Don’t Let a College Savings Plan Crack Your Retirement Nest Egg

Wednesday, January 18 at 09:15 AM
Category: Personal Finance

Balancing saving for retirement and saving for your child's college can be tricky. Here are some tips to help you manage both at the same time.

LOWELL, Ark.  Two of the largest savings plans consumers need to fund and manage in their lifetime are saving for their child’s college and for their personal retirement. These are plans that take time to adequately build, but one doesn’t have to negate the other. Both can be managed successfully and simultaneously through early planning.

“Above all, start saving for both as soon as possible,” said Donny Rogers, President of Arvest Bank Trust. “From the moment you get your first job to the moment you learn you’re going to be a parent, set aside money and let it grow.”

Rogers says the balancing act begins with determining how much of the college expense parents want to fund and what other big-ticket expenses they may also cover for their children. 

“It’s smart to focus on saving for college, but the reality is that there are a few other large expenses that require long-term budgeting,” Rogers said. “If you plan on buying your teenager their first car or paying for a daughter’s wedding, you need to factor those expenses into your budget so you segment your savings plans across the board. I always tell parents that it’s fair to require some ‘sweat equity’ from their kids so they contribute to the expense of paying for a car or shouldering a portion of any student loans. There’s no expectation that parents pay 100 percent of all of those expenses.”

A 529 Plan offers a tax-free savings option for college that is specifically earmarked for post-secondary education. These state-specific plans have different rules of engagement but typically can be used to fund expenses from tuition to housing to other necessary items for school. Significant supplemental funding is also available in the form of academic, athletic and arts scholarships.  

While you can borrow for college expenses, you can’t do the same for retirement savings. Therefore, it’s critical to begin saving early for your retirement nest egg and to budget in parallel with other savings priorities. Maximizing an employer’s 401(k) matching option puts “free money” in your account. In the event you need to adjust your savings more heavily toward college, be sure not to reduce your retirement savings below the level of employer matching. It’s recommended that 10 percent of your income be allocated toward retirement every year.

“Regardless of how well you plan, there will inevitably be change and the need for adjustments along the way, and that’s perfectly normal,” Rogers said. “Consistency will reward your efforts when you need to utilize those funds.”

The so-called “catch-up plan” that allows individuals age 50 and over to make extra contributions can help consumers make up for lost ground during the saving process, once college and major expenses have been paid for, but Rogers advises customers not to lean too heavily on that option. He says the number of variables involved in retirement planning can sometimes cause consumers to miss significant savings. Those may include the length of time one plans to work, or is able to work; the kind of lifestyle one wants to lead after retirement; the security of their career and other potential factors or risks.

In addition, the rate of inflation and the rising cost of college tuition will affect how much of an impact savings for college and retirement have on the larger family budget, making that early foundation and steady savings plan even more important in the long run.

Tags: College, Financial Education, Press Release, Retirement, Savings
 

Gable Sloan Bakes for Charity – People Helping People Series

Monday, January 16 at 04:10 PM
Category: Arvest Community News
Gable Sloan, now a sixth grader, found her passion for baking when she was 7 years old. She realized her passion could turn into something bigger – a business selling her baked goods. While most kids might spend their money, Gable wanted to do more with her earnings. She started donating her money to different charities. Gable has awarded one scholarship and plans to award another scholarship to a graduating high school senior this year. By the time she’s 18, Gable hopes to raise $100,000 for different charities and scholarship funds! Watch Gable in action.

Gable’s story is part of Arvest Bank’s People Helping People series featuring citizens giving back to their community. 

Keep an eye on our social media channels for both videos and written stories highlighting the good works of dedicated citizens in the communities Arvest Bank serves.  

Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution.  

Tags: Arkansas, Charitable Giving, College, Community Support, Fayetteville, People Helping People
 

6 Financial Traps New College Graduates Should Avoid

Wednesday, July 13 at 10:25 AM
Category: Personal Finance

As recent college graduates start their careers, their financial lifestyle should be top of mind, says the American Bankers Association. ABA has highlighted six traps new college graduates should avoid to fortify their finances as they transition from the dorm to the office.

“Now is the time for college grads to get their financial life started on the right foot,” said Corey Carlisle, executive director of the ABA Foundation. “When it comes to managing your finances in the real world, pulling an all-nighter isn’t the best strategy. Forming positive financial habits today will set you up for lifelong success.”

According to ABA, new college graduates should avoid the following financial traps:
 
  • Not having a budget. Don’t spend more than you make. Calculate the amount of money you’re taking home after taxes, then figure out how much money you can afford to spend each month while contributing to your savings. Be sure to factor in recurring expenses such as student loans, monthly rent, utilities, groceries, transportation expenses and car loans.  
  • Forgoing an emergency fund. Make it a priority to set aside the equivalent of three to six months’ worth of living expenses. Start putting some money away immediately, no matter how small the amount. A bank savings account is a smart place to stash your cash for a rainy day. Use your tax refund for this instead of an impulse buy.
  • Paying bills late – or not at all. Each missed payment can hurt your credit history for up to seven years, and can affect your ability to get loans, the interest rates you pay and your ability to get a job or rent an apartment. Consider setting up automatic payments for regular expenses like student loans, car payments and phone bills.
  • Racking up debt. Understand the responsibilities and benefits of credit. Shop around for a card that best suits your needs, and spend only what you can afford to pay back. Credit is a great tool, but only if you use it responsibly. 
  • Not thinking about the future. It may seem odd since you’re just beginning your career, but now is the best time to start planning for your retirement. Contribute to your employer’s 401(k) or similar account, especially if there is a company match. Invest enough to qualify for your company’s full match – it’s free money that adds up to a significant chunk of change over the years.  
  • Ignoring help from your bank. Most banks offer online, mobile and text banking tools to manage your account night and day. Use these tools to check balances, pay bills, deposit checks, monitor transaction history and track budgets. 
For more tips and resources on a variety of personal finance topics such as mortgages, credit cards, protecting your identity and saving for college, visit aba.com/Consumers.*
 
The American Bankers Association is the voice of the nation’s $16 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $12 trillion in deposits and extend more than $8 trillion in loans.
 
