Changes to the FAFSA form and the formula for determining a family’s need for aid are changing, effective for the 2024-2025 school year. While all the changes are beyond the scope of this post, here we highlight two from a financial planning perspective.
Parent Income:
Contributions (pre-tax salary deferrals) to employer retirement accounts are no longer added back to parent income. This could be an additional incentive for parents with employer plans to max out contributions in years that the FAFSA looks at income. The FAFSA looks at the year two years prior to the beginning of the school year. For example, the 2024-2025 school year looks at 2022 income. Note that this change only applies to contributions that come straight from a salary reduction. Contributions to IRAs that are deductible on the tax return are still added back to parent income.
Grandparent Contributions: Up until now, while grandparent (or other non-parent) owned 529 accounts did not count towards a parent or student’s assets, withdrawals from said account counted as income to the student which had to be reported on the FAFSA. This could reduce the student’s aid eligibility. With the changes, withdrawals from a third-party owned 529 account will no longer count as student income. Grandparents can now maintain a 529 account for their grandchildren and distribute funds without impacting aid eligibility.
Because of these changes, the 2024-2025 form will not be available until December this year. You can stay up to date on announcements at https://studentaid.gov/, or through college financial aid office websites.
Call us to review your investment approach (404) 941-2800.
Retiree spending is not consistent, from month to month or decade to decade. Early retirees usually travel more and increase spending on hobbies. You might buy a car once every 5 years. Healthcare spending increases as we age. Investment performance is not consistent either! So, why would you want a portfolio strategy focused on providing consistent income or a static allocation not adapting to your changing needs?
We start by matching investments to projected cash flows. First, we set aside enough money to supplement social security, etc. for about 30 months, depending on our economic outlook. Taking little risk with immediate income provides comfort to spend. The beauty is now most of your assets seek long-term returns without short-term risk.
Integras Partners uses different strategies for at least three time-horizons, optimizing market risk for each timeframe. We also look beyond stocks, bond and mutual funds, with access to institutional-style real estate and private equity with low minimums. Plus, since we don’t charge commissions, our clients can earn very attractive current yields with a head start in recovering principal. These investments are only sold by prospectus, so give us a call if you have questions.
Long-time employees face this non-revocable and permanent choice upon retirement. While the security of lifetime income can be comforting, several trade-offs exist.
Do I want to rely on the company’s future financial strength? How long will I live? What will inflation do to my pension income over time? What happens if I die? Should I take a lower amount to protect my spouse? What happens if they die? Do I have a choice to take a lump sum and control how and when I spend the money?
Pension distributions are limited to lifetime income options without future inflation adjustments. Additionally, If the income beneficiaries die early, there is often no remainder. Many companies offer a “lump-sum distribution” to effectively buy the retiree out of their pension obligation. This amount can be transferred to a traditional IRA tax-free.
There are several advantages to taking the cash.
Freedom to invest the money, timing and adjusting your income, and protecting your heirs. Lump-sum buyouts are calculated using a specified interest rate, so the lump-sum payout value increases in low-rate environments; it increases the lump-sum payout value.
Once you start a pension, you’re locked in. From an IRA, you might take an increased amount until you start Social Security, allowing you to defer and increase your Social Security payment for both you and your spouse. If you have a life event, you can adjust IRA distributions. You cannot adjust a pension. You may downsize your home, get an inheritance, or need to spend a chunk of cash on a new car or family need. A lump sum allows flexibility a pension cannot. Plus, when you die, there is likely an inheritance, which a pension does not offer.
Integras Partners separates lump sum funds into different IRAs, keeping money for short-term needs conservative while allowing assets needed later to grow. Having more time for the remainder to stay invested reduces market risks. Having control of the funds also protects your heirs. Employing good strategies should increase both lifetime income and protect your family.
Most importantly, a “lump-sum rollover” gives you the peace of mind to enjoy what you’ve worked so long to earn truly.
If you’re interested in learning more, give us a call at (404) 941-2800, or reach out to us about your situation.
Several years ago, a client couple referred their neighbors. Let’s call them Jim and Kate. They had been married almost 20 years and had established careers and two younger children. After recently purchasing their dream home, they came to us to help consolidate multiple investments and build a financial plan for their retirement. We started by solidifying their college savings, reviewed existing life policies, and started managing their accumulated retirement accounts.
Jim was an early employee of his firm and was working with leadership to design his exit strategy. He wanted to spend more time with family, and was starting his own business. A few years later Jim got sick, and we sat with them at the attorney’s office to draft wills and healthcare directives. Fortunately, his life insurance was already in place, as insurance companies won’t issue a policy once a serious healthcare issue arises.
Jim recently lost his battle with a debilitating illness. Through the waves of emotions that followed, we were able to provide Kate with peace of mind around her financial future, so that she could focus on her family and their grieving. When she was ready, we helped her reregister accounts, file insurance claims, update her will, and refine college planning. Thankfully, the life insurance benefits more than covered expenses while she took a leave of absence from work and prepared their oldest child for college.
Kate has told us many times how grateful she is to be able to lean on us. A year after losing her husband, we helped her dismantle her inherited business and work through the pros and cons of strategies to help restart her life, including selling their family home and securing financial freedom.
Partnering with a trusted Financial Advisor now could be one of the most important moves you make. Life is unpredictable. When you find yourself faced with stressful life changes, having built strong advisor relationship will prove to be invaluable.
