Fill out the FAFSA Form as soon as possible

While the FAFSA deadline for the 2025-2026 school year is June 30, 2026, the key to maximizing your financial aid package is to complete it as early as possible.  This is because you are competing for a limited amount of financial aid sources that are distributed on a first-come, first-served basis.  The potential aid you could receive include federal grants, loans, work-study programs, as well as state and institutional aid. Completing the FAFSA forms early provides you more time to plan and prepare financially for the upcoming school year.  Plus, it helps to answer the most important question you have which is how much aid can you expect to receive?  The answer to that question depends on several factors, including your financial need, the cost of attendance at your chosen school, and the types of aid available which I illustrate below.

Federal College Grants: Most Attractive Aid

Grants are one of the most attractive types of financial aid because they do not need to be repaid. If you qualify, you could receive substantial help with your college costs through federal grant programs.

Pell Grant

The Federal Pell Grant is one of the most well-known and widely awarded grants.  For the 2025-2026 academic year, the maximum Pell Grant award is expected to be around $7,395,  though this figure could change slightly due to inflation adjustments or other policy changes.

The amount you will receive depends on your Student Aid Index (SAI), which replaces the Expected Family Contribution (EFC) as of 2024. The SAI is calculated based on your family's income, assets, and other factors. Generally, the lower your SAI, the more Pell Grant money you will be eligible for. Your grant amount will also depend on your enrollment status (full-time or part-time) and the cost of attendance at your school.

Federal Supplemental Educational Opportunity Grant (FSEOG)

In addition to the Pell Grant, you may also qualify for the Federal Supplemental Educational Opportunity Grant (FSEOG), which provides between $100 and $4,000  per year, depending on your financial need and the availability of funds at your school. The FSEOG is based on exceptional financial need and is awarded on a first-come, first-served basis, so applying early through FAFSA is critical if you hope to receive this additional grant money.

Federal Loans: A Key Component of Financial Aid

Federal student loans are another significant part of the financial aid package for many students. Unlike grants, loans must be repaid with interest. However, federal loans generally offer lower interest rates and more flexible repayment options than private loans, making them a better choice if borrowing is necessary to cover your education costs.

Direct Subsidized Loans 

Direct Subsidized Loans are need-based loans where the government pays the interest while you are in school at least half-time, during the grace period, and during deferment. For first-year undergraduate students, the maximum amount you can borrow through subsidized loans is $3,500.

The total amount you can borrow increases as you progress through college—second-year students can borrow up to $4,500, and third-year students and beyond can borrow up to $5,500 per year. These loans are a good option because they don't accrue interest during school, helping you keep debt under control.

Direct Unsubsidized Loans

Unlike subsidized loans, Direct Unsubsidized Loans are available to all students, regardless of financial need. The primary difference is that interest starts accruing from the moment the loan is disbursed. For first-year undergraduate students, the total unsubsidized loan limit (combined with subsidized loans) is $5,500 for dependent students and $9,500 for independent students.

If you are concerned about the interest accumulating while you are in school, one strategy is to make interest-only payments while studying to prevent the loan from growing larger over time.

Direct PLUS Loans

For students whose costs are not fully covered by other types of aid, Direct PLUS Loans are available to parents of dependent students (Parent PLUS Loans) or to graduate students. These loans require a credit check and generally come with higher interest rates than other federal loans. However, they allow families to borrow up to the full cost of attendance minus other aid received.

Federal Work-Study: Earning Money While Attending School

If you are eligible, the Federal Work-Study Program can provide part-time employment while you're enrolled in school. Work-study jobs are often related to your course of study or community service, giving you valuable work experience as well as a paycheck.

The amount you can earn through work-study varies, but you will earn at least the current federal minimum wage.  How much you actually earn depends on the work you do and skills required for the position. Work-study funds are limited, so it is important to submit your FAFSA early if you want to be considered for this program.

State and Institutional Aid: Additional Sources of Funding

Many states and colleges use FAFSA data to determine eligibility for their own grants, scholarships, and other forms of financial aid. In fact, some states have financial aid programs that are more generous than federal programs, making it important to understand the deadlines and requirements in your state.

State Grants 

For example, states like California, New York, and Texas offer robust need-based grants through programs like the Cal Grant, Tuition Assistance Program (TAP), and Tuition Equalization Grant Program (TEG). The amount of these grants varies, but they can range from a few hundred dollars to several thousand, depending on your state’s program and your financial need.

Institutional Scholarships and Grants

In addition to state aid, colleges and universities often award their own grants and scholarships to students based on financial need, academic merit, or both. These institutional awards can significantly reduce the cost of attendance, particularly at private colleges, where tuition is typically higher but more institutional aid is often available.

