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5 Important Years of Your Financial Life

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When it comes to your financial life, although every year is important, be sure to pay attention to pivotal years and turning points. Below we review 5 important years of your financial life and what you need to focus on.

Age 25

At age 25, you have likely completed your college and/or master’s education and have landed your first “real” job. As you grow accustomed to your new salary, it is a good time to start developing key financial habits to carry with you through your working career. You may be juggling various goals like paying off student debt, saving for a house down payment, and making contributions to a retirement savings plan. Target setting aside 10-15% of your salary for retirement from the get go and establish a debt repayment and savings plan. Also, your greatest asset is most likely your ability to earn an income for the next 40 years. Be sure to protect your income with proper disability insurance coverage.

Age 45

At age 45, you may be entering the height of your earning years making it a good time to put more emphasis on saving for retirement. If you have an employer sponsored retirement plan, target maximizing contributions to the plan each year. If you are self-employed, talk with a Financial Planner to review your options for establishing your own retirement plan. At this age, your family may be growing and it is important to periodically confirm you have adequate life insurance and disability coverage. Your children may also be getting close to starting college – do you have a savings plan? Are you on track?

Age 55

At age 55, retirement may be just around the corner. Before you exit the work force, put together a plan for the next phase of your life. You know exactly what you are retiring “from” but what are you retiring “to”? A financial planner can assist in evaluating if you are on track or if adjustments need to be made in order to achieve your goals. Do you need to save more, work longer, or adjust your investments? Your mid 50s is also a good time to start learning about the various long term care insurance policies available and considering if such a policy fits within your overall plan.

Age 65

At age 65, you may no longer be covered under employer health insurance, which means you will need to sign up for Medicare. It is important that you enroll prior to your employer coverage ending to ensure that you have no gaps in coverage and to avoid late enrollment penalties. Once you have attained age 65, you should also refer to your county website to find out if your county has a Senior Property Discount program. As you transition into retirement, periodically review variable expenses and determine if your spending is consistent with your retirement planning goals.

Age 70

At age 70, it is good practice to do some tax planning prior to turning 70 ½ when you will be required to start distributing funds from your Traditional IRAs and any employer retirement plans that have not been consolidated to an IRA. If you delayed collecting Social Security benefits, contact Social Security to begin receiving your benefits – there is no benefit to waiting beyond age 70 to start collecting. Lastly, as difficult as it may be, take the time to start fine-tuning your estate planning and talking to your kids about your will.

No matter your age, it is never too soon or too late to meet with a financial planner to review practices for building a strong financial foundation for any stage of life. Call Sharkey, Howes & Javer at 303-639-5100 to set up a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™ professional.

Source: http://time.com/money/4329616/retirement-five-most-important-years/

Bitcoin

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What is Bitcoin?

Bitcoin is the most popular virtual currency to date. People use bitcoin as a digital representation of value, similar to how we use U.S. dollars as a medium of exchange. There are a couple differences between bitcoin and the U.S. dollar, however. The most obvious is that Bitcoin is entirely virtual and relies on the Blockchain for transactions. The Blockchain is a public ledger of all transactions involving Bitcoin and serves as its permanent database. Users of the Blockchain verify all of the transactions and once a transaction has taken place, a new “block” is created. Compare that to the U.S. dollar, which is printed by the U.S. Treasury and backed by the “full faith and credit” of the United States Government.

The U.S. dollar holds value because the U.S. Government says it does. With Bitcoin, it derives its value because there are people willing to use it as a medium of exchange. It is the law of supply and demand: the higher the demand, the higher the price, and vice versa. With the mainstream media picking up on Bitcoin over the last several months, the demand for Bitcoin has skyrocketed, thus substantially increasing its value.

How do you invest in Bitcoin?

The easiest way to invest in Bitcoin is by using an online broker exchange, such as Coinbase. Coinbase is a firm headquartered in Silicon Valley and is the most well-known Bitcoin exchange. You can create an account online and link it up to your bank account to make transfers more efficient. Coinbase also allows you to buy partial bitcoins rather than having to pony up a large dollar amount to buy a full coin.

One of the drawbacks of exchanges like Coinbase is that as traffic picks up, the sites have been known to crash. This poses an illiquidity risk if you are actively trying to get rid of or purchase bitcoins.

