My college roommate Maddy knows the Free Application for Federal Student Aid (FAFSA) system well. Maddy used federal student loans to finance her undergraduate and graduate degrees. As a high school teacher, she’s dedicated a large portion of her school’s homeroom curriculum to making sure her students enter college with a better understanding of how personal finances, credit, and loan amortization work. I got together with Maddy to chat about her experience navigating the federal student loan system from start to finish and to find out what advice she has for parents and students today.
Moorea: To start off, can you tell me what degrees you have, where you went to school, and how you financed your college expenses?
Maddy: Sure. I have a BA in English from the University of Oregon, a master’s in teaching from Oregon State University, and a master’s in English from Portland State University. My undergraduate degree was funded about 30% by scholarships and 70% by federal student loans. My graduate degree from OSU was paid for 100% with federal student loans and my second graduate degree from PSU was paid for by federal loans and a tuition program through my job that covered $1,000 per term.
Moorea: Do you remember what your thought process was when you were 18 and deciding to take out your first student loan?
Maddy: Yeah, there was no thought process. I answered all the questions on the FAFSA with my mom, and at the end of the application, I clicked a box that said “Yes, Accept.” There was a very basic loan counseling page that I read, but it didn’t mean much at the time because I didn’t understand the concept of amortization. It was 2009 during the financial crisis, and everyone was taking out student loans. Debt was the expectation.
Because my parents’ expected family contribution was high, I didn’t qualify for subsidized loans (loans that don’t accrue interest until after graduation) despite them not paying anything towards my college. I didn’t know my student loans were accruing interest the whole time I was in school.
Moorea: You’re in charge of writing your school’s curriculum. Are you doing anything to prepare your students to make financial decisions after high school?
Maddy: Yes! In addition to a traditional personal finance and college prep curriculum, I walk through how to fill out the FAFSA with students page by page. I do a cost benefit analysis with students where we compare the cost of tuition at three community colleges, three states schools, and one private university. I walk my students through how many hours of a minimum wage job you’d have to work to pay off the loan over a 10-year period and explain how loan amortization works.
Moorea: What advice do you have for students and parents to help offset the cost of college?
Maddy: Consider completing your general education requirements at community college. Many Oregon students qualify for free community college through the Oregon Promise Grant.
If you’re considering attending a state school and your high school covers the cost of community college classes or offers College Now classes, take these because the credits will transfer to a university.
If you’re considering a more prestigious school or private college, focus on taking AP classes and sitting for the AP exams.
All students should volunteer as it looks good on college, scholarship, and job applications.
While it is a highly valuable asset in life, college education is a big expense, and families should discuss and plan with their financial advisor to determine how to proceed with this important life decision. If you want assistance with this planning process, please reach out to us.
Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual. Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Merriman. The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.
Making the decision to bring a child into the world and create a family of your own is a major life milestone to be celebrated. With this very exciting step can also come a lot of uncertainty and what-ifs about how to prepare for the coming months and years ahead. Without the proper planning or conversations about the future, it can all start to feel overwhelming or unmanageable. The good news is that whether you are planning to become parents soon or further down the road in your relationship, there are ways to start securing your financial future now to set yourself up for success wherever your life journey takes you.
Build an emergency fund
No matter what stage you’re in when it comes to your relationship or life in general, creating a sound financial foundation for yourself is a wise idea. Although your financial allocation might already be spread thin from paying off your loans, car payments, mortgage, rent, and other monthly bills, it’s important to have a plan for an emergency. Of course, you do need to stay on top of bills and scheduled payments; however, as new parents, it’s especially important to have a financial safety net should something unexpected happen.
This is also smart budgeting practice for individuals and their families. If it takes more than a month to set aside around $500, you might want to take a closer look at your spending habits. A reasonable goal is to have about six months’ worth of financial coverage to pay all your bills and expenses should you have no other source of income for a time. This might seem like a lot initially; however, after facing a worldwide pandemic, you can see how it would be beneficial to have an emergency fund to protect your family in the event of a crisis, job loss, or other outstanding circumstance.
