Think outside the bond. Yes, if it's income your desire, you should be looking at many more places. Places you may not have heard of or considered before.
The fact is many folks need to supplement their income from places like Social Security, pensions etc. which can be woefully inadequate with the ever rising costs of daily essentials. With interest rates effective near zero, there isn't much your bond (unless you invest in emerging market bonds or high yield "junk" bonds - and that means taking on more risk that you may be willing to) or that CD from the bank can do.
So, don't discard or dismiss many high quality companies that have decades long histories of paying increasing dividends that many times eclipse the income from bonds and bond funds. Consider other vehicles like Master Limited Partnerships (MLP's) that can also be accessed via mutual funds and ETF's, helping to avoid the hassles of Schedule K-1's. And today we have a plethora of new innovations like non-traded Business Development Companies (BDC's) that don't move with the markets and manage to provide healthy income in the 6%+ mark.
So, if it's income your want, then think outside the bond. Because bonds have an inverse relationship with interest rates, when rates inevitably tick up, your bond holdings make head south.
Kash Ahmed,MBA, MSF is the founder and President of American Private Wealth™. When his schedule permits, Kash teaches as a professor of Finance and Investments at the graduate level, both in the United States and overseas. Kash Ahmed is a proud member of the Financial Planning Association of MA.
The good news is that Americans on average are living longer than ever. The bad news is that Americans on average are living longer. Running out of assets before running out time is one of the biggest fears Americans have in retirement. Consider designing a retirement income plan that takes into consideration social security benefits, pension benefits and personal savings with the income you’ll need to stretch your income for as long as you live.
Interest rates have been historically low since the financial crisis in 2008. Savers who used to live off of the interest on their bank CDs have not been able to do so. However, many American retirees have benefited from the lower rates if they invested in bond fund funds. 2013 proved to be a wakeup call for bond fund investors as the Federal Reserve signaled that interest rates are likely to gradually return to their historic norms. That means that the interest paid on your bank CD and savings account will see a boost in the interest earned. However, millions of Americans invested in bond funds are at risk for a loss in principal as interest rates continue to rise. Some options to consider may be floating rate bond funds and convertible securities funds.
Inflation has been lower in recent years compared to the historical longer trend. However, one area that inflation has been and continues to be higher for retirees and all Americans is health care. It remains to be seen the impact of the Affordable Healthcare Act (aka Obamacare) has on health care inflation but, the fact remains that Americans on average spend more on healthcare as a percentage of their income in retirement than before. Having diversified sources for your income as well as having a diversified portfolio of investments to offset potential inflation is strategies all retirees should consider.
Long Term Care
No one likes to talk about Long Term Care risk. No one wants to picture themselves having to need help and being elderly. As noted above, Americans are living longer than ever. If you live longer, you will slow down and need help with day to day activities. If you need help, it will cost money. You will be taken care of if you are disabled in old age, but, the question is how much control you have over who takes care of you. Long Term Care Insurance is one way to pay for that care when it is needed. However, by the time most Americans start to think about the need for Long Term Care Insurance it is usually too late because the cost can be too high for the average retiree. The best time to consider Long Term Care Insurance is in your fifties. You are healthier and the premiums are much lower compared to when you reach your mid-sixties.
The Bottom Line
All of these risks are addressed as part of a comprehensive financial plan. The best approach is to work with a Certified Financial Planner® professional who will provide a customized plan to help you understand the risks and provide a roadmap for a successful retirement.
To find a CFP® professional go to Financial Planning Association of MA webpage: https://www.fpama.org/
John F. McAvoy, CFP®, AIF® is a member of the Board of Directors for the FPA of MA and is the principal at Waterstone Retirement Services in Canton, MA www.waterstoneretirement.com
Securities offered through Investors Capital Corp. 6 Kimball Lane, Lynnfield, MA 01940 Member FINRA, SIPC
How Well Do You Know Your Taxes?
Bradley on Finance...Making Finance Fun!
It is that time of year again... W-2's have gone out and Uncle Sam is getting ready to do one of two things... 1)issue you a refund, or, 2)expect to get paid!
Like most financial planning issues that come up, it's not always an easy or particularly fun topic to address. It doesn't have to be that way. Consider this...
Being in New England you have probably heard that no two snowflakes are alike. If you are like me then you have already seen way-way too many snowflakes! Well, like snow flakes, each one of us has a unique tax situation. Often times there are many questions that come up around this time of year. Here is one place to get some answers, www.irs.gov/Individuals, but for many of us taxes is a financial planning topic that we need some professional help with.