Should you invest in Bitcoin?

When you purchase stock in a company, you are purchasing a share of a company’s future earnings and stocks have a tangible value based on expected future earnings of a company. When you hold bonds, you receive interest payments that make bonds easy to value (assuming the debtor doesn’t go bankrupt). Unlike these traditional investments, the value of Bitcoin is not determined by any kind of cash flow; it is purely based on public sentiment and demand for the currency.

Investing is based on taking calculated risks to achieve a rate of return on your money. We invest in stocks and bonds because over long periods of time both asset classes have shown they can outperform inflation. Bitcoin is an asset that has experienced exponential growth in the past 12 months, and no one knows where the price will go from here.

7 Surprising Ways to Save Money in the New Year

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Is one of your resolutions for the New Year to cut back on spending, reduce debt, or to save up for a big purchase? If so, you’re probably looking for new ways to save money. If you’ve already implemented all the usual money-saving strategies and you’re starting to wonder if there are any other ways to cut expenses, these surprising ways to save money can transform your budgeting efforts for the New Year.

1. Be Cautious of the Coupon Section unless you are buying things that you would have bought even if you didn’t have a coupon. Browsing through the coupon section often leads to impulse decisions to buy products that you wouldn’t have otherwise purchased and that can result in excess spending. Opt for online coupons that load straight to your shopper’s card or only search for coupons that you actually plan on using. Even better, try a local discount grocery store where store brand items are already cheaper and don’t have coupons. In addition, to reduce impulse purchases you may want to unsubscribe to marketing emails that are sending you daily or weekly “new deals”.

2. Take Yourself Out of Online Buy/Sell/Trade Groups. Like checking the coupon section, these groups encourage impulse purchases that can blow your budget quickly. Even small purchases can add up fast when you make them on a regular basis! Instead, leave those groups or block them from your newsfeed, and only check them when you genuinely need an item.

3. Check Your Tires. Tires that are not optimally filled can cut down on your gas mileage, which means that you’re wasting money every time you fill up. Taking good care of your tires will also help with their longevity so you don’t have to replace them as often.

4. Conduct a Home Energy Audit. You can opt for the do-it-yourself route or hire a professional to take care of the audit for you. An audit can help you identify everything from the small ways you can save money on your electric bill over the course of the year to bigger ways you can experience huge savings.

5. Ditch Your Gym Membership. Watching online exercise videos at home is a lot cheaper and often just as effective, especially if you struggle to find time to go to the gym. While you’re at it, you can get rid of any other subscriptions that you aren’t using: do you really use both Netflix and Prime Movies? Are you watching cable enough to justify keeping it? Reviewing your subscription services can reveal an abundance of savings.

6. Don’t Spend Your Change. Every time you use cash to make a purchase, keep the change in your pocket and don’t spend it! At the end of the day, put it in a jar or container. You won’t miss the coins, but over time, they’ll likely add up to more than you think.

7. Eat out less. Many families have an unwritten rule to eat out less than twice a week. Depending on the size of your family and the places you like to eat, this can be a huge money saver. As a way to transition into this new pattern, track how much you spend on eating out and then strive to cut that amount in half. That is a good start.

Saving money throughout the course of the year is an ongoing responsibility. Keep in mind that little savings and small expenses can add up fast!

2017 in Review: Top 10 Blog Posts

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As 2017 comes to an end, we’re taking a moment to look back and reflect on the year. With the inauguration of a new president, the Great American Eclipse, the infamous Equifax security breach, and much, much more, it’s hard to believe that it was all packed into a single, short year. In case you missed any of it, we’re rounding up our 10 favorite blog posts of the year for your review.

7 Day Money Cleanse

Whether your finances have gotten out of control, you are new to financial planning, or even if you are an expert, our 7 Day Money Cleanse makes auditing your finances easy. Each day breaks the task down into a smaller, simpler step that gives you a complete picture of your finances by the end of a week. With the new year coming, now’s the perfect time to take a serious look at your spending and create a new plan, tailored to your goals for 2018.

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7 Habits to Move Towards Financial Freedom

A large part of getting, and keeping, your finances in order is developing good habits, especially if you’re ready to take it to the next level and achieve financial freedom. Building these habits takes only a few minutes per month, but you’ll see immediate savings in your monthly budget that will continue to grow year after year.

