Posts
Tuesday, November 24, 2009
Monday, November 23, 2009
"Inaccurate Claims For The College Tax Credit"
From our friends at NICCP - National Institute of Certified College Planners
According to a government report more than 314,000 taxpayers made inaccurate claims for a popular tax credit that helps pay college expenses, getting $532 million they weren't entitled to receive.
The Hope Credit provides up to $1,650 a year to help pay expenses for the first two years of college. The taxpayers claimed the credit for the same student three consecutive years, instead of the two years available, said a report by the Treasury inspector general for tax administration. Auditors reviewed two three-year periods, ending in
2006 and 2007. About 58,000 claimed the credit a fourth consecutive year in 2007. The inspector general's report does not list names of taxpayers.
The report said the Internal Revenue Service needs better tools to detect and fix inaccurate claims, and the IRS agreed. The problem should ease since Congress has expanded the credit to four years of college, for those claiming the credit in 2009 and 2010.
"The Hope Credit is intended to help taxpayers pay for the ever increasing cost of higher education," said J. Russell George, the Treasury inspector general for tax administration. "It is imperative that the IRS works with the Treasury Department and Congress to obtain the tools it needs to effectively administer this important credit."
The report recommended that Congress authorize the IRS to fix tax returns that incorrectly claim the credit, much in the same way the agency fixes routine math errors. It also recommended new reporting requirements to help the IRS match expenses claimed by students with those reported by schools.
"We agree with your findings and believe improvements are needed to ensure eligible students receive the benefits they deserve and taxpayers claiming inappropriate credits are denied those benefits,"
Richard Byrd Jr., commissioner of the IRS wage and investment division, wrote in a response to the report.
The college tax credit was expanded for 2009 and 2010 as part of the economic stimulus package enacted in February. For those years, taxpayers can get up to $2,500 to help pay for up to four years of college for each student.
According to a government report more than 314,000 taxpayers made inaccurate claims for a popular tax credit that helps pay college expenses, getting $532 million they weren't entitled to receive.
The Hope Credit provides up to $1,650 a year to help pay expenses for the first two years of college. The taxpayers claimed the credit for the same student three consecutive years, instead of the two years available, said a report by the Treasury inspector general for tax administration. Auditors reviewed two three-year periods, ending in
2006 and 2007. About 58,000 claimed the credit a fourth consecutive year in 2007. The inspector general's report does not list names of taxpayers.
The report said the Internal Revenue Service needs better tools to detect and fix inaccurate claims, and the IRS agreed. The problem should ease since Congress has expanded the credit to four years of college, for those claiming the credit in 2009 and 2010.
"The Hope Credit is intended to help taxpayers pay for the ever increasing cost of higher education," said J. Russell George, the Treasury inspector general for tax administration. "It is imperative that the IRS works with the Treasury Department and Congress to obtain the tools it needs to effectively administer this important credit."
The report recommended that Congress authorize the IRS to fix tax returns that incorrectly claim the credit, much in the same way the agency fixes routine math errors. It also recommended new reporting requirements to help the IRS match expenses claimed by students with those reported by schools.
"We agree with your findings and believe improvements are needed to ensure eligible students receive the benefits they deserve and taxpayers claiming inappropriate credits are denied those benefits,"
Richard Byrd Jr., commissioner of the IRS wage and investment division, wrote in a response to the report.
The college tax credit was expanded for 2009 and 2010 as part of the economic stimulus package enacted in February. For those years, taxpayers can get up to $2,500 to help pay for up to four years of college for each student.
Sunday, November 22, 2009
The College/Retirement Dilemma
Four times a year I conduct educational seminars for retirees to help attract new business to my financial advisory practice. I've been doing this consistently for the last four years and in addition to providing a nice lunch, we extend an offer for the retiree and their spouse to come to our office for a one-hour complementary meeting to brainstorm their portfolio and to determine if there is any way that we might be able to help them.
We were not sure how the recent financial crisis would affect the turnout for our events or the likelihood of these retirees to take action; but on the whole there is one word that comes to mind to describe their frame of mind concerning their investments and their retirement: shell shocked!
Many of these investors have been with large brokerage houses that might have been bought or sold during the recent and ongoing banking crisis, or large mutual fund companies that provide limited advice. Invariably they have been told the same story, not to worry about their investment values going down, “You haven't lost anything until you sell” and "Don't worry the markets will come back, they always do."