Taxes are an important part of the Financial Planning process, just like Estate Planning, College Savings, Retirement, Investments, Insurance, etc... A Certified Financial Planner™ (CFP) is best suited to help you develop a customized plan to address all of these important issues. You can find a CFP™ near you by visiting www.fpama.org/consumers/ and using the Planner Search tool.
Let's have a little fun... Do you know the answers to Bradley's tax questions? How Well Do You Know Your Taxes? These are everyday questions that effect many of us. If the answer is no...don't worry! We will be blogging more about important issues, like taxes, in the weeks and month ahead.
For more information please visit fpama.org to find a Certified Financial Planner™ (CFP) near you. Stay tuned for more installments of, How Well Do You Know Your Money?
By the Financial Planning Association™ of Massachusetts
It’s Oscar Season! Recently, the Wall Street Journal did a story on Jordan Belfort, aka “the Wolf.” According to the WSJ, Belfort has left the country and may be reneging on his promise to repay investors he bilked. This tale of the Wolf is a very sad story. While Hollywood loves to hammer Wall Street, the “Wolf of Wall Street” is not about Wall Street. It is about a persuasive character’s vices and his eventual downfall. Though it has nothing to do with financial planning, it does offer an opportunity to remind investors about key basic tenets they should follow when researching or selecting a planner. Using the movie’s 2014 Oscar nominations, here are five simple tips to always keep in mind to protect you and your financial future.
Keep it Simple. Though not a pretty story, the screenplay writers kept it simple and stuck with Jordan Belfort’s story. Investing is similarly simple. Always remember two things: be comfortable and be in control. Never be pressured into a deal that is too good to be true.
The Award Goes to… Jonah Hill may be up for the award, but the Best Supporting Actor when it comes to financial planning is you. When you are searching for a Certified Financial Planner™, go to FPA’s PlannerSearch.
FPA PlannerSearch Participants:
• Are FPA members in good standing
• Are CERTIFIED FINANCIAL PLANNER™ professionals
• An RIA or bank affiliate
• Adhere to FPA's Code of Ethics
• Abide by the FPA Standard of Care
(Photo credit: Mary Cybulski - © 2013 Paramount Pictures. All Rights Reserved.)
Research your Planner. There’s a reason director Martin Scorsese likes Leonardo DiCaprio so much…he’s that good. Consider the CFP Board (CFP.Net) your go-to resource to check out a CFP® Professional's background. FINRA and the SEC also have search capabilities for registered participants. At a minimum make sure your selected planner is licensed. Additionally, Registered Investment Advisors must provide a disclosure brochure. Be sure to read it.
(Photo credit: Mary Cybulski - © 2013 Paramount Pictures. All Rights Reserved.)
Reputation Counts. Ultimately, your investments will be held in custody at some bank or trust company. A high quality custodian is not going to allow illicit shenanigans to be conducted on their platform. Seeking a good custodian is by far your first line of defense.
(Photo credit: Mary Cybulski - © 2013 Paramount Pictures. All Rights Reserved.)
Think Big Picture. The most effective planners are long-term thinkers. While capital market volatility may at times trigger some fast decision making, planners will typically not entice you with a "we need to move now" offering. (Parting shot: it goes without saying, if your planner’s nickname is “Wolfie,” hold on to your wallet!).
(Photo credit: Mary Cybulski - © 2013 Paramount Pictures. All Rights Reserved.)
By Bill Harris, CFP™ and Financial Planning Association of Massachusetts Program Director
Bill Harris is a certified financial planner practitioner. He is a member of the board of directors for the Financial Planning Association of MA and an Ed Slott Elite IRA Advisor. He is a co-founder and principal of WH Cornerstone Investments in Duxbury and Kingston.
What is Identity Theft?
ID theft occurs when someone obtains your personal information - such as your Social Security Number, credit card or account numbers, and passwords - to access your bank accounts or open credit card accounts in your name. This could impact your credit rating which might prevent you from obtaining loans for a car or house, renting an apartment and even applying for a job. Not to mention the frustration of lost time and money in trying to fix the problem.
What can you do to prevent ID theft?
Exercise Common Sense
• Make a list of all of your credit cards and bank accounts including the account numbers, contact information and expiration date.
• Shred any solicitations for credit cards, bank statements, credit card invoices, anything which might provide personal information to a thief.