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5 Reasons to be Frugal When You Can Spend More

As your income rises over the years, it can be tempting to buy that new car you’ve always wanted, upgrade to a bigger house, or even just eat out an extra couple times per week. Lifestyle creep may not seem like a big deal, but it can be easy to let it grow out of control and leave you with too little, or even no, savings.

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7 Lessons to Teach Your Kids (or Grandkids) About Money

Financial and spending habits develop early in children and it’s important that they are given good examples and lessons of healthy finances while it will have the greatest impact. Some parents may feel uncomfortable discussing money with their children, but these seven lessons can help establish a strong foundation of knowledge without ever bringing up numbers.

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5 Money Lessons Before Your Kids Leave for College

As your children continue to grow, they’ll continue to develop their financial savvy, both on their own and through the lessons that you continue to teach them. As they prepare to move on to the next big step in their lives and go to college, you should leave them with these five final lessons to set them up for a life of success.

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5 Questions to Ask Before Going Back to School

You may be interested in going back to school yourself. Many people return to college at some point in their professional career, whether for personal growth or to broaden their skillset, but before you make the plunge, it’s important to consider these five questions to determine your best course of action.

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Avoiding the 5 Most Common Mortgage Mistakes

On the other hand, buying a home is another common decision that many people make as their careers become established. Unfortunately, many people also fall prey to the same common mistakes, especially when purchasing their first home. A house is likely the largest purchase you’ll make in your entire life, and proper planning will save you huge amounts of both time and money.

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What to Do Now if You Want to Retire in 5 Years

Throughout your entire career, it’s important to review and adjust your goals, plans, and portfolios periodically. As you approach retirement age, it’s even more vital that you make the final preparations for yourself and set yourself up with a steady income over the years.

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Spending Tips for Retirees

Have you considered all of your expenses in retirement? Besides housing, groceries, and transportation, there are many other expenses to calculate into your monthly retirement budget to make sure your money lasts and you don’t have to worry about stretching yourself too thin.

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4 Great Places to Retire on a Budget

If you have followed our advice so far, stayed frugal, and prepared for your retirement, you may be looking for a great place to retire to where your money will last. We’ve rounded up four amazing places to live across the country where you can enjoy the very best that life has to offer, without needing to cash out your entire retirement.

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All of us at Sharkey, Howes & Javer thank you for making this year so fulfilling. We’re excited to venture into 2018 with you and wish you good health and much happiness in the coming year. Happy Holidays, and Happy New Year!

Becoming a More Informed and Efficient Consumer This Holiday Season

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It’s that time of year again: The temperatures are dropping, football is coming down the homestretch, and ski season is right around the corner. It’s also the time of year where we stretch our budgets to the max in order to get our family and friends the very best holiday gifts we think they’ll love.

In this holiday edition of the SH&J blog post, we will review some interesting facts about the economics of the U.S. holiday season, as well as some tips that will help you keep your bank account feeling jolly after the new year.

  • According to the NRF, holiday retail sales are expected to grow around 4% over last year. Holiday sales have been increasing steadily by about 3% year-over-year since the financial crisis in 2008. By comparison, holiday sales declined almost 5% from 2007 to 2008.
  • Amazon continues its quest to take over the ecommerce industry. In a study conducted by research firm Survata, 72% of respondents said that Amazon would be the first place they look for gifts.
  • Tickle Me Elmo debuted in 1996 and was by far the hottest selling toy that year. It retailed for $29.99 in 1996, and original Tickle Me Elmo’s still in the box can be found on EBay for hundreds of dollars now. Talk about a return on your investment!

Holiday shopping can get very stressful if you don’t have a plan going into the season. Here are a few tips that will be able to help you become an efficient consumer this holiday season.

    • Do some preparation before you do any shopping. Figure out what everyone on your list wants and come up with a price point for each gift. This will give you a rough estimate of what you can expect to spend.
    • Be strategic about using your credit cards. If you are a responsible spender and you have a cash-back rewards card, be sure to use it on all of your purchases this holiday season. A poll conducted by Nerdwallet in 2015 estimated that consumers would miss out on $152 million in rewards by not using their cards during the holiday shopping season.

Hopefully, you are now a more informed shopper and you can tackle this holiday season with confidence. From everyone at Sharkey, Howes & Javer, we wish you and your families a very joyous holiday season!