Many of these folks who are anywhere from their early 60s to about 80 years old, ignored their brokers advice and sold out of the stock market some time in the last few months. You could say they panicked. These are retirees with portfolios of anywhere from about $250,000 to several million dollars.
I have met with many of these prospective clients who have lost up to 50% of their retirement account values from the market decline in 2008. What their former advisers and brokers had neglected to address head on was what financial planners call longevity risk. These people do not have the time to wait for the market to come back. In my opinion it is much more important to make the retirees’ time horizon (i.e. their life expectancy) a centerpiece of the plan rather than total return. To most retirees, making sure money will last is a far greater concern than making double-digit rates of return.
College Action Strategies For The Financial Crisis
College investors and savers have a similar situation when it comes to time horizons. How is a family to crack the college nut when the cost of college is still increasing 10% per year and college savings have lost as much as 40% of their value or more? This is a really good question and more than anything else the answer depends on each family’s unique situation and in particular their college time horizon. Three different college time horizons, the amount of time before college starts, might require three different strategies:
• If your child is a freshman in high school or younger; you have a time horizon of more than four years.
• If your child is a junior or senior and you're going to be starting the process of applying to college soon; your time horizon is less than four years.
• If your student is currently enrolled in college there are still strategies that you can begin now.
Check Your Time Horizon
If families have children who are more than a year or two away from entering college, they should carefully compare their concern for investment growth in their college savings accounts with their actual cash flow need for funds. For example, if the portfolio is invested for maximum growth (mostly in equities or stock market related vehicles), the family should reconsider a more conservative portfolio with alternatives that have fixed or guaranteed rates of return. This is particularly true the closer you get to the first college year.
Generally speaking it is prudent to have allocations that are more conservative (holding fewer equities) as you near the time the portfolio distributions are needed, which would likely be the first semester of college.
With the stock market down 35% or more, it makes sense to meet with your investment advisor to make sure your strategy is consistent with your cash flow needs for college. Incredibly over the last three years the cost to attend Virginia public colleges and universities has increased by 10% each year. Add to that another 10% increase projected for the 2009-2010 school year and you have a whopping increase of 46% over a four year period!
For families who are still in saving mode with more than three or four years away from college, I highly recommend increasing college savings contributions (if at all possible) as well as applying the principles found in my book to lower college costs. Ideally, families need to lower savings risk, improve the chances of their money growing at reasonable rates attuned to their time horizons, while simultaneously reducing the cost of college.
We were not sure how the recent financial crisis would affect the turnout for our events or the likelihood of these retirees to take action; but on the whole there is one word that comes to mind to describe their frame of mind concerning their investments and their retirement: shell shocked!
Many of these investors have been with large brokerage houses that might have been bought or sold during the recent and ongoing banking crisis, or large mutual fund companies that provide limited advice. Invariably they have been told the same story, not to worry about their investment values going down, “You haven't lost anything until you sell” and "Don't worry the markets will come back, they always do."
Many of these folks who are anywhere from their early 60s to about 80 years old, ignored their brokers advice and sold out of the stock market some time in the last few months. You could say they panicked. These are retirees with portfolios of anywhere from about $250,000 to several million dollars.
I have met with many of these prospective clients who have lost up to 50% of their retirement account values from the market decline in 2008. What their former advisers and brokers had neglected to address head on was what financial planners call longevity risk. These people do not have the time to wait for the market to come back. In my opinion it is much more important to make the retirees’ time horizon (i.e. their life expectancy) a centerpiece of the plan rather than total return. To most retirees, making sure money will last is a far greater concern than making double-digit rates of return.
College Action Strategies For The Financial Crisis
College investors and savers have a similar situation when it comes to time horizons. How is a family to crack the college nut when the cost of college is still increasing 10% per year and college savings have lost as much as 40% of their value or more? This is a really good question and more than anything else the answer depends on each family’s unique situation and in particular their college time horizon. Three different college time horizons, the amount of time before college starts, might require three different strategies:
• If your child is a freshman in high school or younger; you have a time horizon of more than four years.
• If your child is a junior or senior and you're going to be starting the process of applying to college soon; your time horizon is less than four years.
• If your student is currently enrolled in college there are still strategies that you can begin now.
