10 minute read
Common Cents
Common Cents Saving for College Education
ASeptember 2021 article in US News & World Report noted that over the last 20 years, average tuition and fees at in-state tuition at public universities increased by 211%. Contrast that to a 54% increase in the total consumer price index over the same period, and the high stress and anxiety that families feel when considering the cost of higher education is warranted!
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Simply meeting our expenses and obligations today can be challenging, so the thought of setting aside thousands (tens of thousands?) more to cover our children’s higher education costs on top of pricey Jewish day school tuition can be overwhelming. Now, you may be asking, how can I even approach such a high savings goal? Are there any tax smart strategies that can make the savings process easier? What is a FAFSA anyway?
Sounds familiar? Let’s consider these questions and more to bring a thoughtful and actionable plan for higher education savings.
Reasonable expectations
Saving for a child’s education is no small goal. Average annual tuition for a public in-state school was $10,338 for the 2021-2022 school year and much higher for out-of-state and private colleges. Multiply that by 4 years per child, add some inflation and you can easily be in the 6 figures. The decision for how much support to provide for education costs will vary by person, and does not have to be an “all or nothing” proposition. Some parents might choose to cover the cost of just in-state tuition, while some might opt to help out with just a percentage. Have an honest discussion with your children about what you can realistically afford and frame the discussion as an opportunity to work in partnership, working toward the same goal and contributing together to get there.
No matter what your funding number is, it is important in any long-term goal to celebrate the small wins along the way. Acknowledging small wins sparks the reward circuits in your brain that can encourage a positive feedback loop and increase the likelihood that you will reach your goal. Consider breaking up the long-term goals into 4 smaller parts and treat yourself to something nice after reaching 25%, 50%, 75%, and finally 100% of the goal.
The power of time
“The first rule of compounding is to never interrupt it unnecessarily” - Charlie Munger, Vice Chairman Berkshire Hathaway. When investing, stack the odds in your favor as much as possible. Putting time on your side is incredibly important for any longterm goal. The earlier you can start saving, the less you will have to put in.The magic of compound interest will cover more of the heavy lifting in reaching your target goal. Imagine if new parents recognize a goal of having enough money set aside for college/yeshiva/seminary costs to assist their child as they segway into adulthood. If the parents initially set aside $2,500 as soon as their child is born, and then added $250 per month for 18 years, assuming a 7% annual compounded return, they would have $110,447 in the account to spend by the time their child graduates high school. Even though they only contributed $56,000 over the course of 18 years, they have nearly doubled their balance due to the power of staying invested and compounding. There are many helpful online calculators (https://www. investor.gov/financial-tools-calculators/calculators/ compound-interest-calculator) to enter amounts and calculate the expected balance in the future. This can be a helpful way to test out different scenarios and strategies toward reaching your goal. Remember, the more time you have on your side, the greater opportunities there will be for your money to really grow. Invest early, and invest often!
Being tax smart
Not all investment accounts are created equal. Accounts are typically delineated by their tax preferences - and those preferences have a real impact on how you contribute to, distribute, and grow the accounts. 529 accounts and ROTH IRAs are two common tax-preferred accounts to consider for your long-term education savings goals. 529 Accounts: These accounts are designed to incentivize education-related savings. Accounts can be opened by anyone and must name a beneficiary, the person who will use the future education expenses. Cash contributions can be invested for growth and then distributed tax-free for qualifying education expenses. Tax preferences include: 1) Federal and State tax free growth while the account is growing, 2) Tax free distributions if used for qualifying education expenses, and 3) Possible state tax deduction on contributions (check your state). Allowable contributions to a 529 account are much higher compared to a ROTH IRA (consult a CPA for gift tax considerations) and most plans have easy “set it and forget it” target date funds that will be invested along with your time horizon for when you need the money. If money is taken out and not used for qualifying education expenses, there will be both taxes due and a 10% penalty. It is possible to transfer accounts to a different beneficiary, in the case that one child ends up not needing their 529 funds due to a scholarship or other career plans.
ROTH IRAs: These accounts are traditionally viewed as being for retirement. However they can also serve well for college savings. Accounts can be opened by anyone who has earned income, but higher income earners are limited in their ability to contribute (“backdoor ROTH IRAs” help address this limit). Cash contributions can be invested and grow tax-free. Tax preferences include: 1) Federal and State tax free growth while the account is growing, 2) Tax-free distributions if taken after age 59 ½, and 3) No deduction allowed on contributions, but they can also be withdrawn at any time. Allowable contributions to a ROTH IRA are limited compared to a 529 account. For 2021, maximum contributions are $6,000 ($7,000 for ages 50 and older). Distributions of original contributions are always tax-free, while distributions attributable to account growth are potentially tax-free. At age 59 ½, all distributions are tax-free. Distributions of the earnings portion before the age of 59 ½ will be subject to both taxes and a 10% penalty, but if the early distribution is for education-related expenses, there is no 10% penalty.
Student aid - Master the FAFSA!