Talking to Your Kids About Your Will

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When it comes to talking about your will, it’s not just about the money. It’s about what you do with it, who benefits, and how your family reacts to and copes with their loss:

  • Sixty percent of Americans do not have a will and have not completed their estate planning.
  • While probate is necessary in certain situations and jurisdictions, a will simplifies the process.
  • If you die without a will and do not have beneficiary designations in place, the intestacy laws of your state (rather than your personal wishes) determine property distribution. This includes bank accounts, real estate, stocks, securities and other assets.

Starting this conversation with your kids can be difficult, but failing to discuss your will can add confusion and conflict to an already difficult time for your children. Despite it being an uncomfortable topic, there are ways to ease into a productive exchange.

Why Discuss Your Will?

Won’t the Kids Get the Information After I’m Gone? Yes, but knowledge beforehand allows your children the time to assimilate the information while circumstances are calmer than upon your death when emotions tend to run high. Discussing your estate plan with your children also allows you to assure them that your estate is in order, your financial arrangements completed, and that your plan for distributing your assets is in place and follows your wishes. Discussing your will gives your family more time to grieve and heal without infighting over their inheritance or your final wishes.

The Unexpected Produces Unexpected Consequences: The loss of a loved one and a large, sudden inheritance changes lives and clouds even the most stable minds. If you leave large sums of money, informing the recipients ahead of time lets them know what’s coming and allows them to properly plan for the best way to use the money. Without a plan in place, it is much more likely that a beneficiary will impulsively spend exorbitant amounts of money out of grief.

Clear up Confusion: Fighting over an inheritance is, sadly, an all too common occurrence. If you leave money to charitable causes, old friends, or distant relatives, be sure to inform the kids so they do not consider these claims on the estate as fraudulent.

Make Your Wishes/Reasons Known: If you are leaving more money to one child because of disability, bankruptcy or unemployment, or less to another who enjoys greater financial success, let the others know it’s your decision and you were not pressured to do so.

Evaluate Your Children’s Financial Skills: You hope you taught them well: save for a rainy day, balance investing with spending, pay yourself first. Take the time to evaluate their spending and saving habits without bias and make sure they have the money management skills to make the right choices or a financial advisor who can assist them. You may also consider establishing a trust to pay out over time.

How to Start the Conversation:

Choose a Comfortable Time and Place: A family holiday dinner may seem logical because everyone is already gathered together, but talk of death and its aftermath only dampens a celebratory time. In general, it may be best to avoid birthdays, vacations, anniversaries, and other special occasions. Set up a time and place just for this conversation, and announce the purpose of the meeting ahead of time. A casual opening line may be something like, “A friend of ours passed away recently and his kids are suing each other over his estate. We don’t want any of you doing this, so let’s talk about how to avoid this situation.”

Stay Calm, React Rationally: Close the door on drama and keep your voice low and level. Don’t react with anger or frustration if your kids do; it only increases the level of intense emotion in the room and obscures the reason for the meeting in the first place. Maintaining a steady, calm tone helps to cool tensions and keep the conversation on topic.

Direct Your Children to the Documents: It’s one thing to tell them what they inherit, but it’s another to have the paperwork already prepared. Complete your will early, update it regularly, and make sure your attorney and financial advisor have current copies. Discuss your finances once a year with your children and inform them of any changes.

Have a Trusted Advisor as a Guide: Bringing a CERTIFIED FINANCIAL PLANNER™ or attorney to the meeting ensures that the agenda moves along, legal questions receive answers, and emotions and egos remain controlled. These professionals have experience handling these discussions and can make a great addition to your team.

Medical Identity Theft

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Many individuals are familiar with financial identity theft, but it is also important to be aware of and on the lookout for medical identity theft.  With the rise in electronic health records, it is easier for hackers to gain access to your personal information, health insurance information, and medical history.  Unlike other industries, the protection of electronic patient data is a newer practice and health insurers and health care providers may not always be as savvy with their systems, thus making it easier for hackers to obtain information.  According to the Identity Theft Resource Center, the health and medical industry accounted for 34.5% of total breaches in 2016, coming in second behind businesses at 45.2%.

What is Medical Identity Theft?