Links marked with * go to a third-party site not operated or endorsed by Arvest Bank, an FDIC-insured institution. 

Tags: Budgeting, College, Debt, Financial Education, Retirement, Savings
 

Part 2: Beginning to Think About College for Children

Monday, November 16 at 10:20 AM
Category: Personal Finance

This is part two in a two-part series on the rising costs of college and ways to make saving for college easier. In case you missed it, check out part one.

For decades, parents have used custodial accounts to transfer funds to their minor children to help build assets for college costs. However, the 2001 tax law has enhanced the tax benefits of other types of asset ownership that should be considered. Coverdell Education Savings Accounts (Education IRAs) and Qualified Tuition Programs (Section 529 Plans) have become very attractive.

Custodial Accounts
Using a Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minor Act (UTMA) account is an easy and legal way to transfer the ownership of assets to a child. With a UGMA or UTMA account, the parent creates a custodial account on behalf of the minor child. Assets are transferred into the account and the custodian, usually a parent, manages the account until the child reaches legal age. At that point, the child can do whatever he or she wishes with the assets. Transfers to these accounts are irrevocable.

Coverdell Education Savings Accounts (Education IRAs)
Coverdell Education Savings Accounts provide parents and others the opportunity to save for a child’s education expenses in a tax advantaged account. The annual contribution limit is $2,000 for these accounts. There are also income limits for those making the contributions. 

Earnings within the account are tax deferred and withdrawals are not subject to tax if they are used for qualified education expenses. The new law expanded this definition to include expenses for elementary and high school expenses. Withdrawals not used for qualified education expenses are subject to regular income tax and a 10 percent penalty. Withdrawals must also be completed before the child reaches age 30.

Education IRA accounts function like IRA accounts and are available from most banks, credit unions, brokerage firms and mutual fund companies. Investment options vary depending on the firm. Usually there is considerable flexibility with self-directed type accounts.

Qualified Tuition (Section 529) Plans
These college savings plans are now offered by over 40 states and were also enhanced by the 2001 tax law. While the plans are offered by the state, there is no restriction on where the child attends college utilizing the funds. One potential drawback is there are usually limited investment options. It makes sense to look at several states’ programs to find one that offers the investment choices you desire.

With a Section 529 Plan, there are no income limits on the donors and contributions of up to $14,000 can be made in 2015. In addition, there are special provisions to allow a “front-end loading” of up to five years of contributions to be made without gift taxes. Withdrawals used for qualified educational purposes are excluded from federal income taxation. 

The Value of Starting Early
It can be very easy to put off starting to save for college, especially if your children are young. Yet, by starting early, even if it is just a small amount, you can make a large dent in what you will need. You can always increase the amount as you earn more, but time can be your ally.

Some Conclusions
Enabling your children to attend the college of their choice and get an education that will prepare them for a successful and productive life is one of the greatest gifts you can give. However, the costs of providing that college education can be very large. Starting earlier rather than later can make the process easier, especially with some of the tax benefits of Coverdell Education Savings Accounts and Section 529 Plans. Developing a college saving habit can provide your children with the funds they need and provide you with the satisfaction of knowing that you are doing the right thing.

Tags: College, Financial Education
 

Part 1: Beginning to Think About College for Children

Tuesday, November 10 at 08:50 AM
Category: Personal Finance

This is part one in a two-part series on the rising costs of college and ways to make saving for college easier.

As you probably know, college is expensive. As you may not know, college costs are rising faster than inflation and almost no one is predicting that college costs are going to go down. As a result, you may want to start thinking about funding your children’s college costs now. The sooner you start thinking (and hopefully saving) the easier it will be.
 
College Costs Today
According to the College Board, the annual costs (tuition, room, board, books, supplies, transportation, and other) of attending college for 2013 - 2014 were about:
  • Four year private college - $45,000
  • Four year public college for an in-state resident - $23,000
  • Four year public college for an out-of-state resident - $36,000
While many students qualify for scholarships and other forms of financial aid to bring these numbers down, you may also want to consider some of the other costs (travel, entertainment) that may add to these numbers.
 
College Costs Tomorrow
For the past several years, college costs have been increasing at a rate faster than the overall inflation rate. While it is impossible to know what will happen in the future, here is a chart that demonstrates what happens at annual increases of 4 percent.
 


And do not forget, these are just the annual costs; also, if your child attends for four years, you must multiple by four. As you can see, it will be expensive to send your child to college and even more expensive if you have more than one child. Fortunately, you have time to save and there are several ways the income tax laws make saving easier. Stay tuned for part two of this blog which will delve into some of the college savings options. 
 
Tags: College, Financial Education

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