As your children get closer to college age, familiarize yourself with the Free Application for Federal Student Aid (FAFSA). This application needs to be completed in order to apply for student aid such as federal grants, work-study, and loans. Additionally, many states and colleges use FAFSA information to determine eligibility for state- and school-level aid. The FAFSA application window typically opens on October 1st each year for the following academic year - and it is important to get your application submitted as close to the opening of the window as possible! The FAFSA will ask questions about your income and assets, and the determination of eligible aid will be based on the information provided. It is important to keep in mind the impact that 529 and ROTH account assets as well as withdrawals can have on your FAFSA application. Visit Studentaid. gov to learn more about applying for federal aid. Don’t leave free money on the table!
Saving for college is a tall order. However, by setting realistic goals, utilizing tax savvy strategies, and becoming a “FAFSA Master”, you can better equip yourself to provide your family with a strong level of educational financial support.
The decision to start saving and investing is yours, but the “how” can be hard. We suggest speaking with a “fee only” financial planner operating as a fiduciary - having a CPA or tax background is a huge plus. Email commoncents@northbrookfinancial. com to schedule a free financial planning consultation with our team.
Elliot Pepper, CPA, CFP®, MST is Co-Founder of Northbrook Financial, a Financial Planning, Tax, and Investment Management Firm. He has developed and continues to teach a popular Financial Literacy course for high school students.Elliot Pepper, CPA, CFP®, MST is Co-Founder of Northbrook Financial, a Financial Planning, Tax, and Investment Management Firm. He has developed and continues to teach a popular Financial Literacy course for high school students.
This January, the Orthodox Union Women’s Initiative will be celebrating the culmination of its first two-year Nach Yomi cycle featuring shiurim from women scholars, with a series of celebratory events in New York, Israel and across the country. The Torat Imecha Nach Yomi program began in January 2020 and has featured daily downloadable audio shiurim on Nach, Nevi’im (Prophets) and Ketuvim (Writings).
“What Nach affords you, as a learner, is to be part of the journey and history of the Jewish people and be an audience to the sacred words of our prophets.” says Rebbetzin Dr. Adina Shmidman, director of the OU Women’s Initiative.
Siyum events begin with shiurim on Shabbat Shira, January 14-15, by Nach Yomi educators at shuls across the country. Renowned female scholars will speak in communities from California to Colorado and from Toronto to Texas. So far, the list includes 22 speakers and cities, but will continue to grow as the event nears.
“The OU Women’s Initiative Nach Yomi program was an inspired idea that has created a spiritual anchor for what has become a learning community of thousands of women who are infusing their every day with Torah knowledge, guidance, and connection. We view this as a critical contribution to Orthodox communal life and look forward to its growing impact,” observed Rabbi Moshe Hauer, Executive Vice President of the Orthodox Union.
Rabbi Josh Joseph, Executive Vice President & Chief Operating Officer of the OU remarked, “The number of women now learning Nach on a daily basis is quite simply astounding. We thank the Torat Imecha Nach Yomi participants and our leadership for making this the largest women’s learning program…ever. With so many women learning the same text with the same teacher - Yeyasher Kochachem!”
The siyum festivities continue on Sunday, January 16th with a celebration at Congregation Beth Sholom in Lawrence, NY. This women-only program will include music by composer and vocalist Sorah Shaffren, talks by Nach Yomi educators and a catered lunch.
Nach Yomi participants in Israel will enjoy two more special events starting with shiurim at the OU Israel Center on Sunday, January 23rd. On Monday, January 24th, events continue with a talk entitled “Yehoshua and You” and a tour of Qasr al Yuhud and Mitzepe Yericho with Rivi Frankel and end with a grand siyum celebration in Yerushalayim in the evening.
“Rebbetzin Dr. Shmidman and the OU’s Women’s Initiatives Department advances the fundamental values of Torah Judaism. The Nach Yomi program exemplifies this commitment, ensuring that each and every day includes an expansion of one’s Torah knowledge,” commented Moishe Bane, president of the OU.
The program has been a tremendous success. More than 6,500 women are subscribed to receive the daily learning modules, which total 742 individual shiurim, and more than 1,000 women have completed the full series. The program is meant for women of all ages and religious and educational backgrounds to learn on their own schedules.
“What’s truly remarkable is to find women of such diverse backgrounds— learning, hashkafic, geographic, age— being part of the same classroom, learning and growing together, “ says Shmidman, who is also rebbetzin of The Lower Merion Synagogue in Bala Cynwyd, PA.
“Torat Imecha Nach Yomi has created a space of strength and support through the gift of our holy sefarim. The dedication of both participants and educators is extraordinary and speaks to the remarkable impact of this program.”
Participants who have completed the series are invited to add their names to the online Siyum Scroll at ou.org/women/nachsiyum.
The program launched at a particularly opportune time. In January 2020, when the most recent cycle of Daf Yomi started, there was an increase in attention on daily learning. Shortly thereafter, the Covid-19 pandemic forced many to isolate and find more virtual learning opportunities.
“It’s been incredible to hear from so many participants how connected they feel to these beloved texts and how much, over these last two difficult years, these words have been such an anchor,” says Shmidman,” says Shmidman. Elaine Tuchman, a Nach Yomi participant from Baltimore, is one such example. “I so much appreciate this program as it permits me to learn whenever it is most convenient for me,” she says, “Torat Imecha Nach Yomi is a very important part of my day. It brings me so much simcha.”
To donate and participate in the in-person events or to livestream the celebrations, visit ou.org/women/ nachsiyum.
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