Ensure healthcare coverage
Depending on your profession, it’s possible that you have healthcare coverage and benefits. If you are an entrepreneur, on the other hand, or work for yourself, it’s essential that you have the appropriate coverage for your situation. Talking with your spouse or partner in this case might be helpful to determine if you need separate or additional coverage for your family’s needs. There are various options available to get health insurance as an entrepreneur or if you are self-employed. Getting ready to start a family is a great time to ensure you have the appropriate coverage for the coming months.
Secure a life insurance policy
There are various ways to go about financial planning and investing in your future that will allow for less anxiety should you experience an unanticipated circumstance. It’s recommended that soon-to-be parents or new parents secure a life insurance policy as a way to protect your loved ones, allow for peace of mind in the present, and create financial assurance should you not be around to support your family.
Additionally, life insurance rates increase by about 8% annually, so it’s best to secure financial protection now if you think you’ll have dependents later. Ideally, the best time to shop for life insurance is before you become pregnant or in the earlier months of pregnancy since health complications can arise during pregnancy. But if this is not the case for you, there are still options to help you get affordable rates. Many people misunderstand how much life insurance they need and opt for whatever is available through their work or employer. Experts recommend a death benefit of at least 10–15x your annual income to prevent your family from being underinsured. Often with an employer or group policy, you will not be given this much coverage.
Get in the habit of budgeting
As mentioned, having a clear understanding of your financial situation is extremely critical if you are planning to become parents. Knowing where you stand in terms of monthly income versus expenditure plus additional investments will help you determine if you will need to cut back when the baby comes. Not only does a newborn require all your time and attention, but they also can be expensive. From clothes, food, and supplies to furniture, strollers, and doctor appointments, your finances will certainly be impacted.
Based on your relationship and situation, you and your significant other can decide on a budgeting method that works best for you. Getting into the habit of budgeting your finances before bringing a baby into the picture is a great idea if you are not used to accounting for all your expenses. If you are newer to budgeting for yourself or with your partner, it might be worthwhile to research some of the best budgeting methods as one style might be more naturally suited to your lifestyle. If you feel like budgeting is taking over your life or forcing you to change too much, you might be less likely to stick to it. Finding a sustainable way to manage your finances will help you get started and improve as time goes on without sacrificing more than you are willing to.
Work with a professional
If you are approaching a major life event such as starting a family and you don’t feel confident to organize or prepare your finances on your own, you are not alone. With so much to consider during a time of transition, finances are not something that you want to fall by the wayside. Consider hiring a financial advisor who can help set you up for success and provide you with reassurance that you are making all the right decisions for your situation. Should you decide to change jobs soon, you will want to evaluate your savings and retirement plans, all of which a financial planner can help you sort through.
Plan for retirement
If you do decide to meet with an advisor or professional to assist you in your financial planning process, they will be able to guide you through some of the opportunities available to you, including investing, savings, and retirement options. Most companies will have programs in place to allow for easy contribution into a 401k program or another type of retirement account. If you are an entrepreneur or work for yourself, once again, you will be responsible for setting up the appropriate accounts for future retirement savings. If you or your spouse wants to save for retirement as a stay-at-home parent, you’re going to want to factor in that you won’t have an income for a certain amount of time. Since everyone is unique in their wants and needs, you should discuss some of the finer details with your partner to determine the best path for your lifestyle and financial situation.
Create a college fund
It might feel far off to start planning for your child’s future education before they are even born, but doing so will make a major difference in your financial future if you intend to support them for this experience. Whether you plan to co-sign their loans, cover their expenses, or split the cost of college with them, it’s going to be a large financial investment and commitment. Depending on the school and program they attend, you might be stuck paying off college loans for years after graduation. By starting a college savings account before you have to take on the expenses of having a newborn, you can begin your financial journey ahead of time before life gets busy.