• Empty your mailbox daily and be sure to notify the post office if you will be away.
Create secret “verbal passwords” on your bank accounts
• Ask your bank to set up a “verbal password” on all over the counter transactions, phone request withdrawals, newly issued bank cards and even transfers. Your local branch manager can set the password up for you. Be sure to write the password down when speaking to the teller.
Consider opening an account with one of the credit bureaus (Equifax, Experian, TransUnion)
• For a monthly fee, only you have the power to lock or unlock your credit file. Once you lock your credit file, no one can open a new credit card account – not even you. You need to unlock your file if you apply for a loan. This service will also alert you if there is any suspicious activity in your accounts.
Don’t open a credit card at the store.
• Everyone loves a bargain but there is no assurance of security for your personal information once you leave the store.
• There are many resources available for consumers to educate themselves on ID theft including:
o Massachusetts Attorney General’s Office
o Federal Trade Commission
You cannot be too careful in protecting your personal information. The scammers are always one step ahead of the security measures. Don’t assume your information is protected. Ben Franklin’s saying comes to mind: “An ounce of protection is worth a pound of cure”.
John F. McAvoy, CFP ® is a member of the MA Financial Planning Association.
Securities offered through Investors Capital Corp. Member FINRA/SIPC
It's an emotionally charged topic, and there are a lot of financial topics to consider during a divorce. Here are a few including college expenses, moving costs, and life insurance.FULL ENTRY
Is there more than one type of 529 plan and if so what are the differences?
529 plans have grown to be one of the best ways to save for college since they were created in 1996 by Congress. They are commonly referred to as "529 plans" because of Section 529 of the Internal Revenue Code that governs their operation.
A 529 plan is a college savings vehicle that has federal tax advantages. There are two general types of 529 plans: college savings plans and prepaid tuition plans. Although the two types of plans share the same federal tax advantages, there are important differences between them.
College Savings Plans
College savings plans let you save money for college in an individual investment account. These plans are run by the states, which typically designate an experienced financial institution to manage their plan. College savings plans typically offer a couple of methods to invest the money in your plan including age-based portfolios and static portfolios. Age-based portfolios are ones where your money is invested more aggressively when the beneficiary is young and gradually becomes more conservative as the beneficiary approaches college. Static portfolios, on the other hand, allow you to direct your 529 plan contributions to one or more portfolios where the asset allocation in each portfolio remains the same over time. These static portfolios usually range from aggressive to conservative, so you can match your risk tolerance.
Prepaid tuition plans
Prepaid tuition plans may be sponsored by states (on behalf of public colleges) or by private colleges. A prepaid tuition plan lets you prepay tuition expenses now for use in the future. The plan's money manager pools your contributions with those from other investors into one general fund. The fund assets are then invested to meet the plan's future obligations.
The most common type of prepaid tuition plan is a contract plan. A contract plan allows you to exchange your up-front cash payment (or series of payments) for the plan’s promise to cover a predetermined amount of future tuition expenses at a particular college in the plan. Contract plans typically have a predetermined formula to figure out how much in future tuition expenses they will cover based on the amount that you prepay. These formulas typically pay a higher amount if the beneficiary goes to one of the colleges in the plan.
The other type of prepaid tuition plan is a unit plan. Under this type of plan, you purchase units or credits that represent a percentage of the average yearly tuition costs at the plan's participating colleges. Instead of having a predetermined value, these units or credits fluctuate in value each year according to the average tuition increases for that year. You then redeem your units or credits in the future to pay tuition costs; many plans also let you use them for room and board, books, and other supplies.
Some of the favorable provisions of Coverdell educational savings accounts (“Coverdell ESA”) are slated to expire by December 31, 2010 if Congress does not extend the current rules. Two of the more significant changes include a reduction in the annual contribution amounts and in how Coverdell ESA funds can be used.
Coverdell ESAs are tax-advantaged educational savings accounts that can be set up for minors to pay for their educational expenses. This type of account, which was formerly known as an “Educational IRA”, allows after-tax dollars to be set aside to pay for qualified educational expense for grades kindergarten through 12 and college. Similar to IRA accounts, contributions into an ESA grow tax-free and distribution are tax free when used to pay for qualified educational expenses such as tuition, fees, books, supplies, room and board.