Many schools automatically consider students for institutional aid based on the FAFSA, but some may have additional applications or requirements, so it is important to check with each school’s financial aid office.

Factors That  Influence the Amount of Aid You Receive

While understanding the types of aid available is important, knowing what factors influence how much aid you will actually receive is key to planning for college costs. Here are the major factors that determine your aid package:

•    Student Aid Index (SAI): As mentioned earlier, your SAI is calculated based on your family's financial information. A lower SAI generally means more need-based aid.

•    Cost of Attendance (COA): Your financial aid eligibility is also influenced by the total cost of attending your school, which includes tuition, fees, room and board, books, and other expenses. Schools with higher costs of attendance often provide more financial aid to meet those costs.

•    Enrollment Status: Full-time students typically receive more aid than part-time students. However, if you are attending part-time, you may still be eligible for some types of aid, but the amounts will be prorated.

•    State and School Deadlines: Many state and institutional aid programs have their own deadlines that may be earlier than the federal deadline. Missing these deadlines could limit the amount of aid you are eligible to receive, so it’s important to apply early.

Conclusion

The amount of college aid you can receive if you qualify for FAFSA for the 2025-2026 school year depends on your financial need, the cost of attendance at your chosen school, and the types of aid available. By completing the FAFSA, you will be considered for federal grants, loans, and work-study opportunities, as well as state and institutional aid. The key to maximizing your financial aid package is to submit your FAFSA early, stay aware of state and institutional deadlines, and explore all potential funding sources.

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What is FAFSA?

FAFSA, an acronym for the Free Application for Federal Student Aid, functions as the gateway to various financial aid resources, including grants, scholarships, work-study opportunities, and federal student loans.¹ By evaluating your family’s financial situation, FAFSA enables federal agencies, educational institutions, and certain states to assess your eligibility for financial support.

The FAFSA is free and the most important thing you can do if you want to qualify for financial aid.

How to Apply for FAFSA

Applying for FAFSA is an important step in college planning. Here’s how:

1. Compile Essential Documents: Gather pertinent documents, such as Social Security numbers, tax returns, records of untaxed income, and identification credentials.
2. Create a FSA ID: The Federal Student Aid (FSA) ID serves as your digital signature and is fundamental to signing the FAFSA electronically.
3. Submit the Form: Access the official FAFSA portal (fafsa.ed.gov) to begin the form completion process. The form will ask for things such as your income, federal tax information, and other information to verify your eligibility. Following submission, you’ll receive a Student Aid Report (SAR).
4. Evaluate Your Financial Aid Offers: Colleges will leverage your FAFSA details to create tailored financial aid packages. Compare these options to decide what college makes sense for your budget.

What Has Changed for FAFSA in 2024-2025?

FAFSA has remained largely unchanged for years, but the form includes unprecedented changes for the 2024–2025 school year. Here are some of the most notable changes according to the California Student Aid Commission:²

• The form itself has been simplified from 108 questions to about 36 questions. The goal is to have more questions aligned with your federal income tax returns.
• Applicants can now automatically transfer IRS data to FAFSA.
• The algorithm that determines financial aid has changed. Some students may benefit from increased funding, while others may see a decrease in aid eligibility. The calculation is designed to shift the focus away from cash flow and to focus more on overall wealth. There is also a new Pell Grant formula.
• There may be an increase in financial aid for single parents.
• There may be a decrease in aid for families with multiple children in college.
• There are some changes in reportable income and reportable assets.
• There are changes in phrasing and definitions (e.g., definitions of family size, custodial parent, and dependent).

In addition to the above changes, there are also important changes to deadlines. According to College Board, “If you are planning on attending college in the next academic year, you should complete the FAFSA in the fall of your senior year. Students in the class of 2024 attending college in the fall of 2024 and other students completing the FAFSA will not be able to complete it until December 2023 instead of October when it usually opens.”¹ The 2024–2025 FAFSA will be available in December 2023, and June 30 is the last day you can apply for federal aid for the following academic year.³

FAFSA is a major component of a comprehensive college savings plan. It’s important to understand how the form works and how these recent changes may impact your financial aid eligibility. Working with a financial professional is a good way to ensure that you apply for FAFSA correctly and in a timely manner.

If this is your first time filling out a FAFSA form, it can seem daunting, but the eight must know information below can help you prepare for what to expect and will help the process go more smoothly for you.

1. Everyone Should File

Even if you think the income in your household is too high to qualify, you might be surprised. College can be expensive, and FAFSA takes this into account as well as the number of people in the household and basic living costs that a family can face. You may be entitled to scholarships, grants, or even low-interest loans with much more borrower-friendly terms, so it is definitely worth the short period of time it takes to file. 