As new parents or parents-to-be, your list of priorities is sure to be extensive. With that being said, having a stable financial situation can allow you to celebrate exciting life events while navigating the challenges that come alongside them. By planning early and having conversations with your significant other about the months and years ahead, you can set yourself up for financial success and peace of mind, allowing you to enjoy these special milestones.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.
Over the 25 years or so that I have been practicing and serving families, one of the crucial points that has surfaced time and again with clients is one that tends to occur after a spouse or family member has passed away, and they seek out our help. Quite understandably, most people have little or no experience in settling an estate and essentially do not know what needs to be done. There are a myriad of actions to be accomplished, each one of them important, and no one knows in what order tasks need to be completed, let alone how to weave through the legal dynamics. So what can we do to help?
About 10 years ago, I finally grew so frustrated with not being able to help several of my client families settle estate matters after a death that I decided I was going to solve the matter myself. I went back through all of my estate planning books to seek out as many action items as I could locate. In addition, I went through dozens of other legal and financial websites to gain as much knowledge as I could. The problem was not in locating information on estate settling but rather not to drown in the vastness of it. Ultimately, I realized that my task was to consolidate and distill as much information as possible into a short and clear format that we could share. The result was a composition of knowledge written in simple English that went through peer review multiple times to create a master end-of-life checklist.
The “Checklist: After a Death Occurs” was constructed to assist our clients and their families so they could understand most of the basic estate settling matters that must be pursued after a loved one has passed. The document is arranged in a priority-driven format, so from top to bottom, front to back, the most important estate marshalling activities are listed first. The current iteration is about six pages long and contains an additional short checklist at the end for a surviving spouse.
There is also a third checklist that we created in addition to these main two. The third list is a pre-mortem checklist for someone who is ailing or terminally ill, designed to assist family members with estate matter topics while the individual is still alive. We hope these tools will be useful to you and your family, and we would love to hear back if they help.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.
At Merriman, we partner with our clients to ensure no stone goes unturned with respect to their complete Wealth Management plan. One of the more complicated issues clients face is crafting and updating their estate plans.
This is not surprising as estate planning preparation and upkeep come with difficult questions—both qualitative and quantitative. The burden of these questions can often drive folks to put off the discussion and leave their plan vulnerable. The purpose of this brief post is to let you know that it does not have to be so difficult.
This article serves as a starting point to initiate the estate planning discussion. It is a discussion of the various estate planning roles you need to fulfill. Like most things, having a process and a plan will lead to peace of mind and planned success.
Let’s start with the various roles that need to be filled:
Financial Power of Attorney (POA)
One commonality for all these roles is proximity. If you can find someone close, that is a prudent solution. For example, in selecting a guardian for your children, it is best they are local to avoid changing schools, establishing new friends, etc. Similarly, if there is property to sell in your estate, it is best to have a local executor, as opposed to having someone across the country who is unfamiliar with the local scene and would have to travel extensively to manage the estate.
A Guardian is someone who looks after and is legally responsible for your children until they are adults. This person should embody all the traits you would want in someone who will take care of your kids in the event you are no longer around. Often, this is a family member with close proximity (as outlined above). Keeping your kids in their current environment is so important, especially when they are already trying to deal with your absence.
A Trustee is the person who has control or powers of administration over the trust assets in your estate. The trust assets do NOT belong to the Trustee. Rather, the Trustee is safeguarding the assets per the terms of the trust and for the trust benefactors.
The role of Executor “triggers” if one or both spouses pass away. This person’s job is to fulfill all of the requests and wishes as outlined in your will. This person should have high financial competence and a good understanding of what you own and how you want your assets distributed. Technically, they will follow the wishes as outlined in your estate plan. However, we advise clients to draft a less formal letter of instruction to confirm your wishes are carried out as precisely as possible.
The next two items are in effect during your lifetime. A Financial POA grants that person the ability to make financial decisions on your behalf if/when you no longer have the ability to do so of your own accord. A Medical POA functions the same but is related to medical decisions. Both of these roles should be set up with your initial estate plan.
