<p>We plan on applying for FA at colleges (D is a senior and has started submitting college applications). We will have to fill out the CSS Profile. A couple of the colleges she is applying to do meet 100% need.</p>
<p>We met with a financial advisor (at our local credit union). We went in thinking we should do some catch-up deposits to a 403B (have a larger amount deducted from our paychecks for the remainder of the year) so those funds might not be looked at as available assets when applying for college FA. </p>
<p>We already have maxed Roth IRAs.</p>
<p>The advisor said that unless we are in a very high tax bracket, there isn’t really much benefit to the 403B over investing outside of a retirement account, and then those funds would remain more available for college costs, etc.
Of course, he also isn’t able to offer us a 403B because our employers won’t contribute through his credit union…so, that could be the reason he doesn’t think we need one. ;-)</p>
<p>I think the only 403B options we really have are annuity type investments (a variety of them). I know we would not choose a variable annuity.</p>
<p>Another option might be to pay more on the house. I don’t think equity would be a problem. We wouldn’t pay it off, and the value of the house is only around 150K.</p>
<p>So, what would your advice be…403B or no 403B for best college FA position and in general?</p>
<p>Well…your family contribution is really more based on income than assets. So think of that as well. Any contributions you make to your 403b will be added back as income for financial aid purposes. But the balances in those accounts will not be viewed as assets. </p>
<p>Any assets in regular accounts…not ones designated as ITA or TSA types of accounts, will be assessed for financial aid purposes.</p>
<p>But before you do all these financial gymnastics, see what your family contribution is based on your income. You may find that contributing to a retirement account doesn’t really benefit you at all for financial aid purposes…because your income is such that your family contribution is already sufficiently high.</p>
<p>You don’t pay taxes on wages put into a 403(b) or the earnings (although the money is taxed when it’s withdrawn in retirement).</p>
<p>You’ll pay taxes on wages that you invest outside of a retirement account, as well as any applicable taxes every year on the earnings.</p>
<p>Tax-free growth is a very powerful tool that your adviser seems to not have a good handle on. Unless you are reasonably confident that your taxes in retirement will be higher than they are now, you should take advantage of a 403(b) plan, especially if there is an employer match. Wages will be counted against you for FA either way, but assets in a 403(b) will generally be sheltered for FA purposes.</p>
<p>The money we have is now just sitting in savings. Some of it we consider to be emergency fund, some college fund, and some just savings; but it’s all in one account right now.</p>
<p>When I play with the net price calculators, it does seem to make a considerable difference when I change the amount reported as ‘money in saving and checking accounts’. The smaller the number, the better. </p>
<p>From what I am reading, even if the money is in a 403B, we may be able to withdraw it for college expenses, but then that withdrawal will add to that year’s income, so a loan against the 403B or perhaps another type of loan might be the way to go. </p>
<p>Would it make sense to put the money in the 403B, including what we consider to be the college fund (approx 1 year COA-- now, and hopefully, each year), and then borrow until D is out of school? If so, which way would be the best way to borrow-student loans of some kind, home equity, 403B loan?</p>
<p>Shoboeman…agree with others. There is a tax advantage to having money put into a 403b in terms of your taxable income. Here is my opinion. Put some amount IN a 403b, but not with the plan of taking it out, even as a loan, for college costs. These are meant to be long term investments, not savings accounts. </p>
<p>Also, keep in mind, there is an annual limit on your contributions to a 403 b.</p>
<p>Agree with thumper1. I’ve always contributed to my 403b with absolutely no intentions of withdrawing any funds for college costs. That money is for me. Can’t you use the Roth IRA funds for college if necessary?</p>
<p>@slackermommd, hmmm, guess I just hadn’t even thought of using the Roth IRA. It is more limiting in what we can deposit each year, but I guess we can. Just looked it up and as long as we withdraw only what we contributed and not earnings, there is no penalty. </p>
<p>The combination of interest on a 403b loan along with it being taxed as income makes using a 403b for college costs a really really really bad and expensive strategy. What was this “advisor” smoking?</p>