2. It Needs to Be Filed Every Year

Unfortunately qualifying one year does not mean qualifying the next as income and expenses can change over time. Much of the information they request for FAFSA is from your tax return, so a good rule of thumb is that when it comes time for tax season it is time to refile your FAFSA. The good news is that after filing the first time, most of the information will be pre-filled, so all you have to do is make adjustments. 

3. If You Are Granted Aid You Will Still Need to Accept It

Once your FAFSA application has been reviewed, you will be given a letter showing you the aid that is available to you and this same information will be reported to the college you plan to attend. Receiving this letter does not start the funding. You will be required to accept what aid you wish to utilize before it can be disbursed.

4. File as Early as You Can

Your FAFSA can be submitted as early as October 1st, and even though you may not be approved until your tax return is processed to verify the information, it can be to your benefit to file early. Some forms of financial aid have more limited funds and will offer it to students on a first come, first serve basis.  Each state has their own deadline so be sure to check with your state.  For more information on what your filing deadlines are go to:  https://studentaid.gov/apply-for-aid/fafsa/fafsa-deadlines

5. You Will First Need to Register for an FSA ID

Before you begin working on your FAFSA forms, you will be assigned an FSA ID which will identify you throughout the paperwork process. It is important to note that each person on the application will need to obtain their own ID, so both the student and a parent will need to file for an FSS ID. Make sure to write down this ID as it will be used multiple times throughout the filing and acceptance process. This ID will also serve as your electronic signature during the filing process. 

6. You Can Edit Your FAFSA

If anything changes that was submitted on your FAFSA form, you are required to edit it even if it has already been submitted. This can include a change in dependency or the number of household members. You also will be able to make any corrections that were simple errors during filing. This can be done for every section accept the social security number.

7. Include All the Schools You Have Interest in

Even if you have your heart set on one school, it does not hurt to fill in any other school you might consider attending. You can enter up to 10 schools, and each of these schools will receive your FAFSA information. Schools will use this information to let you know which scholarships and other financial aid you may qualify for that is specific to their school. Sometimes the amount may be just enough to sway your decision. 

8. Report Everything Accurately

The FAFSA form is a government form that is thoroughly checked for accuracy. By failing to report everything accurately, in hopes of qualifying you for more, can get you banned from applying for financial aid in the future and actually result in legal consequences. To avoid costly mistakes, make sure that you have all of your financial information and tax returns in front of you so you can ensure the best accuracy.  Keep in mind that the FAFSA uses your tax return from 2 years from the planned school year.  For example, if your applying for the 2021-2022 school year, you will need to submit your 2019 tax return.

Preparing for college can take a lot of paperwork, research, and fortitude.  With the rising costs to attend college, securing financial aid is becoming more important than ever. Take advantage of the benefits FAFSA can provide for your college funding by making sure to file for it each year. By knowing what to expect and being properly prepared you will find the process less daunting and more likely to be rewarding. 

For more information on how to obtain financial aid go to:  https://studentaid.gov/

_{This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.}

My sixteen-year-old son is learning how to drive and it has been fun and also stressful teaching him to become a proficient driver over the past 6 months.  My wife and I were not really looking forward to the day he obtained his driving permit because we know the next step for him was to actually start learning how to drive!  As parents, our natural instinct is to keep our children safe.  Letting them take control of a 3,000-pound automobile going upwards of 60 miles per hour on the freeway seems contrary to our parental nature.   However, if we are to help our kids function in society, they will need to learn how to drive.  We won’t always be there to shuttle them around when they are adults (nor would we want to).  Yes, there is Lyft and Uber but I think we will still need to drive ourselves around at some point in our lives.

To a teenager, obtaining a driver’s license is a big milestone as it means more independence and freedom.  However, this newfound freedom comes with plenty of risks.  Here are a few sobering statistics from A DoSomething.Org study:

1.   1 in 5 of 16-year-old drivers has an accident within their first year of driving
2.   16-year-olds have higher crash rates than drivers of any other age.
3.   56% of teens said they talk on the phone while driving.
4.   Statistics show that 16 and 17-year-old driver death rates increase with each additional passenger.
5.   Talking on a cell phone can double the likelihood of an accident as well as slow a young driver’s reaction time down to that of a 70-year-old.

Given these sobering statistics it is tempting to avoid teaching our teenagers to drive altogether and just have them learn to drive when they’re adults.  Waiting for our teenagers to become adults before they learn how to drive will indeed keep them safe but it will rob us of a wonderful opportunity to teach our teenagers important life skills.  Besides, how often will we have the chance to have their undivided attention for 15 minutes to an hour a day, 3 to 5 days a week, for up to six months?

