Surviving the College Application Process
Patrick McFawn, CFP®, CPA
Dale White, CFP®, CPA
Joe DeSteiger CFP®, CPA
340 E. Big Beaver Rd. Ste. 140
Troy, MI 48083
248-619-0090
[email protected]
www.mcfawnfinancial.com
There's no doubt about
it--the college
application process
can be stressful for
many high school
students and their
parents. After all, it's
easy to feel
overwhelmed while
trying to manage
numerous applications, each with varying
deadlines and requirements. If your child is
applying to college, here are some things to
keep in mind before he or she gets started.
Application timeline
For students applying under the regular
decision process, college applications are
generally submitted in the late fall or winter of
your child's senior year of high school, with
acceptance or rejection letters arriving in the
spring. While application timelines vary,
depending on the college, many colleges open
their application process by the first week of
September. In addition, a growing number of
colleges offer "rolling" admission, which
typically provides notice of acceptance a few
weeks after an application is submitted.
Surviving the College Application Process
Many students also take advantage of an early
application process in which they can apply
early to a college and find out whether they are
accepted before regular applicants. Early
application deadlines are usually in October or
November. There are two main early
application options--early action and early
decision. With early action, your child can apply
to several schools and has until the normal
deadline (typically May 1) to decide which one
to attend. With early decision, your child applies
to only one college and, if accepted, must
commit to attending immediately. Not every
college offers early action or early decision.
Q&As on Roth 401(k)s
Application requirements
Should You Buy or Lease Your Next Vehicle?
Each college has its own application
requirements. However, many colleges use the
Common Application, which includes:
July 2016
I have matured U.S. savings bonds. Are they
still earning interest and, if not, can I roll them
over to another savings bond?
• Biographical and family information
• List of extracurricular activities, hobbies, and
interests
• Letters of recommendation (from teachers
typically, but sometimes community leaders)
• Personal essay
• Application fee
While some application requirements are not
open to interpretation, your child will have the
chance to stand out from the pack through his
or her reference letters and personal essay.
These two items are unique parts of the
application because they can help the
admissions team distinguish your child from
other applicants.
The importance of staying organized
One of the most important things you and your
child can do during the college application
process is to stay organized. You'll want to
keep track of the various application deadlines
on one centralized calendar that both of you
can access. You should also create a separate
filing system to help organize the applications
and correspondence for each college.
A word on independent educational
consultants
Hiring an independent educational consultant to
help with the college admissions process has
become increasingly popular in recent years,
especially with high-achieving seniors. An
independent educational consultant can help
you and your child select the appropriate
college to fit your child's academic and social
needs, and can also help manage application
requirements and deadlines.
The cost of educational consultants depends on
the types of services provided. Comprehensive,
multi-year consulting packages can cost
upwards of several thousand dollars. However,
consultants may also offer more affordable
hourly rates and a la carte services.
• High school transcript
• SAT/ACT scores
Page 1 of 4
See disclaimer on final page
Q&As on Roth 401(k)s
The Roth 401(k) is 10 years old! With 62% of
employers now offering this option, it's more
likely than not that you can make Roth
contributions to your 401(k) plan.1 Are you
taking advantage of this opportunity?
What is a Roth 401(k) plan?
Which is the better option,
pretax or Roth
contributions?
The answer depends upon
your personal situation. If you
think you'll be in a similar or
higher tax bracket when you
retire, Roth 401(k)
contributions may be more
appealing, since you'll
effectively lock in today's lower
tax rates. However, if you think
you'll be in a lower tax bracket
when you retire, pretax 401(k)
contributions may be more
appropriate. Your investment
horizon and projected
investment results are also
important factors.
A Roth 401(k) plan is simply a traditional 401(k)
plan that permits contributions to a designated
Roth account within the plan. Roth 401(k)
contributions are made on an after-tax basis,
just like Roth IRA contributions. This means
there's no up-front tax benefit, but if certain
conditions are met both your contributions and
any accumulated investment earnings on those
contributions are free of federal income tax
when distributed from the plan.
Who can contribute?