Check Your Time Horizon
If families have children who are more than a year or two away from entering college, they should carefully compare their concern for investment growth in their college savings accounts with their actual cash flow need for funds. For example, if the portfolio is invested for maximum growth (mostly in equities or stock market related vehicles), the family should reconsider a more conservative portfolio with alternatives that have fixed or guaranteed rates of return. This is particularly true the closer you get to the first college year.
Generally speaking it is prudent to have allocations that are more conservative (holding fewer equities) as you near the time the portfolio distributions are needed, which would likely be the first semester of college.
With the stock market down 35% or more, it makes sense to meet with your investment advisor to make sure your strategy is consistent with your cash flow needs for college. Incredibly over the last three years the cost to attend Virginia public colleges and universities has increased by 10% each year. Add to that another 10% increase projected for the 2009-2010 school year and you have a whopping increase of 46% over a four year period!
For families who are still in saving mode with more than three or four years away from college, I highly recommend increasing college savings contributions (if at all possible) as well as applying the principles found in my book to lower college costs. Ideally, families need to lower savings risk, improve the chances of their money growing at reasonable rates attuned to their time horizons, while simultaneously reducing the cost of college.
Saturday, October 17, 2009
The American Opportunity Tax Credit: Six Facts
Here is some great news sent to us from our friends at the NICCP.com
Many parents and college students will be able to offset the cost of college over the next two years under the new American Opportunity Tax Credit. This tax credit is part of the American Recovery and Reinvestment Act of 2009.
Here are six important facts the IRS wants you to know about the new American Opportunity Tax Credit:
1. This credit, which expands and renames the existing Hope Credit,
can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course Materials.
2. The credit is equal to 100 percent of the first $2,000 spent and
25 percent of the next $2,000 per student each year. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
3. The full credit is generally available to eligible taxpayers who
make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
4. Forty percent of the credit is refundable, so even those who owe
no tax can get up to $1,000 of the credit for each eligible student as cash back.
5. The credit can be claimed for qualified expenses paid for any of
the first four years of post-secondary education.
6. You cannot claim the tuition and fees tax deduction in the same
year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction, which ever is more beneficial for you.
Complete details on the American Opportunity Tax Credit and other key tax provisions of the Recovery Act are available at the official IRS Web site at IRS.gov/Recovery.
"American Opportunity Tax Credit"
NICCP - National Institute of Certified College Planners
The Online Source for College Planning and Marketing News
From: NICCP and NICCP Plus
Sent weekly to over 6,300 subscribers.
Please forward NICCP e-News to those in your network.
Many parents and college students will be able to offset the cost of college over the next two years under the new American Opportunity Tax Credit. This tax credit is part of the American Recovery and Reinvestment Act of 2009.
Here are six important facts the IRS wants you to know about the new American Opportunity Tax Credit:
1. This credit, which expands and renames the existing Hope Credit,
can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course Materials.
2. The credit is equal to 100 percent of the first $2,000 spent and
25 percent of the next $2,000 per student each year. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
3. The full credit is generally available to eligible taxpayers who
make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
4. Forty percent of the credit is refundable, so even those who owe
no tax can get up to $1,000 of the credit for each eligible student as cash back.
5. The credit can be claimed for qualified expenses paid for any of
the first four years of post-secondary education.
6. You cannot claim the tuition and fees tax deduction in the same
year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction, which ever is more beneficial for you.
Complete details on the American Opportunity Tax Credit and other key tax provisions of the Recovery Act are available at the official IRS Web site at IRS.gov/Recovery.
"American Opportunity Tax Credit"
NICCP - National Institute of Certified College Planners
The Online Source for College Planning and Marketing News
From: NICCP and NICCP Plus
Sent weekly to over 6,300 subscribers.
Please forward NICCP e-News to those in your network.
Monday, September 21, 2009
Credit Card Companies on Campus
[posted by Jennifer Hoffman]
We were alarmed when we received a credit card invoice at our house, addressed to our 20 year old son who was away at college. We called him to ask if he had applied for a card and when he told us he hadn't we opened the envelope, worried that someone had stolen his identity to start an account in his name. The balance on the invoice was zero but when our son called the company to inquire about the account, they would not give him information because he did not know the password to the account! After many calls, hours on hold and several attempts at verification, our son found out that he had in fact opened a credit card account several months earlier, apparently as a "fund-raiser" event for his fraternity. The credit card company offered the fraternity money to sign up students for accounts with the promise that there would be no charge to the students signing up if they did not want to use the card, and they could cancel at any time. The more students signing up, the more money for the fraternity!