If you have already crafted your estate plan, take a few minutes to consider who is currently filling these roles. Are they still the right person for the job? If not, who is better suited? If changes are required, let your estate planning attorney know and get to work on updating your documents. If you have yet to complete your estate plan, consider who would best serve in the aforementioned roles. If you already have an estate planning attorney, get to work on crafting your plan. If not, let us know, and we can connect you with one.
Another tool you can use to begin to formulate your plan is our “After Death Occurs” checklist. While this outlines a post-mortem list, it also serves as a great tool to get you thinking about the roles described above.
At Merriman, our goal is to ensure clients’ plans are buttoned up from top to bottom. While we emphasize financial planning and investment portfolio management, we also partner with our clients to ensure they are covered in the areas of estate planning, taxes, and insurance. Ensuring your estate plan is taken care of will provide peace of mind on your journey to Investing Wisely to Live Fully.
For additional reading on this topic, check out our ebook The Transparent Legacy for advice on conversations you must have with your loved ones before it’s too late.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.”
It’s true what people say about having kids: the days are long, but the years are short. Sometimes our busy, ever-changing lives leave us wondering: “Where did the time go?” When it’s time to send your child off to college, you may feel sentimental, but there’s no need to feel unprepared. With so many options to save for your child’s future, you’ll be able to find the one for you.
Invest in a 529 Plan
When saving for your child’s future, 529 Plans are a popular choice. These savings accounts offer tax advantages similar to a Roth IRA. When your child is ready to go to college, you can make tax-free withdrawals to pay for qualified education expenses.
You can open a 529 plan as soon as your child is born. This allows the money to grow over a longer period of time.
The funds apply to both undergraduate and graduate programs at any two- or four-year institution.
They allow up to $300,000 in lifetime contributions.
If your child doesn’t go to college, you can change the beneficiary.
Some K–12 expenses may qualify under the 529 plan, such as tuition and fees.
Any funds not spent on qualifying expenses are subject to income tax and a 10% tax penalty.
You are required to report withdrawals on the FAFSA if the account is owned by someone other than the parent. This could negatively impact the student’s eligibility for financial aid.
Consider a Roth IRA
Roth IRAs are typically used for retirement savings, but you can also use them to save for your child’s future. You can’t take distributions on Roth IRAs penalty free before 59½. However, any account open for at least five years can be used for education, so make sure you open the account no later than your child’s 8th grade year.
Distributions are tax free and penalty free as long as they are used for qualifying education expenses.
After graduation, the account can still be repurposed as your retirement account.
The value of the retirement account is not included in a FAFSA application.
Roth IRAs have annual contribution limits of $6,000. An average year at a university can cost upwards of $20,000. So, it would be difficult to save enough money with a Roth IRA account unless you start early.
Remember, any withdrawals from a Roth IRA are considered income, which will be reported on a future FAFSA. This might impact your child’s chances for financial aid.
Savings can be used for primary and secondary education as well as college.
There is more flexibility in what is considered a “qualifying expense.” Parents can use the funds to pay for school uniforms, tutoring, and other K–12 programs.
Annual contribution limits are set at $2,000 per person, per year.
You also cannot make contributions after age 18. All funds must be spent before the beneficiary turns 30.
There are also income limits on who can contribute to a Coverdell ESA account.
Custodial accounts are another great way to save for your child’s future. With a Custodial UGMA/UTMA, you have the ability to transfer assets to your minor children and enjoy tax breaks.
When the assets are transferred, a portion of the value of the assets is taxed at the child’s tax rate, and the rest is taxed at the parent’s tax rate.
Since this is only a transfer of assets, there are no restrictions on how the money should be spent, other than the benefit of the child.
A custodial account allows any asset (not just cash), such as stocks, bonds, art, and real estate, to be transferred to a minor.
Since the assets are owned by the child, parents have less control over how the money is spent.
These accounts will have to be reported on a FAFSA, so there is a chance for them to negatively impact financial aid.
Savings bonds are issued by the US government and can be purchased from a financial broker or directly from the US Treasury. They may be a good option for more conservative investors, at least for a portion of your investment strategy.
