Atlanta Financial Blog
How Will I Pay for My Children’s College? What Will I Do if My Ex-Spouse and I Can’t Agree on How Much to Contribute to College?
July 2, 2018
A college education has come to be thought of as something every child in America is entitled to, and something that every parent wants to provide. Seeing your child go to college is almost as much a part of the “American Dream” as owning your own home. But with college costs rising far faster than general inflation, a 4-year education at a pricey private school can easily exceed a quarter of a million dollars. And even 4 years at an in-state public school can easily exceed $100,000 per child.
With these soaring costs, sending the average 2.4 children to college can strain the resources of families even when they have planned ahead and saved wisely. But when families face divorce, assumptions about the kind of college education they can and should provide their children often need to be re-examined.
The first step is to determine how much of your family resources, post-divorce, can be devoted to a college education. If paying for that college your child has fallen in love with will come at the expense of your ability to retire, stop right there! There are other options for college, but no “work-study” or “scholarship programs” to fund your retirement. Don’t make the mistake of over-promising or shielding your child from economic realities. The decision on what college to attend could be the first of many life decisions your child will face during his or her life. Lay out your budget clearly, and them learn how to do a “cost-benefit” analysis. If there is a gap between what they want and what they/you can afford, help them identify ways to cover that gap – work-study programs, grants, scholarships, student loans or part-time work. It’s an approach they can use for all the other life decisions they will face as they mature.
If you and your ex-spouse aren’t on the same page about how to approach this decision, the process will be more difficult, but the obstacles aren’t insurmountable. Don’t let your ex-spouse’s financial decisions or resources sway you from the budget and plan that works for you. And to be sure you understand what your budget and resources can handle, have a financial advisor with experience in college planning analyze your situation and needs. With expert guidance you can learn how to navigate alternative funding vehicles like student loans and how to navigate tax consequences of various strategies. Then your advisor can develop a customized plan for your student’s college journey that won’t break the bank.
The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law on December 20, 2019. With all of the discussion in the news around the political uncertainty, impeachment, and the looming trade war, one of the largest changes to retirement savings laws in recent years was passed with very little fanfare. However, some of the changes will be significant. I have tried to highlight what may impact the majority of our clients and readers.
The Act has a lot of positives such as simplifying rules and making 401k plans potentially available to more workers, pushing back the RMD age, and allowing contributions to IRAs past age 70. The negative impact I see is the elimination of the stretch IRA which is a clear move by the government to raise tax revenues by forcing money out of inherited IRAs sooner. I will discuss in more detail below, but this should be a time to review beneficiaries and discuss whether any change in your legacy planning should be made in response to the new laws. What do you need to pay attention to?
A few months ago, I saw a sale sign in front of my neighbor Gina’s house. She’s lived on my street even longer than I have, so I was surprised that she was selling her home. I bumped into her a week later at the supermarket and asked her where she was planning to move. She told me (with some regret) that she was downsizing to a less expensive house. The alimony payments she’d been getting from her ex-husband had ended last year, and she hadn’t prepared for the loss of that income. She soon realized she could no longer afford to live in her home.
I’d like to believe that everyone understands the value in a year-end review of their personal finances. Statistics that I’ve seen indicate that over half of people who make resolutions indicate a change to household finances and saving money is a priority in the new year1. What is a bit of surprise to me is that so many put off (or neglect all together) actually reviewing their finances before year’s end. My conclusion: one of the biggest deterrents is the time it takes to get things organized.
When it comes to being successful with money, strong organization will empower you more than anything else you can do to take control of your finances moving forward. With my personal and professional understanding of the challenges of this process, I’ve put together an 8-step checklist to get your finances organized, take inventory of where you stand, and ultimately get you ready to close the books on 2019.