Read this important notice regarding new rules for credit card companies provided to us by the folks at NICCP.com .
Thank you for this information from:
NICCP - National Institute of Certified College Planners
The Online Source for College Planning and Marketing News
From: NICCP and NICCP Plus
Sent weekly to over 6,300 subscribers.
Please forward NICCP e-News to those in your network.
We were alarmed when we received a credit card invoice at our house, addressed to our 20 year old son who was away at college. We called him to ask if he had applied for a card and when he told us he hadn't we opened the envelope, worried that someone had stolen his identity to start an account in his name. The balance on the invoice was zero but when our son called the company to inquire about the account, they would not give him information because he did not know the password to the account! After many calls, hours on hold and several attempts at verification, our son found out that he had in fact opened a credit card account several months earlier, apparently as a "fund-raiser" event for his fraternity. The credit card company offered the fraternity money to sign up students for accounts with the promise that there would be no charge to the students signing up if they did not want to use the card, and they could cancel at any time. The more students signing up, the more money for the fraternity!
Read this important notice regarding new rules for credit card companies provided to us by the folks at NICCP.com .
"Credit Card Companies on Campus"
At college campuses around the country, a fall ritual as familiar as the football tailgate party is about to disappear. The on-campus credit card marketing, characterized by free pizzas and T-shirts for every completed application, is enjoying its last hurrah before a new federal law kicks in next year.
Credit card issuers in recent years routinely awarded cards to students with no income and no co-signer. Many colleges and universities joined the credit card game, allowing school mascots to be emblazoned across cards marketed to students and alumni.
Some colleges provide credit card companies with names and addresses of students and alumni. In exchange they can earn lucrative royalties based on the number of sign-ups and the volume of charges.
Consumer advocates say the reining in of student credit card sales can’t come soon enough. In a study by Sallie Mae, the student loan organization, college students who had applied for student loans had an average of 4.6 credit cards in the spring of 2008, with the average senior graduating with $4,100 in credit card debt.
College students have been a key target of the credit card industry. In February, a host of changes will hit campus. The law will:
- Allow consumers under 21 to get credit cards only if a parent or other adult co-signs or if they prove they have the independent means to repay credit card debt.
- Require disclosure of agreements that authorize collegiate affinity cards, including the details on royalty payments and mailing lists.
- Prohibit card issuers from offering freebies like food or trinkets when marketing on campus.
- Stop prescreened credit card offers for consumers under 21 and ban credit limit increases without permission of a parent or other co-signer.
While many credit card companies have already scaled back aggressive on-campus marketing, consumer advocates say they will be monitoring colleges this fall.
The new reforms are aimed at keeping students from accumulating more credit card debt than they can handle. The changes are likely to make it more difficult for consumers under 21 to get credit cards.
Thank you for this information from:
NICCP - National Institute of Certified College Planners
The Online Source for College Planning and Marketing News
From: NICCP and NICCP Plus
Sent weekly to over 6,300 subscribers.
Please forward NICCP e-News to those in your network.
Friday, September 18, 2009
Paying for College,Then and Now
Excerpt from my book, coming soon.
My dad worked as a debit insurance salesman for the Life Insurance Company ofVirginia Richmond
So they said they wouldn't be able to help me and if I wanted to go to college, I would have to be “on my own”. Well my mom lied a little because when I was in college she sent me a check every other week, for $5, $10 or sometimes $20, whatever she could afford out of her hard earned paycheck. Thanks Mom!
I was determined to go to college in spite of the costs and our lack of family funding. I applied to three colleges Virginia Tech, theUniversity of Richmond and the University of Virginia
I had followed my brothers’ lead into the construction field and had been working as a carpenter's helper during the summers in high school. After deciding to attend theUniversity of Virginia
In round figures the total cost of attendance at theUniversity of Virginia
Come to find out I wasn't the only one at that time "paying my own way" through college. Over recent years I conducted numerous at my college planning seminars. Often as many as one half of the parents attending these sessions had “paid their way through college”.
