by Dave Kutcher
With saving for retirement becoming harder and harder for young families, particularly for those also trying to save money for their children’s higher education, there is some good news afoot that you may want to investigate more closely.
For those of you using the Free Application for Federal Student Aid (FAFSA), there is a new simplification act that will now allow for retirement plan contributions by a parent to be excluded from their income when applying for financial aid. This change allows parents to contribute up to the maximum in retirement plan contributions for themselves and report lower income at the same time, ideally qualifying the child for additional financial aid that previously would not have been available. This contrasts with prior rules which did not exclude retirement plan contributions from available parental income.
The FAFSA Simplification Act applies only to schools that use the FAFSA to determine aid, so this may not benefit everyone … but it is a step in the right direction and provides some relief to parents stuck between trying to fund their own retirement and at the same time assist their child with the high cost of a college education.
For those of you seeking more information, please visit studentaid.gov/help-center/answers/article/fafsa-simplification-act
Most of you are aware of or have been a participant in a company sponsored retirement plan such as a 401(K) and you likely are familiar with “employer matching contributions”. This is where your employer matches your retirement plan contributions by some percentage up to a maximum employer contribution set in the plan. Many employees, however, find themselves limited in their ability to contribute as they are also paying student loan payments.
New rules will now allow an employer to match employees’ student loan payments providing a significant boost to an employee’s potential nest egg at retirement. This new rule will take some time to get a foot hold as retirement plan administrators try and figure out how to manage and deal with the systems needed to do this seamlessly as they do the current matching system. And employer plan offerings need to be updated to provide for this benefit … but, again, this is all a step in the right direction for mitigating the financial strain of trying to provide for yourself as well as help your children with their educational pursuit.
The third big change comes to the 529 Savings Plan market with eligibility to rollover 529 plan balances to ROTH IRA’s for their beneficiaries. There are rules that apply to how long you have to have had the 529 plan open (15 years) and with funding in it (for the last 5 years), there are maximum dollar amounts ($35,000) and all is subject to regular ROTH contribution limits, but the downside rules of 529 plans are getting some relief here and will encourage many to feel less trepidation about prior rules that did not treat overfunding in a friendly way.
The new rules will allow money to be shifted among beneficiaries as needed and all in all will provide greater flexibility for parents and grandparents wishing to use 529 plans as a vehicle for funding educational expenses.
My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio and on Tuesday mornings, KFQD News Talk Radio AM 750 and FM 103.7 Frontier Retirement, 10928 Eagle River Road; Eagle River, AK 99577, (907) 795-7452.