My son will be taking his driver’s test in about two weeks.  Here are four benefits of teaching my son to drive that I discovered over the course of the last 6 months:

1.  Opportunity to Take The Initiative.

 On most days my son was excited to drive but, on some days, he was not in the mood and did not want to go out driving.  I respected his decision and we did not drive that day.  On the days when we did drive, I always asked him how long he wanted the lesson to be.  To a new driver, even 15 minutes can seem like a long time.  We only drove for as long as he felt comfortable.  We also talked about what he wanted to work on before we started driving.  Whether it was practicing making left hand or right hand turns, changing lanes, or city driving, I asked for his input and focused on what he wanted to learn.  At the same time, I encouraged him to try a different driving skill each lesson as long as he was comfortable with it.  In learning how to drive, my son also learned how to take control of what he wanted to learn.

2.  Opportunity To Improve Communication.  

In teaching my son how to drive, I became very aware of how I was communicating with him.   I understood that yelling is never a good idea as it will only make him more nervous (plus increase the risk of an accident) and criticizing him will not help him gain confidence.  Providing positive feedback and reinforcement made the driving lessons much more enjoyable and less stressful.  Plus, it made driving more fun.  To reduce the risk of stress, it was important that I gave clear and calm directions and with enough time for him to do what I asked.  “We are going to make a left-hand turn at the next stop sign” was better than “turn left now!”.    I also took the opportunity to ask questions as we are driving when it was appropriate.  However, I did not pepper him with too many questions as it would only make him distracted and nervous.  If he was doing something incorrect like driving too fast or too slowly, I would ask him to tell me what the speed limit was.  If he was driving to closely to the car in front of him, I would ask him to tell me how much space he should have between cars.  After the lesson was over, I would ask him how he felt he did and we would talk about what he did really well and what he could have done better.   In learning how to drive, we both are learning how to communicate not only as father and son but as a teacher and student, and more importantly as two people collaborating in order to reach a shared goal.

3,  Opportunity To Reinforce Responsible Behavior.

 Learning to drive has given my son a greater appreciation of the responsibility and risks of driving a car.  We talked about the thrill of driving but it also gave us an opportunity to talk about how driving too fast, too distracted, or under the influence of drugs or alcohol can cause an accident, injury or death. The best way to drive responsibly is to develop good driving habits.  Teaching my son to drive has given me the opportunity to show him what good driving habits are whenever we go out on the road.  I also am more aware of how I drive especially when my son is in the car and of the need to also display good driving habits myself.  Being a responsible driving also means driving with your emotions under control and to avoid getting angry.   I stressed to my son the importance of being a “defensive” and courteous driver.  Turning the other cheek is a value that can be applied to driving as well as in our daily lives.  Kids learn by example so if I show that I am consistently obeying he rules of the road and practicing defensive driving etiquette, hopefully my son will as well.  In learning how to drive, my son is not only learning how to drive responsibly, but is also reinforcing the need to be a responsible adult.   

4.  Opportunity to Have Additional Money Discussions.

 Diving is expensive.  A car requires fuel, maintenance, and insurance.  We talked about all of the costs that go into driving our car every day.   It was eye opening for him to see how much money it takes to own a car.  This led to a larger discussion of on the need for overall financial responsibility, the need for a budget, and the need to understand how much income it really takes to live in the Bay Area!

Teaching our teenagers to drive might be one of the more stressful and difficult things we will do with our kids.   Obviously, there are very real risks with driving.  However, dealing with and managing risk is a part of life.   Learning how to drive is an excellent way for our teenagers to learn about, cope with, and appropriately handle the potential risks and dangers that they will face as adults.  

For information on the steps you and your teenager will need to take in order to obtain their driver’s license go to the California DMV website:  https://www.dmv.ca.gov/portal/dmv/detail/coi/teen/teen

WOULD YOU LIKE TO LEARN MORE? 

CONTACT ME TODAY 

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning.  Please consult your financial, legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.

As young children, our kids probably did not have a real understanding of what money even was. Life was all about satisfying wants and desires. If they wanted a new Lego Set for example, they would just ask for it. I’m sure we can all remember the trips to Target and our kids holding up that new Lego Set and asking us if we can buy it for them. Our responses ranged from ‘No, put that back’ to, ‘Not today. Maybe next time’, to ‘We’ll get that for you for your birthday or Christmas’. If on those rare occasion when we felt generous, we said, ‘Ok. Sure’. Whatever our response, our young children just knew they wanted something and they wanted it now. At that young age, we did not teach our kids about money per se. If we did our jobs right what we were teaching them was the ability to delay their gratification.  (If you still have small kids, one way to teach delayed gratification is by giving them a small piggy bank and the next time they want something tell them you are going to save for it. Deposit a certain amount of money in their piggy bank regularly until the required amount of money is saved. Your small kids will enjoy watching their money grow.)