Medical identity theft is when an unauthorized individual uses your personal information and health insurance for surgery, to see a doctor, to obtain prescriptions, or file a false claim.  Compared to financial identity theft, it is typically harder and more time consuming to clean up the damage.  Victims of medical identity theft are in danger of harming their finances and their future medical care.  Medical identity theft is not covered under the Fair Credit Billing Act, where consumers are only liable for up to $50 for unauthorized credit card charges. This often puts victims in a position where they need to hire an attorney to dispute false medical bills, and attorney fees can add up quickly.  The more time that passes, the more a thief’s own medical history can be entwined with your own which could lead to incorrect diagnoses based on false medical information.

How to protect yourself?

Medical identity theft is typically less obvious and more difficult to detect than financial identity theft.  Individuals who have had a recent surgical procedure, new mothers, and patients with a chronic or serious illness can be more susceptible to medical identity theft due to their more frequent interaction with doctors and the health care system.  Some measures you can take to prevent falling victim to medical identity theft include:

  • Monitor your “Explanation of Benefits” statements from your health plan very closely and report any inaccuracies.
  • Beware of free services that ask you to provide your insurance number.
  • Listen closely when a healthcare provider reviews your medical history and look for inaccuracies.
  • Request a copy of your Medical Records from your doctors.
  • Protect and safeguard your health plan membership identification card as if it were a credit card.
  • Review your MIB (Medical Information Bureau) consumer file annually. Your MIB is used by the insurance industry to underwrite health, life and long-term care insurance.  MIB’s toll-free number to request your information disclosure is 1-866-692-6901.

If you think you may be a victim of medical or financial identity theft, be sure to file an identity theft report with the police and the FTC (Federal Trade Commission) as soon as possible.

Sources:

Interest Rates – A Brief History

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Interest rates in the U.S. are set by the central bank, which is the Federal Reserve (or “The Fed”). The Fed either raises or lowers rates depending on the health of the U.S. economy. Since the Great Recession, we have been in a historically low interest rate environment. The Fed lowered rates in 2008 in order to help “stimulate” the economy, or encourage borrowing, and move us forward from the financial crisis. In 2007, a 3 month U.S. Treasury Bill was yielding about 3.4%, and since the bottom of the crisis, it took until the summer of 2017 to climb back above 1%.

For a historical reference, from 1900-2012 the average rate of the 3 Month Treasury bill has been about 3.8%. The highest rate we’ve seen was 15.5% in 1980, and the lowest has been 0.0% during the 1930s and 1940s and for roughly the past seven years. You’ll notice that the two periods of extremely low interest rates occurred during the two worst economic times of U.S. history. This goes back to the idea of the Fed lowering rates with the expectation of stimulating the economy.

Savers benefit from higher interest rates because they are able to demand a higher return on their capital. A person in the 1980s would have had no problem finding a bank CD yielding above 10%. Nowadays you’re lucky if you find anything close to 1%! On the other hand, consumers benefit during times of lower interest rates. For example, currently the average 30-year mortgage rate is right around 4%. Back in the 1980s, the average 30-year rate hovered around 15%.

Where do we go from here?

Since 2015, the Fed has raised rates by a quarter of a percent four times. They have taken their time raising rates because the economic recovery hasn’t been as robust as most had hoped since the Great Recession. More recently, we are seeing slightly stronger economic growth in the U.S. economy, therefore many analysts are expecting another 0.25% rate hike before 2018. Time will tell.

Anticipating Black Friday and Cyber Monday Madness: How to Keep Your Spending Under Control

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For many Americans, the final days of November mean only one thing: the beginning of the year’s greatest shopping frenzy. Black Friday and Cyber Monday bring with them great deals on holiday gifts, high-tech toys, and everyday items. There’s just one problem: as many as one third of consumers go over budget when holiday shopping, and it can be even harder to stick to your budget when you’re standing in the middle of a crowded store, caught up in the moment, face-to-face with big sales. If you’re worried about overspending on the biggest shopping days of the year, these strategies can make it easier to stick to your plan.

1. Set a Budget

Know how much money you have to spend. Ideally, you should determine how much you’re going to spend before the holiday season arrives, rather than waiting until Black Friday sales begin. It can also be helpful to decide how much money you want to spend on everybody on your list. If you go under budget in one area, then you may have a little extra to spend in another, but knowing how much you’re expecting to spend over the course of the day can help you avoid accidental overspending. Make sure that your budget includes everything that you will spend on those big shopping days.