If an ambitious student 25 to 30 years ago worked full time in the summers and during college breaks, they could pay for almost all of the entire cost of education without running up debt.
Today the story is quite different. I currently have two of my kids in college full- time withVirginia
If today's student was trying to "pay their way through college" just using summer earnings, they would have a $16,000 shortfall each year!
In comparing these two time periods, there are obviously factors of inflation to consider. In the 70s I was $600 short after applying my summer earnings, which was 20% of my total cost. I did use student loans and when I left college I had $1,500 of total student debt. I remember what a huge amount of money that seemed to be and wondering if I could ever pay it off!
Inflation actually helped to reduce the college debt as over time, the value of the loan dollars declined, while my ability to earn money increased.
In today's world taking on $16,000 worth of debt each year is not a reasonable or realistic approach. The $16,000 earnings deficit is 80% of the total cost of attendance compared to an earnings deficit of 20% in the 70s.
What this illustrates is the disparity between the inflation of college costs over 30 years and the meager growth rate of unskilled labor earnings over that same time period.
So what we could do then, our kids can't do now! For our students to earn 80% of the cost of attendance like I did, they have to be earning $16,000 over 10 weeks.
Nevertheless, if you do the comparative mathematics, today’s student would need to earn $1,600 per week, (a rate of $83,200 per year), for summer wages to be able to match today’s inflated cost of college. And if students can earn that much over 10 weeks you and they might wonder why even to go to college!
© 2009 C. Gary Hoffman, MBA, CFP® , CCPS
The Real Cost of College: How to Finance Your Kids’ College Education Without Bankrupting Your Retirement®
When I was nearing graduation of high school in 1970, I told my parents of my desire to go to college and asked for their help. I'll never forget the look on their face and our conversation. I was the youngest of four boys and neither of my parents had gone to college nor any of my older brothers.My dad worked as a debit insurance salesman for the Life Insurance Company of
So they said they wouldn't be able to help me and if I wanted to go to college, I would have to be “on my own”. Well my mom lied a little because when I was in college she sent me a check every other week, for $5, $10 or sometimes $20, whatever she could afford out of her hard earned paycheck. Thanks Mom!
I was determined to go to college in spite of the costs and our lack of family funding. I applied to three colleges Virginia Tech, the
I had followed my brothers’ lead into the construction field and had been working as a carpenter's helper during the summers in high school. After deciding to attend the
In round figures the total cost of attendance at the
Come to find out I wasn't the only one at that time "paying my own way" through college. Over recent years I conducted numerous at my college planning seminars. Often as many as one half of the parents attending these sessions had “paid their way through college”.
If an ambitious student 25 to 30 years ago worked full time in the summers and during college breaks, they could pay for almost all of the entire cost of education without running up debt.
Today the story is quite different. I currently have two of my kids in college full- time with
If today's student was trying to "pay their way through college" just using summer earnings, they would have a $16,000 shortfall each year!
In comparing these two time periods, there are obviously factors of inflation to consider. In the 70s I was $600 short after applying my summer earnings, which was 20% of my total cost. I did use student loans and when I left college I had $1,500 of total student debt. I remember what a huge amount of money that seemed to be and wondering if I could ever pay it off!
Inflation actually helped to reduce the college debt as over time, the value of the loan dollars declined, while my ability to earn money increased.
In today's world taking on $16,000 worth of debt each year is not a reasonable or realistic approach. The $16,000 earnings deficit is 80% of the total cost of attendance compared to an earnings deficit of 20% in the 70s.
What this illustrates is the disparity between the inflation of college costs over 30 years and the meager growth rate of unskilled labor earnings over that same time period.
So what we could do then, our kids can't do now! For our students to earn 80% of the cost of attendance like I did, they have to be earning $16,000 over 10 weeks.
Nevertheless, if you do the comparative mathematics, today’s student would need to earn $1,600 per week, (a rate of $83,200 per year), for summer wages to be able to match today’s inflated cost of college. And if students can earn that much over 10 weeks you and they might wonder why even to go to college!
College Aid Overhaul as reported by Fox News
Fox News reports on the new proposed financial aid overhaul http://www.foxnews.com/search-results/m/26460887/financial-aid-overhaul.htm#q=college+loan
Thursday, September 17, 2009
Subscribe to:
Posts (Atom)