As our children got older, we began to teach them the concept of “earning” the things they wanted by demonstrating good behavior or by doing chores around the house. It is at this stage that they began to learn the concept of exchanging one thing for another. In essence, they learned how to conduct a “transaction”. I do something for you and in return, you give something to me.  While they might not yet understand the value of money, they are learning the important lesson of having to work for something if they want it.

The teenage years are a good time to teach them the value of money and the important money skills they will need to learn if they are to successfully manage their finances on their own.  It is at this stage that our kids grasp the concept that money is required to fund all of the wants and needs of their lives. They are beginning to realize how expensive the things they want can be as they are probably beginning to spend some of their money independently. Whether it is their regular allowance, money gifts from grandparents, or earnings from a part-time job, they are going out and making independent spending decisions. They are going to the movies, having lunch with their friends, and going to the shopping mall on their own and spending money. Learning good habits now will give them a solid foundation now that will pay off in the future. 

Below are four ways that you can help your teenager develop solid money habits so that they are well prepared to manage their own finances when they eventually move out on their own:

1.  Get them involved with household budgeting

Have you teenager sit down with you so that they have a sense of what your household expenses and what is required to “keep the lights on”. For example, show them your credit card, cellphone, utility, and cable bills and discuss what the statements mean and how the expenses are calculated. You can show them how you actually pay the bills so they can see how a check is written or how an on-line bill is paid out.  By talking about your expenses, they will gain an appreciation of how much money it actually takes to run your household and can see how managing a budget actually looks like. If your teenager really shows a keen interest in finance, get them more involved by having them track certain family expenses like groceries or dining. They can even help you write out the checks each month or make the on-line bill payments.  Appreciating the value of money will help them make better money decisions as adults.

For a refresher on establishing a budget go to my blog article on setting up a personal budget: https://attunefp.com/blog/balancing-your-personal-budget

2. Open a checking account in their own name

Show your teenager how banks work by taking them to your local bank with you and open a Teen Checking Account in their name (with you as co-signer of course).  The benefit of having their own savings account is that they can now deposit any earnings they receive from a part-time job, gift money, or allowance into a bank rather then have it sit in your account (where they don’t have visibility to it) or in a shoebox at home.   A Teen Checking Account also comes with a debit card so they can make purchases without having to carry cash. There are also parental controls so that limitations can be placed on how much your teenager purchases or withdraws from their account. Having their own bank account will give them a sense of ownership. It will hopefully lead to more careful decisions on how they spend their money as they will directly see the balance go down in their account every time they buy something.

Note: If your teenager does not have a part-time job, consider only replenishing funds in their checking account only after they have “earned” it by doing the responsible work around the house that they have agreed to do. Money not earned might not be appreciated as much and may perpetuate the idea that mom and dad will bail me out when I’m in financial trouble.

3. Show them how to manage their own budget

Having their own checking account means that they should also be responsible for managing the checking account to make sure they do not run out of money. To ensure that this doesn’t happen, help your teenager manage their own budget. This can be done on a piece of binder paper, an excel spreadsheet, or a money application like Quicken.  Whatever your tool, make sure to use one that your teenager can understand and can manage themselves.  Together, calculate their expected income sources and expenses for the year. It is critical to discuss their big spending goals for the year. Do they want to purchase the latest video game, or buy an expensive pair of shoes?  Discussing these goals will help them learn how to either save more money and / or minimize their spending so they can buy what they really want for themselves.  Establish a regular time when you will meet with your teenager to review and discuss their checking account, budget, and spending goals. Learning how to manage their own budget will not only help them ensure they do not run out of money but will help them understand the benefits of proper financial planning. In return, this can lead to greater financial success and less credit card debit.

4. Teach them the value of saving their money

It is natural for teenagers to spend their money as it represents freedom, independence, and a sense of growing up. However, delaying gratification and developing a saving mindset is what will really provide them the foundation for financial success. Talk with your teenager and explain to them how saving a little at a time today will result in more secure and stable future. Mutually agree that they will save a certain percentage of their part-time pay, allowance and / or gifts received. In addition, talk with them about the dangers of accumulating debt and how it can delay or even destroy future financial success.  For those teenagers who started saving money in a piggy bank as small kids, the concept of delayed gratification is not new. However, if it is new, it is vital that teenagers learn about delaying gratification now. Not learning this important skill can lead to destructive money habits as adults like compulsive buying and credit card debt.

To illustrate the potential power of time and interest rates on savings, you can go to this Nerdwallet tool: https://www.nerdwallet.com/blog/banking/savings-calculator/

You can show your teenager the dangers of debt by going to the following calculator: https://www.nerdwallet.com/blog/finance/debt-snowball-calculator/

Having regular personal finance discussions with you and your spouse can be challenging enough. Speaking with your teenager about money can be even tougher. However, the time we spend with our teenagers today can help prevent them from making some of the mistakes we did when we were their age and will hopefully lead to them becoming financially secure adults. 