Bonds are low-/no-risk investments since they are backed by the federal government.
If you invest in Series EE or Series I bonds, interest earned is tax free when funds are used for qualified education expenses.
Incredibly low rate of return. You’ll need a backup savings plan.
When it comes to financial planning, you’ll also want to consider making sure you have your retirement accounts set up first. A certified financial planner will help you decide which account is the best option when saving for your child’s future. He or she can monitor all of your accounts and suggest any changes needed to secure a bright financial future for you and your family.
Written Exclusively for Merriman.com by Lyle Solomon
Lyle Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. Since 2003, he has been a member of theState Bar of California. In 1998, he graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, and now serves as a principal attorney for theOak View Law Group in Los Altos, California.
Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and it is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. . Facts presented have been obtained from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.
One of the great things I get to experience as a financial advisor is that many of my clients have achieved such good financial security that they are able to help their relatives financially. One of the best examples is grandparents wanting to help their grandchildren. The usual starting place for grandparents is helping to build an education nest egg, usually in a 529 plan.
When their grandchildren get older, my clients will often pose the question of how to help them out without just giving them money directly. Below is a typical conversation. Loving parents can be interchanged with loving grandparents with the same effect.
Client: Eric, our wonderful 20-year-old granddaughter just finished her second year of college and is doing very well. We are so proud of her. We want to help put her in a better financial position for after college, but her parents do not want us to spoil her. Is there anything we can do for her?
Eric: Does she have a summer job or work while at school?
Client: Yes, she is working at a local nursery tending the plants over the summer. She loves the job as she is a biology major.
Eric: Great! One way you could help her is to fund a Roth IRA for her.
Client: Really?! She can have a Roth IRA?
Eric: Yes. Since she has earned income, she can contribute to a Roth IRA.
Client: How much can she contribute?
Eric: She can contribute up to the amount of income she makes with a maximum of $6,000. Let’s say she makes $2,500 over the summer; she could contribute that amount to a Roth IRA.
Client: That is very interesting. Why would she want a Roth IRA?
Eric: There are a lot of reasons, but the big one is that she will have an account that will grow tax free; and by starting at such a young age, she will have extra years for it to grow until her retirement.
Client: I don’t think many 20-year-old kids these days are really that interested in retirement accounts.
Eric: That’s true, but I like to show the miracle that is compound interest and how small deposits made now can turn into large amounts of money in 45 years at retirement. If your granddaughter were to invest $3,000 for the next five years and earn 7% interest until age 65, she would have over $387,000.
Client: That’s amazing! But still, thinking about retirement is a difficult concept for young people.
Eric: True. Another great aspect of a Roth IRA is that it can help with a first-time purchase of a home. There are certain rules in place to allow contributions, including up to an additional $10,000 of a Roth, to be used for the first-time purchase of a home. A Roth account has a great amount of flexibility.
Client: That is wonderful!
Eric: I have helped many grandparents with making contributions to their grandchildren’s Roth IRAs. Some grandparents will match the contributions their grandchild makes to their Roth IRA to incentivize them to save money. Others will just make the entire contribution as a reward for working a part-time job. Either way, the grandchild will benefit. It ends up being a wonderful legacy that can be used by the grandchild to further their financial situation. Also, it can teach them the benefits of saving money. When they start careers down the road and can fund their 401k, they will have already experienced the benefits, and the education and experience can put them on a great path to financial security. I have received rave reviews from people who have put one of these plans into motion and have seen the benefits.
Client: What about her brother who is 16 years old and working at a grocery store?
Eric: Even better—more time to grow, although an adult will have to act as custodian on the Roth IRA until the age of majority.
Client: How do we get started?
Talk to your Merriman Wealth Advisor if you are interested in looking at Roth IRA options for your children or grandchildren. We can help with the custodial set up and investment recommendations.
Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Nothing in this presentation in intended to serve as personalized investment, tax, or insurance advice, as such advice depends on your individual facts and circumstances. Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.