How to Avoid 3 College Tuition Money Mistakes and Protect Your Social Security

This week I had an opportunity to discuss a new scenario confronting retirees in an interview with KARE 11 on Saturday morning. You may have heard about or experienced the alarming rate at which college tuition is rising. Financial-aid budgets are getting slashed.  Student loan debt is at all time high.  However, many people don’t realize that it isn’t just people in their 20s dealing with fallout from tuition costs; it’s also hitting retirees in the pocketbook. A new study shows more than two million people over age 60 have student loan debt – and now Uncle Sam is coming after their Social Security benefits.  

Don’t let this be you.

Let’s begin by discussing the most common money mistakes made when it comes to college tuition.

Money Mistake #1 | Letting it Haunt You
In the year 2000, the government withheld Social Security benefits from only six retirees.  This year, so far, the federal government is withholding money from nearly 120,000 Social Security recipients who have fallen behind on their student loans.  Many of these seniors took out loans to help children or grandchildren pay for college, and others went back to school later in life themselves.  

Money Mistake #2 | Failing on Gift Giving
Too often, we see people give gifts of money for college tuition the wrong way.  Writing a check to a person, even a relative, can have significant tax ramifications.

Money Mistake #3 | Having No Plan
People often wait until their child is in high school before thinking about college expenses but unfortunately they also forget to factor in inflation. On average, tuition tends to increase about eight percent per year.

Before you get too panicked, let me show you some fixes for these money mistakes.

Fix #1 | Know the Rule of $13,000
A monetary gift can be given to someone with no tax implications for either the giver or the recipient, if the gift is $13,000 or less. Beware, this number could change depending on what happens with Congress and the expiring tax rates.

Fix #2 | Give Directly to the College
An unlimited amount of money can be given for school tuition if the check is written out directly to the college or university. So if you want to give a gift to a grandchild, write the check to the school and there are no tax ramifications.

Fix #3 | Start Saving Early
Consider a 529 Plan.  Any money that the account earns is not taxable.  There are various 529 plans available through different states, state agencies, and educational institutions; each plan has its own rules and there are no state guarantees that the money in the account will grow.  Find an advisor who can help you navigate the various rules.  

In order to help you figure out how much you should be socking away on a monthly basis, there is a link to a 529 calculator on our website.  As comprehensive financial planners, our role when working with our clients at Secured Retirement Advisors is much more than simple investment planning (managing stocks, bonds, mutual funds, annuities, etc.), we also guide our clients in other important financial planning areas such as staying abreast of the latest tax laws regarding the rule of $13,000 discussed above or the benefits of the new 529 plan.  Our advisors work with our clients to not only maximize profit potential when the stock markets are doing well, but also protect them from potential financial risks so that they can continue to spend with confidence in their retirement years. Feel free to visit us at www.securedretirements.com and help yourself to our educational materials.  If you would like a complementary “3 Step Review” of your own retirement plan, call Secured Retirement Advisors at 952-460-3260.