Next week I will discuss how to help your teenagers develop good driving habits.

would you like to learn more about developing good money habits? 

CONTACT ME TODAY 

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning.  Please consult your financial, legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.

I will be devoting the next few weeks discussing how to help our teenagers become adults.  This week I will explore the importance of teaching our kids responsibility.  Learning to be responsible is in my opinion the most vital aspect to becoming an adult.

How Do You Make Your Teenager More Responsible? 

1.  Give Your Children Responsibility

We do everything for our kids when they are growing up.  We feed them, clothe them, and clean up after them.  We do this so often it becomes second nature to us.  However, for our kids to become adults, they have to learn to take care of themselves.  If your kids already have chores then great.  They are on their way.  However, If the chores are tied to an allowance then you might want to consider slowly weaning them from the money motive.  The satisfaction and pride of knowing they took care of their responsibilities should be a reward in itself.  If they don’t already have responsibilities, their teenage years is the time to start giving them some.  Here are a few household tasks that they can do now to prepare them for life on their own are:

Cleaning their own rooms

Cleaning the bathrooms

Doing their own laundry

Cooking basic meals

Washing the dishes

Emphasize that these tasks you are asking them to do shouldn’t (or should no longer) be considered “chores” because chores have the connotation that they are doing things for our benefit.  Rather, these tasks are the basic skills they will need to do once they are no longer living under your roof.  Let them know by providing them with their own responsibilities, you are helping them to become adults.  To get buy-in from your teenagers, sit down with them and discuss the various household duties there are and how all of you can work together to get them done.   Have them make some decisions on what tasks they would like to do, when they would like to do it, and what they believe a good job looks like.

2.  Set  Clear Expectations

Once you and your teenager have mutually decided what responsibility they will be taking on, explain to them what your standards are for properly meeting that particular responsibility.  The expectations for successful performance should be clear to minimize confusion, frustration, or arguments.   For example, the agreed upon responsibilities could be “I will make my bed every morning before going to school and clean my room every Saturday morning.”  

It is also important to let them know the consequences if your expectations are not met.  For example, “If I don’t make my bed each morning or clean my room on Saturday, I will lose my video game privileges.” Disciplining our kids becomes much harder as they grow up but if we do not continue to discipline our teenagers and set boundaries for them, it might be much harder for them to learn self-discipline when they become adults.  Consistency is key. If we do not take it seriously, neither will they.

3.  Trust Them To Make Their Own Decisions

When our children are young, we made all of the decisions for them. We decided the who, what, when, where, and how of their lives.  We signed them up for sports, set up play dates, and decided where they would go to school.  Things change as they get older and they gradually want to be more independent.  Teenagers as we know, have a mind all of their own and they are not afraid to express it.  They are discovering that they are individuals separate from us and they want to discover what this new independence means.  Instinctively we want to protect them and shield them from disappointments and mistakes.  To help them become responsible adults, we have to learn to let go a bit and let them make gradually make their own decisions (as long as it is not harmful, like consuming drugs and alcohol).  For example, your teenager might decide after years of playing piano, they no longer want to play it.  While we can force them to continue playing, they will resent us for it.  The best we can do in this and all situations where they want to make a decision on their own is to have a respectful adult-like discussion with them.  Have them articulate the reasons for why they want to do something and talk about the pros and cons.  If the situation warrants it and you are comfortable with it, allow them to make the decision themselves.  Giving them the opportunity to make their own decisions, strengthens trust with our kids, and demonstrates that we are starting to treat them like adults.  

A good way to encourage and reinforce the importance of making good decisions is to start off slowly.   At first, allow them to make small decisions then allow them greater freedom as they demonstrate responsible behavior.  For example, make a mutual decision on when they should be home on a weekend evening.  Reward your teenager by letting them know that if they meet your expectations and demonstrate consistency, you will give them the freedom to make more decisions.  At the same time, let them know the consequences for not meeting your expectations.

With every decision comes the possibility of success or failure.  One of the main reasons we are hesitant about allowing our kids to make decisions on their own is that we don’t want them to experience failure or hurt.  Learning from failure is a very important skill to learn as an adult so we have to provide them room to make mistakes and learn from them.  Teenagers who are able to cope with failure have a tendency to be more resilient as adults.  

By slowly giving our teenagers increasing responsibilities, setting clear expectations, trusting them, and giving them room to fail, we will help our kids grow into responsible adults.

Next week I will talk about how to help our teenagers manage their own money. If you have any questions before then, please feel free to each out! 