<p>There is never a tax hit or penalty for withdrawing Roth contributions, no matter when and no matter for what. If you withdraw Roth earnings and use the money for qualified education expenses, you will pay taxes but the 10% penalty is waived. Unlike 529 withdrawals where each distribution is made on a pro rata basis between contributions and earnings, with Roth withdrawals the contributions come out first until all that’s left is earnings.</p>
<p>ShowboeMom,
The best place to put your money is in Cash Value Life Insurance. Colleges/ Universities and the government consider them as non includable assets because there are beneficiaries attached to the contract. This is the only vehicle where IRS allows you to make your money grow without having to worry about taxes and you can make loans on your growth without taxes as well. Check out IRC 7702. If you place your money in an Index Universal Product WRL (FFIUL) you can use your growing Cash Value for college funding, emergency fund, retirement fund, Long Term Care and Death Benefit. The best thing is that IRS also allows you to pay up to 7 years of premium so your Cash Value actually grows rapidly. Please also check out Ed Slott Tax Free Retirement segment on Life Insurance on You Tube. Read the Retirement Miracle Book by Patrick Kelly. Walt Disney, Ray Kroc(McDonald’s) JCPenney’s and countless other companies use Life Insurance for Tax Advantages and Loans. </p>
<p>Life insurance policies have restrictions on how you can borrow and use the monies from them. You are making it sound like this life insurance account you are so keen on is restriction free. </p>
<p>Life insurance is life insurance. It is insuring you for an amount in case you die. The actualies are hedging their bets that you won’t ever use the money for term plans. Whole life life insurance policies are not the best financial investments…because they are not meant to BE investments. </p>
<p>The best use of life insurance is to… insure someone’s life. As an investment vehicle there are MUCH better alternatives, with lower expenses and fees that allow for better returns. Salesman go sell somewhere else.</p>
<p>To MiddKid86: I am not selling anything I am sharing what I know. I educate people on how money works because sadly Financial Education is not taught in schools. How many States are there that requires Financial Education to be mandatory? Life Insurance has evolved into Living Benefits, it’s not just for when you die. It’s actually the best vehicle for college planning, estate planning, retirement planning and wealth transfer strategies. If you have an open mind you should look into Index Universal Life Insurance. And here is a video that an expert has shared about Life Insurance.
<a href=“YouTube”>YouTube;
<p>To Thumpert1:
I have to agree with you that Whole Life Insurance policies are not the best financial investments because it is very restrictive. Look into Financial Foundation Index Universal Life by TranAmerica Premier Life. I encourage you to read Patrick Kelley’s book Tax Free Retirement and Retirement Miracle. </p>
<p>The best way to take money out of a 403b or 401k is to get a loan. You can get up to $50,000 total loan from your 403b or 401k, as long as you are still employed at the place that offered it, and if they offer 403b or 401k loans (many places do).</p>
<p>We are looking at this too. I will have to run a few calculators with this, but essentially I think we’ll have to estimate our taxes from this year assuming we go up to $17,500 each in our retirement contributions, and then be able to run the NPCs.</p>
<p>I feel like the only way to really know if it makes sense is to run some NPCs.</p>
<p>As for life insurance - does it make sense to have more than one life insurance policy, if you have one from work? (I am influenced by those NY Life ads on the back of National Geographic, I must say.)</p>
<p>I think it does a pretty good job of telling both sides of the story. Here’s a snippet that really jumped out at me:</p>
<p>*Kantrowitz, a nationally recognized expert on college savings, says he’s heard people consider using life insurance to save for college more often lately, and he doesn’t think that’s a good thing.</p>
<p>“I think this is an abusive practice that should be banned,” Kantrowitz says of the marketing of life insurance as a college-savings vehicle. “The pitch is it doesn’t have an impact on taxes or financial aid, but it’s to the benefit of the salesperson, not to the benefit of the family.”</p>
<p>Kantrowitz says that anyone considering buying cash-value life insurance to save for college must consider all associated costs, including how much they are being charged for the death-benefit component of the policy compared with what a term life policy would cost.*</p>
<p>Well, the controversy at least makes me feel that I am not alone in feeling uncertain about what is best. There is so much to consider, and as just mentioned, the life insurance option…and many other options… have fees and costs associated with them that can sometimes seem hidden. This gets complicated fast. I suspect the best option for us will end up also being one of the simpler options so that we will feel we really understand it. </p>