Anyone! If you're eligible to participate in a
401(k) plan with a Roth option, you can make
Roth 401(k) contributions. Although you cannot
contribute to a Roth IRA if you earn more than
a specific dollar amount, there are no such
income limits for a Roth 401(k).
Are distributions really tax free?
Because your contributions are made on an
after-tax basis, they're always free of federal
income tax when distributed from the plan. But
any investment earnings on your Roth
contributions are tax free only if you meet the
requirements for a "qualified distribution."
age 50 or older) to a 401(k) plan. You can split
your contribution between Roth and pretax
contributions any way you wish. For example,
you can make $10,000 of Roth contributions
and $8,000 of pretax contributions. It's totally up
to you.
Can I still contribute to a Roth IRA?
Yes. Your participation in a Roth 401(k) plan
has no impact on your ability to contribute to a
Roth IRA. You can contribute to both if you
wish (assuming you meet the Roth IRA income
limits).
What about employer contributions?
While employers don't have to contribute to
401(k) plans, many will match all or part of your
contributions. Your employer can match your
Roth contributions, your pretax contributions, or
both. But your employer's contributions are
always made on a pretax basis, even if they
match your Roth contributions. In other words,
your employer's contributions, and any
investment earnings on those contributions, will
be taxed when you receive a distribution of
those dollars from the plan.
Can I convert my existing traditional
401(k) balance to my Roth account?
Yes! If your plan permits, you can convert any
portion of your 401(k) plan account (your pretax
contributions, vested employer contributions,
and investment earnings) to your Roth account.
The amount you convert is subject to federal
In general, a distribution is qualified if:
income tax in the year of the conversion
• It's made after the end of a five-year holding
(except for any after-tax contributions you've
period, and
made), but qualified distributions from your
• The payment is made after you turn 59½,
Roth account will be entirely income tax free.
become disabled, or die
The 10% early-distribution penalty generally
2
The five-year holding period starts with the year doesn't apply to amounts you convert.
you make your first Roth contribution to your
What else do I need to know?
employer's 401(k) plan. For example, if you
Like pretax 401(k) contributions, your Roth
make your first Roth contribution to the plan in
contributions can be distributed only after you
December 2016, then the first year of your
terminate employment, reach age 59½, incur a
five-year holding period is 2016, and your
hardship, become disabled, or die. Also, unlike
waiting period ends on December 31, 2020.
Roth IRAs, you must generally begin taking
Special rules apply if you transfer your Roth
distributions from a Roth 401(k) plan after you
dollars over to a new employer's 401(k) plan.
reach age 70½ (or, in some cases, after you
If your distribution isn't qualified (for example,
retire). But this isn't as significant as it might
you make a hardship withdrawal from your Roth seem, because you can generally roll over your
account before age 59½), the portion of your
Roth 401(k) money to a Roth IRA if you don't
distribution that represents investment earnings need or want the lifetime distributions.
will be taxable and subject to a 10% early
1 Plan Sponsor Council of America, 58th
distribution penalty, unless an exception
Annual Survey of Profit Sharing and 401(k)
applies. (State tax rules may be different.)
Plans (2015) (Reflecting 2014 Plan Experience)
How much can I contribute?
2 The 10% penalty tax may be reclaimed by the
There's an overall cap on your combined pretax IRS if you take a nonqualified distribution from
and Roth 401(k) contributions. In 2016, you can your Roth account within five years of the
contribute up to $18,000 ($24,000 if you are
conversion.
Page 2 of 4, see disclaimer on final page
Should You Buy or Lease Your Next Vehicle?
After declining dramatically
a few years ago, auto sales
are up, leasing offers are
back, and incentives and
deals abound. So if you're
in the market for a new
vehicle, should you buy it or
lease it? To decide, you'll
need to consider how each
option fits into your lifestyle
and your budget. This chart
shows some points to
compare.
Buying or leasing tips
• Shop wisely. Advertised
deals may be too good to be
true once you read the fine
print. To qualify for the deal,
you may need to meet
certain requirements, or pay
more money up front.