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning.  Please consult your financial, legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.

What are UTMA/UGMA Accounts?

UGMA stands for Uniform Gift to Minors Act and UTMA stands for the Uniform Transfer to Minors Act.  Both savings vehicles are called “custodial” accounts as the parents act as the custodian of the account and manages it until their children become adults.  The custodian names who the beneficiary will be and determines at what age the child will receive the money.  With an UGMA the limit (Age of Termination) is 18 and with an UTMA is 21.   In some states like California the UTMA age limit can be extended to age 25.  In terms of what assets can be placed in these account, only basic assets like cash, stocks, bonds, and insurance can be placed into an UGMA.   A broader range of assets can be placed into an UTMA such as real estate and art.    Parents can contribute as much as they wish annually into an UTMA / UGMA.  However, because the contribution is considered a gift any amount greater than $15,000 annually, or $30,000 if married filing jointly, will be subject to federal gift tax guidelines.  From a taxation standpoint, any interest earned within an UGMA/UTMA are taxable in the year that they occur.  Because custodial accounts are considered to be the child’s asset, they will be counted against any financial aid application and 20% of the account balance will be considered available each year for college expenses.   When the child reaches the age of termination, any unused amounts in the custodial account must be distributed to the child who can use the assets for any purpose they wish.

What is a 529 Plan? 

529 Plans are named after the Internal Revenue Code that governs this plan:  IRC Section 529.  529 Plans are qualified tuition programs that allow parents to save for their children’s college (and high school up to $10,000 annually) education on a tax-qualified basis.   A 529 Plan account is owned by the parent but must name a specific child beneficiary for the account.  Parents can generally contribute as much as they wish annually into a 529 plan within certain limits.  (The balance in the 529 plan cannot exceed the total expected cost of the child’s college expenses.)  

How Does Funding for a 529 Plan Work? 

Contributions to a 529 Plan are considered a gift and any amount greater than $15,000 annually or $30,000 if married filing jointly will be subject to federal gift tax guidelines.  Some states (California is not one of them) will allow parents to deduct their 529 plan contribution from their state taxes up to $5,000 per year for an individual and $10,000 if married filing jointly.  529 Plans are tax-deferred accounts so interest growth is not taxable until the money is withdrawn.  In addition, any money withdrawn for education expenses will not be taxed at all and the interest growth is considered tax-free income.   Any unused money does not get transferred to the beneficiary but stays with the parent.  The parents can decide to use the funds themselves.  However, money withdrawn for non-college expenses will be taxed as ordinary income plus a 10% penalty.    Parents can also choose to keep the money in the 529 plan and provide it to other family members who may decide to go to college later on. This is done by changing the beneficiary from the original child to another family member (siblings, nieces, nephews, cousin, etc.).  From a financial aid application standpoint, 529 Plans are considered assets of the parents with 5.64% of the total balance considered being available each year for college expenses.   

Which is Better?

Prior to the creation of 529 Plans in 1996, UTMA / UGMA’s were a reasonable way to save for children’s education.  These custodial accounts provided parents with a number of benefits such as being able to set aside assets for a specific individual, assets staying under parental custodianship until the child reached adulthood, and receiving certain tax benefits (a portion of the interest earned was taxed at the child’s lower tax rate).  The main disadvantage with UTMA/UGMA’s were that the parents lost complete control of the assets when the child reached the age of termination and the assets were transferred entirely to the adult child.  

529 Plans on the other hand provide parents with certain advantages over custodial account:  tax advantages, no loss of control of the funds, transferability of 529 plan to another family member, and lower impact to financial aid eligibility.  So, if the goal is to save money for your children’s education, 529 Plans are the better choice.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning.  Please consult your financial, legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.

529 Plans

One of the most common ways to save is through a 529 savings plan.  The major benefit of a 529 Plan is that the investment growth is tax-free if it is used for college costs.  In some states your contribution is also tax-deductible.  There are other ways to fund college costs including tapping into your 401K plan, Individual Retirement Accounts, or home equity.  Insurance sales people offer another option:  using permanent life insurance to fund college costs.  I wanted to provide a summary of how permanent life insurance works as well as the advantages and disadvantages of this option to pay for college costs.

How Does Permanent Life Insurance Work?

A permanent life insurance policy provides the insured a death benefit that lasts until the insured reaches 100 years old. In addition, a permanent life policy acts as a savings account that generates a cash value.  

With each premium payment that you make, a portion goes to the death benefit and another is placed into a cash value account.  The longer you own a whole life policy, the larger the cash value portion will be and the smaller the amount of your death benefit.

