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Cliff Notes - College Funding

Dear Mom and Dad, As I head off to my 4th and (hopefully) final year of college, I wanted to share some thoughts with you.  First off:  thank you for talking me out of heading east to Snooty Private College.  I figured I saved over $100,000 by attending In-State U.  Not sure what I would have done with an Early European Literature major.  I suspect my business degree should enable me to move out sooner than later.  

In fact, one of my pals went to New York U – cost him over $72k/year.  Graduating without staggering debt is one of life’s great financial head starts. Speaking of which, thanks for setting up that Education 529 plan.  Glad you used the direct sold portfolio.  Saved me almost 1%/year by foregoing the broker sold.  It was wise to use the moderate, age based investment model.  I didn’t get rich but my returns were steady.   Sure, I know you got a 20% tax credit on the first $5000 annual contribution.  Wish you got more but at least you didn’t have to pay tax on the earnings.  You were smart to title yourself as the account owner – when I applied for financial aid, it only was factored at 5.6% vs. 20% had it been in my name.  Growing the funds tax free is a great deal for both of us!  I’m not sure if I’ll need the remaining balance this year.  I suppose you could carry it over to my slacker brother.  Or, even better, pass it back to me.  I heard the 10% penalty on earnings could be waived due to the scholarship money I picked up this year. 

The earnings distribution will go on my humble tax return subject to my meager tax rate.[i] Being marginally talented, I was surprised to qualify for scholarship money at scholarships.  The site, college, was very helpful too.  Who says average doesn’t pay? I tried the Pells Grant site but I guess you make too much.   But filling out that FAFSA application before my freshman year was a great starting point.   How all that interacts with the Expected Family Contributor (EFC) was a bit confusing but that website was very helpful. [ii] When you broke the news I had to pay some of my own freight, I had no choice but to get resourceful.  Kegs are expensive. Even though I have a few private student loans, I intend to consolidate them at a lower rate after graduation.  Perhaps I can somehow make use of that old custodial account you set up years ago?  Now that I’m 21, I can legally control it.  What do you think about taking some of the funds and converting them to a Roth IRA[iii]?  We could use this summer’s lawn mowing money to satisfy the income requirements. 

Then, after 5 years, I could withdraw up to $10k tax free to purchase my first home. Before I ask you for more money, I just wanted to say thanks for everything you’ve both done.  Finances aside, you’ve been supportive, patient and understanding.  My decision making hasn’t always been the best but you quietly steered me back on course.   Looking back, the Ozzy Osbourne neck tattoo probably wouldn’t have made a great first interview impression; Neil Diamond has much broader appeal.    Love you both, Denny  Fiscal Fitness is a publication of Houlihan Asset Management, LLC for the benefit of its clients and friends.   

Houlihan Asset Management.  Wealth Consulting/Asset Management. Copyright 2017

[iii] $5500 annually


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