2. Make a List

One of the hardest things about the Black Friday madness is wandering through a store filled with great deals and not knowing what to get. Making a shopping list that covers everything you plan to accomplish beforehand will help you stick to your set budget. This list should include:

  • For whom are you shopping?
  • What you’re planning to buy and alternatives in case your first choice doesn’t pan out
  • Prices for all of those important items, especially the ones that are selling at a deep discount
  • What stores you plan to visit
  • What time your stores open for holiday sales (including whether or not you’re going to try to be there when the doors open for specific doorbuster items)
  • What time the sales end

As you’re looking over your list, make sure you take the time to note how much you’re able to save by shopping on Black Friday or Cyber Monday. In some cases, the best deals may even happen before Black Friday, so be sure to keep your eyes open in the weeks leading up to it.

3. Carry Cash Only

If you’re worried that you’ll give in to overspending, forget the cards and only bring cash with you. This will prevent you from adding credit card debt: the average American with credit card debt can add more than $900 in holiday spending. Shopping with cash helps you visualize how much you’re spending and prevents you from pulling out your card for “just one more purchase” or going “just a little over” at each store.

4. Leave the Kids at Home

Going shopping with the kids is often a hazardous proposition during the holiday season. They see things that they want in every store, and what they don’t want for themselves, they want for someone else! If you must take the kids shopping on Black Friday, give them their own cash to use and don’t budge on the amount they’re allowed to spend.

5. Compare Prices Before You Shop

Before you dive in and make Black Friday and Cyber Monday purchases, make sure you take the time to compare prices at different stores. One store’s $10 deal could be offered for $5 at another store, and on big-ticket items, the difference can be even greater.

Assets, Income, and Financial Aid

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Starting October 1st of a student’s senior year of high school, parents are able to start filling out the FAFSA (Free Application for Federal Student Aid) form that will evaluate the student and family’s financial condition to determine eligibility for college financial aid.  Both assets and income are considered to calculate a family’s EFC (Expected Family Contribution) to college expenses.  Financial aid is then typically awarded in the form of grants, scholarships and loans (click here to read more on the types of financial aid awarded).  The student’s freshman year of college is the base year for which these award packages are constructed so it is important to understand how assets and income are counted on the FAFSA form in order to maximize a student’s financial aid offering.  

Parent Owned Assets and Income

Parent owned assets are counted at 5.64% towards a family’s EFC.  Retirement accounts such as 401(k)s, 403(b)s, Traditional IRAs and Roth IRAs are not included on the FAFSA form, but non-retirement accounts and liquid accounts, including brokerage accounts, and 529 Plans are included.  The value of family businesses may also be considered, as well as the equity in a vacation home.  However, equity in a primary residence is excluded.  In addition to assets, 22%-47% of parent income can be counted in calculating EFC.  When considering income, figures from the parent’s “prior-prior” tax return are used. Therefore, a parent with a college freshman in October of 2018 would be filing the FAFSA form as early as October of 2017 but using 2016 tax return information.

Student Owned Assets and Income

Student owned assets are included at a rate of 20% and income is counted at 50%.  Custodial accounts as well as student checking and bank accounts are included as a student asset whereas interest, dividends, and capital gains reported on a student’s tax return are counted as income.  The student’s prior-prior tax return is used in the same way it is used for the parents in calculating EFC.

Grandparent Owned Assets

Grandparents commonly put aside funds for their grandkid’s education in the form of a 529 Plan.   A grandparent-owned 529 Plan is not counted as an asset on the FAFSA form. However, once distributions are made, they are considered a gift to the grandchild and included as student income at the 50% rate on the FAFSA form. Because student income is counted at a higher rate than parent assets or income, it may make sense to transfer a grandparent 529 Plan to the parent’s ownership prior to the student’s freshman year, or wait until junior or senior year of college to distribute the funds.

The higher a family’s EFC, the lower the amount of needs-based financial aid that is likely to be offered.  Financial aid is also first come, first serve so apply early.  Call Sharkey, Howes & Javer at 303.639.5100 to speak with a CERTIFIED FINANCIAL PLANNER™ and discuss the opportunities for proactive planning when determining who should help with saving for college and how the accounts should be titled and used.