For example, suppose you purchase a permanent life insurance policy with a $1,000,000 death benefit.  In the first year, you might have zero cash value.  In year 10, your Cash Value could be $100,000 and your death benefit would be $900,000.  In year 30 your cash value could be $400,000 and your death benefit would be $600,000.

In this example, if you were to pass away at year 30, your beneficiaries would receive a death benefit of $600,000 but the insurance company would keep the cash value.

What are the Advantages?

The largest benefit of a permanent life insurance policy is flexibility.  You have the ability to access the cash value for any reason by surrendering the policy, taking a cash withdrawal, or taking out a policy loan (up to the total amount of the cash value).  This money can be used for any purpose including paying for the cost of college.   With a 529 Plan, you will be taxed an additional 10% penalty on any non-college related withdrawals.  The second attractive feature of using permanent life insurance to pay for college is the accumulated cash value is guaranteed by the insurance company.  Third, a permanent life insurance policy has a number of tax advantages:  interest earned on the cash value grows tax deferred, withdrawals made up to the total amount paid in policy premiums are tax-free, and any amount taken as a loan from your cash value, is made tax free.  The fourth advantage is that the cash value is excluded from financial aid calculations as they are not seen as parental assets.

What are the Disadvantages?

The biggest disadvantage is the cost of premiums.   A 30-year-old who purchases a whole life policy with a $500,000 death benefit can expect to pay an average of $4,500 per year.  The second disadvantage are the annual costs.  Most permanent life insurance charge an average of 2% per year in fees. The third disadvantage is the amount of time it takes to build up a sizable cash value. It can take at least 10 years for the cash value to grow just beyond the amount paid in premiums.  Fourth, any cash value withdrawals made in excess of the total premiums made will be taxed as ordinary income.  Fifth, cash withdrawals and unpaid loans reduce the value of your death benefit.  This could be significant if you are counting on the death benefit to support your family if you were to pass unexpectedly.

What’s the Bottom Line?

The estimated 4-year cost of a University of California education is estimated to be as high as $140,000 for a California resident student who lives on campus.  Because of the amount of time it would take to build the cash value in a permanent life insurance policy to cover this 4-year cost, this option would make the most sense for families who are very risk averse, are high income earners, and are able to start saving very early in their child’s life.  

However, it is when your children are very young that your budget is the tightest and you need the most life insurance coverage.  But because the cost of a permanent life insurance policy is very expensive, the amount of coverage that you could afford would be much less than a term life insurance policy.  For example, a whole life policy with a $250,000 death benefit can potentially cost $4,500 per year.  You could purchase a 20 year term life insurance with $1,000,000 death benefit for $400 per year.

Unless you are a high-income household who can afford the premiums and need additional tax deferred investment vehicles, you are better off utilizing life insurance for what it is intended for:  providing your loved ones with the financial protection they need in the event of your untimely death.  The best way to do that is with term life insurance.  The money that would otherwise go to a whole life policy can be invested in a 529 college savings plan which is much less expensive, offers tax-free growth (for college related expenses), and can provide a better rate of return.

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This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning.  Please consult your financial, legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information only.

Build Good Credit

Federal student loans typically have a low or moderate interest rate. They also report to all three credit bureaus. Once you graduate and establish your repayment plan, you can begin to pay off your loans and build your credit. For some, a student loan may be their first experience when it comes to loans and paying bills on time. Most lenders work will work with you as a new graduate, creating a payment plan that is both affordable and manageable.

Pay On Time

Always pay your bills on time. If it helps, set an alarm on your smartphone to remind you the week before it's due. If you get in the habit of paying your loan a week before it's actually due, you won't be late. And even if you forget, you will have a few days to pay it before it's late. Because federal student loans are reported to the three credit bureaus, you can begin to watch your credit improve if you monitor your credit or FICO score.  Better yet, set up automatic bill-pay from your checking account and have the payment made a few days before the payment due date.  

Maintain Your Student Loan and Pay Off Other High-Interest Debt

If you find that the amount of your total debt you have relative to your income is too high for your comfort level,  you can pay extra on other types of high-interest debt. Instead of adding more money to your student loan payment, consider putting it towards your credit cards or other loans that have higher interest rates. Continue to maintain your student loan by paying the monthly payment.  If you are able, pay slightly more.  By prioritizing your high interest credit cards, you will pay less in interest and be able to better manage your credit card debt. Your student loan rates won't change like those associated with your credit cards, so it may be a good idea to double up payments on your credit cards or other loans.

Taking time to pay off your federal student loans gives you an opportunity to establish the credit you will need for other important life events, such as buying your first home or car. They also give you an opportunity to learn how to manage your finances in a way that will last you the rest of your life. 

_{The content is developed from sources believed to be providing accurate information. The information in this material is not intended as investment, tax, or legal advice.  The opinions expressed and material provided are for general information only.}