohibits individuals and families from deducting interest on personal loans. However, there’s an exception for student loan interest that can provide big tax deductions during the years the loans are being repaid.   … Page 52

Funding Impact: About $8,775 over a ten year period for graduates with average student debt loads.

Life Insurance Loans

Life insurance policies with loans require frequent monitoring to ensure that your family doesn’t face unpleasant tax bills, financial aid reductions, or loss of insurance coverage.   … Page 56Retirement Plan

Retirement plan loans can seem attractive because you are borrowing from yourself. However, realizing that you repay the loans with after-tax dollars and then pay taxes again on eventual retirement withdrawals should cause most families to seek other alternatives.   … Page 57

Borrow Smart Analysis

Proprietary software that allows you to make sure you borrow smart and repay smart. Calculates Effective Percentage Rate of all family debt, time frame to become debt free (Upgrade Clients).

Saving for College

What is a 529 Plan?

529 plans have to be the most discussed college savings vehicle. They get their name from the tax code section that created them and no discussion of college funding would be complete without understanding their uses and limitations.   … Page 62

Double Dippin’ the Taxable 529 Distribution

Investment brokers, your home state, and even many CPA’s tell you that 529 plans are great because withdrawals are tax-free. Well, that is good news except for the fact it’s not always true.   … Page 65

US Savings Bonds Scorecard

Your matured US Savings Bonds could reduce your family’s after-tax cost of college if you redeem them and use the proceeds to pay qualified education expenses.    … Page 68

UGMA & UTMA Scorecard

Historically, UGMA or UTMA accounts represented valuable family tax planning strategies. However, additions of a “kiddie tax” can limit those benefits while the financial aid formulas can penalize UGMA and UTMA balances with a reduced award.   … Page 69

What is Permanent Life Insurance? Note: Due Diligence / Suitability Required

Cash value life insurance can be used as a college savings vehicle or way to shelter assets from the financial aid formula. If life insurance otherwise represents a good financial choice for your family, using assessable assets to purchase a cash value life insurance policy could potentially increase your family’s aid eligibility.   … Page 71

Funding Impact: Up to $56 of increased financial aid eligibility for every $1,000 of eligible assets transferred to a cash value life insurance contract.

What is an Annuity? Note: Due Diligence / Suitability Required

Annuities can be used as a college savings vehicle or way to shelter assets from the financial aid formula. If an annuity otherwise represents a good financial choice for your family, moving assets into an annuity could “potentially” increase your family’s aid eligibility.   … Page 73

Funding Impact: Up to $56 of increased financial aid eligibility for every $1,000 of eligible assets transferred to an annuity.

IRA Scorecard

Individual retirement accounts might be the most powerful part of a college savings plan. Consider that money in IRA’s is not assessed as part of the financial aid formulas. In addition, planned properly IRA contributions can represent one of the few options for paying college expenses with tax-free money.   … Page 76

Individual Securities Scorecard

When saving for college, don’t neglect the family’s broader investing needs. You will actually find that a traditional brokerage account represents one of the most flexible ways to saving for college and manage taxes.   … Page 79

Education Scholarships

The True Cost of College

Most college expenses are paid with after-tax earnings just the way you pay your other bills. This means you have to earn more than you really need to pay for college unless you can figure out how to deduct the cost.   … Page 81

Income Shifting

Differentials in the tax rates of parents or grandparents and the family’s college students means that shifting income from higher to lower tax rate family members can mean the family as a whole is better off.   … Page 82

Funding Impact: Up to $250 reduced Federal income taxes for every $1,000 of income transferred to lower tax rate family members.

 

The “Kiddie Tax”

Although shifting investment income to your children can significantly cut your overall family tax bill it can backfire badly if you do it wrong.   … Page 83

American Opportunity Credit

The American Opportunity Credit provides a dollar-for-dollar reduction of your Federal income taxes for some college expenses that makes it almost like Uncle Sam is helping pay for college even when you can’t qualify for enough financial aid.    … Page 89

Funding Impact: Up to $10,000 in total Federal tax savings during a four-year college career.

Lifetime Learning Credit

As its name implies, you can use the Lifetime Learning Credit at any time after completing high school, even to help pay graduate school expenses. Best of all, a credit provides a dollar-for-dollar reduction of your Federal income taxes.   … Page 90

Funding Impact: Up to $2,000 in total Federal tax savings every year you claim it.

Student Loan Interest Deduction

Tax law usually prohibits individuals and families from deducting interest on personal loans. However, there’s an exception for student loan interest that can provide big tax deductions during the years the loans are being repaid.   … Page 91

Funding Impact: About $8,775 over a ten year period for graduates with average reported student debt loads.

  Cash Flow Management

Reduce Taxable Income to Increase Financial Aid

Since the financial aid formulas begin with taxable income, reducing your taxable income not only reduces your Federal income tax but it can also increase your financial aid eligibility.   … Page 96

Funding Impact: Up to $470 of increased financial aid eligibility and $250 of reduced Federal income taxes for every $1,000 that you reduce your taxable income.

 Make the Most of Flexible Spending Account

Contributions to Flexible Spending Accounts aren’t included in either taxable or financial aid income. Since reimbursements from these accounts aren’t included in income either, Section 125 plans represent good choices for lowering your tax bill and increasing your potential financial aid award.   … Page 97

Funding Impact: Up to $470 of increased financial aid eligibility and $250 of reduced Federal income taxes for every $1,000 contributed to a Section 125 Plan.

Understand Mutual Fund Distributions

Mutual fund distributions can cause you to have both taxable and financial aid income even when you don’t receive any actual cash payment of increase in mutual fund value. So, be sure you periodically evaluate your funds’ planned distributions before the fund actually declares the dividends.    … Page 98

Tax Efficient Funds for Taxable Portfolios

Different funds can have vastly different tax implications, even for funds with similar investment objectives. Be sure you understand how your funds are taxed before you buy so you can build a tax-efficient portfolio that doesn’t also increase your reportable financial aid income.    … Page 99

Separate Accounts for Taxable Portfolios

Separate accounts often allow you to “time” your gains or harvest your losses so that you reduce both taxable and financial aid income.   … Page 100

Harvest Tax Losses

Timing your portfolio sales and rebalancing to take losses in the current period might help you reduce both current taxable and financial aid income.   … Page 102

Understand Capital Gains

Capital gains often have favorable tax rates but they don’t get favorable financial aid treatment. So, waiting to sell your appreciated assets until after your child graduates could increase your aid eligibility and reduce your current income taxes.   … Page 104

Funding Impact: Up to $470 of increased financial aid eligibility and $200 of Federal income taxes for every $1,000 of long-term gain deferred.

Disclaimers

This report is based solely upon information provided by Mr. & Mrs. Will WageEarner. Jim Kuhner has made no effort to verify the accuracy or completeness of this information, and assumes no liability for errors or omissions based on incomplete or inaccurate information.

“Funding Impact” is based on your marginal federal income tax bracket, and where applicable, marginal employment tax bracket (FICA and Self-Employment tax), as calculated using the information you provided.  These estimates do not include additional savings which may be available at the state and local tax levels.