• To get the best deal, be
prepared to negotiate the
price of the vehicle and the
terms of any loan or lease
offer.
• Read any contract you're
asked to sign, and make
sure you understand any
terms or conditions.
• Calculate both the short-term
and long-term costs
associated with each option.
Buying considerations
Leasing considerations
Ownership
When the vehicle is paid for, it's
yours. You can keep it as long as you
want, and any retained value (equity)
is yours to keep.
You don't own the car--the leasing
company does. You must return the
vehicle at the end of the lease or
choose to buy it at a predetermined
residual value; you have no equity.
Monthly
payments
You will have a monthly payment if
you finance it; the payment will vary
based on the amount financed, the
interest rate, and the loan term.
When comparing similar vehicles
with equal costs, the monthly
payment for a lease is typically
significantly lower than a loan
payment. This may enable you to
drive a more expensive vehicle.
Mileage
Drive as many miles as you want; a
vehicle with higher mileage, though,
may be worth less when you trade in
or sell your vehicle.
Your lease will spell out how many
miles you can drive before excess
mileage charges apply (typical
mileage limits range from 12,000 to
15,000).
Maintenance
When you sell your vehicle, condition
matters, so you may receive less if it
hasn't been well maintained. As your
vehicle ages, repair bills may be
greater, something you generally
won't encounter if you lease.
You generally have to service the
vehicle according to the
manufacturer's recommendations.
You'll also need to return your
vehicle with normal wear and tear
(according to the leasing company's
definition), so you may be charged
for dents and scratches that seem
insignificant.
Up-front costs
These may include the total
negotiated cost of the vehicle (or a
down payment on that cost), taxes,
title, and insurance.
Inception fees may include an
acquisition fee, a capitalized cost
reduction amount (down payment),
security deposit, first month's
payment, taxes, and title fees.
Value
You'll need to consider resale value.
All vehicles depreciate, but some
depreciate faster than others. If you
decide to trade in or sell the vehicle,
any value left will be money in your
pocket, so it may pay off to choose a
vehicle that holds its value.
A vehicle that holds its value is
generally less expensive to lease
because your payment is based on
the predicted depreciation. And
because you're returning it at the end
of the lease, you don't need to worry
about owning a depreciating asset.
Insurance
If your vehicle is financed, the lien
holder may require you to carry a
certain amount of insurance;
otherwise, the amount of insurance
you'll need will depend on personal
factors and state insurance
requirements.
You'll be required to carry a certain
amount of insurance, sometimes
more than if you bought the vehicle.
Many leases require GAP insurance
that covers the difference between
an insurance payout and the
vehicle's value if your vehicle is
stolen or totaled. GAP insurance may
be included in the lease.
The end of the
road
You may want to sell or trade in the
vehicle, but the timing is up to you. If
you want, you can keep the vehicle
for many years, or sell it whenever
you need the cash.
At the end of the lease, you must
return the vehicle or opt to buy it
according to the lease terms.
Returning the vehicle early may be
an option, but it's likely you'll pay a
hefty fee to do so. If you still need a
vehicle, you'll need to start the
leasing (or buying) process all over.
Page 3 of 4, see disclaimer on final page
Patrick McFawn, CFP®, CPA
Dale White, CFP®, CPA
Joe DeSteiger CFP®, CPA
340 E. Big Beaver Rd. Ste. 140
Troy, MI 48083
248-619-0090
[email protected]
www.mcfawnfinancial.com
This information, developed by an
independent third party, has been obtained
from sources considered to be reliable, but
Raymond James Financial Services, Inc.
does not guarantee that the foregoing
material is accurate or complete. This
information is not a complete summary or
statement of all available data necessary for
making an investment decision and does not
constitute a recommendation. The
information contained in this report does not
purport to be a complete description of the
securities, markets, or developments referred
to in this material. This information is not
intended as a solicitation or an offer to buy or
sell any security referred to herein.
Investments mentioned may not be suitable
for all investors. The material is general in
nature. Past performance may not be
indicative of future results. Raymond James
Financial Services, Inc. does not provide
advice on tax, legal or mortgage issues.
These matters should be discussed with the
appropriate professional.
Securities offered through Raymond James
Financial Services, Inc., member
FINRA/SIPC, an independent broker/dealer,
and are not insured by FDIC, NCUA or any
other government agency, are not deposits or
obligations of the financial institution, are not
guaranteed by the financial institution, and
are subject to risks, including the possible
loss of principal.
I have matured U.S. savings bonds. Are they still
earning interest and, if not, can I roll them over to
another savings bond?
Once U.S savings bonds have
reached maturity, they stop
earning interest. Prior to 2004,
you could convert your Series E or EE savings
bonds for Series HH bonds. This would have
allowed you to continue earning tax-deferred
interest. However, after August 31, 2004, the
government discontinued the exchange of any
form of savings bonds for HH bonds, so that
option is no longer available.
Since matured savings bonds no longer earn
interest, there is no financial benefit to holding
on to them. If you have paper bonds, you can
cash them in at most financial institutions, such
as banks or credit unions. However, it's a good
idea to call a specific institution before going
there to be sure it will redeem your bonds. As
an alternative, you can mail them to the
Treasury Retail Securities Site, PO Box 214,
Minneapolis, MN 55480, where they will be
redeemed. If you have electronic bonds, log on
to treasurydirect.gov and follow the directions
there. The proceeds from your redeemed
bonds can be deposited directly into your
checking or savings account for a relatively
quick turnover.
Another important reason to redeem your
matured savings bonds may be because
savings bond interest earnings, which can be
deferred, are subject to federal income tax
when the bond matures or is otherwise
redeemed, whichever occurs first. So if you
haven't previously reported savings bond
interest earnings, you must do so when the
bond matures, even if you don't redeem the
bonds.
Using the money for higher education may
keep you from paying federal income tax on
your savings bond interest. The savings bond
education tax exclusion permits qualified
taxpayers to exclude from their gross income all
or part of the interest paid upon the redemption
of eligible Series EE and I bonds issued after
1989 when the bond owner pays qualified
higher-education expenses at an eligible
institution. However, there are very specific
requirements that must be met in order to
qualify, so consult with your tax professional.
How many types of government savings bonds are
there, and what's the difference between them?
While the U.S. government
has issued 13 types of savings
bonds, there are currently only
two series available for
purchase through the U.S. Treasury
Department: Series EE bonds and Series I
bonds. U.S. savings bonds are nonmarketable
securities, which means you can't resell them
unless you're authorized as an issuing or
redeeming agent by the U.S. Treasury
Department. Savings bonds are guaranteed by
the federal government as to the timely
payment of principal and interest.
1 (for new EE bonds issued between November
1 and April 30).
Series I bonds are similar to EE bonds, but I
bonds offer some protection against inflation by
paying interest based on a combination of a
fixed rate and a rate tied to the semi-annual
inflation rate. The fixed rate component doesn't
change, whereas the rate tied to inflation is
recalculated and can change every six months.
The total interest (fixed and inflation adjusted)
compounds semi-annually.
In any case, the interest on EE or I savings
bonds isn't paid to you until you cash in the
bonds. You can cash in EE bonds or I bonds
any time after one year, but if you cash them
out before five years, you lose the last three
months of interest.
You can buy Series EE bonds and I bonds in
any amount from $25 up to $10,000, which is
the maximum amount you can purchase for
each bond type per calendar year. In other
words, you may buy a total of $10,000 annually
The interest earned on both EE and I bonds is
in both EE and I bonds, for an annual total of
generally exempt from state income tax but
$20,000 for the two types combined.
subject to federal income tax. Interest income
Series EE bonds earn a fixed rate of interest as may be excluded from federal income tax when
long as you hold them, up to 30 years. You'll
bonds are used to finance higher-education
know the interest rate the bond will earn when
expenses, although restrictions may apply.
you buy it. The U.S. Treasury announces the
rate each May 1 (for new EE bonds issued
between May 1 and October 31) and November
Page 4 of 4
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016