The current annual contribution limit of $2,000 for Coverdell ESAs is expected to revert back to their 2001 limits of $500 per year. In addition, there will be significant changes to how Coverdell ESA funds are used. Currently, funds in a Coverdell ESA can be used for qualified college expenses as well as expenses for kindergarten through 12th grade. Starting in January 2011, existing Coverdell ESA funds as well as any future contributions can only be used for qualified college expenses.
Unless Congress intervenes these changes will affect those with existing Coverdell accounts differently. For those who have or are planning to start a Coverdell ESA for the purpose of using it to pay for a child’s college expenses, you can continue to fund the Coverdell (albeit at the lower amounts) or consider transferring it into a 529 plan. For those who have a Coverdell for the purpose of funding a child’s K through 12 education, your choices are more limited. You can withdraw the funds in the existing account and spend it on qualified K through 12 educational expenses before the changes go into effect in January or you can leave the funds in the Coverdell and consider using it for the child’s future college expenses.
Can you have more than one beneficiary of a 529 plan?
A 529 Plan account can have only one beneficiary. While there are two general types of 529 plans – a college savings plan or prepaid tuition plan, both require an account owner to designate a single beneficiary. However, you can generally, change the beneficiary of an account from one family member to another.
The ability to change beneficiaries on an account can provide some flexibility with how you save for each child. For example, if you establish one account for each child, you can fund and manage each account independently based on the needs of each child. You can choose to be more aggressive in funding one account over the other based on when each child is expected to attend college.
On the other hand, if you establish a single account for multiple children, you can avoid having to decide how much to fund for each child but you may lose some flexibility on matching the investment portfolio to when your child is going to attend school. Typically, you want to match the investment portfolio in the 529 account to when your child is expected to start college. The goal is to reduce the investment risk in the portfolio as your child gets closer to withdrawing funds from the account. If you have one account with intentions of serving multiple children you may not have the option to choose multiple investment portfolios for each child.
Keep in mind that 529 plans are investments vehicles and, as with any investment, you need to consider the investment’s objectives, risks, costs, and tax consequences before investing or implementing a specific investment strategy.
If you have recently sent a son or daughter off to college, it is critically important that you have a signed Health Care Power of Attorney (HCPOA) in place. This document is important because once your child turns 18, they are legally recognized as an adult and the colleges they are attending generally cannot share medical information with you.
It is not that the colleges don't want to share information, but under the Health Insurance Portability and Accountability Act (HIPAA), a patient's health information must be kept private once the patient is recognized as an adult. And this privacy extends to the parents of the student. So, if your child becomes ill at school, you might not be able to get any information on their health status.
To avoid this situation, you should have a properly executed HCPOA in place. This form will allow you to make medical decisions for your child. Your attorney can draft this form for you or you can look for a form on line. If your child is attending a school in another state, be sure to use the form for that state. It is also a good idea to have a HIPAA release form in place as well.
Does it make sense to start a 529 savings plan for my daughter if she is starting college this year?
As with answers to many financial questions, it depends. Although there are many benefits to starting a 529 savings plan, the best financial reasons are related to the income tax benefits associated with contributing to and taking distributions from a 529.
529 plans offer federal income tax benefits and, depending on the state in which you reside, state income tax benefits. For federal tax purposes, funds contributed to a 529 plan grow tax deferred. In addition, distributions for qualified educational expenses are free from federal income taxes. For state tax purposes, certain states offer income tax benefits for their residents who fund a 529 plan in their state. These benefits often include the ability to deduct some or all of their contributions or the ability to claim a tax credit for their contributions.
In general, starting a 529 plan for a child who is in college or about to start college minimizes the benefits from the tax deferred growth offered by 529 plans. This is largely true because you will need to withdraw the funds contributed before there is sufficient time to accumulate any growth on those contributions.
However, you may still receive a state tax benefit if your state offers one. The actual amount of benefits you can receive will depend on whether your state offers a tax deduction or a tax credit, the amount of your contributions, your marginal state tax rate, and the provisions of the 529 plan. For example, New York State allows residents to deduct up to $5,000 of their 529 contributions ($10,000 for couples who are married filing jointly) and allows tax-free withdrawals for qualified higher education expenses. If you are in the 6.85% NY state income tax bracket, a $10,000 contribution could yield $685 in savings.
Keep in mind that some 529 plans have waiting periods between when contributions are made and when those funds can be withdrawn in order to receive the state tax benefits offered. If your 529 plan has a waiting period, it may still be beneficial to establish and fund the account if you can work out the timing of your contributions and withdrawals to satisfy the plan’s specific requirements.
For more information on your state’s 529 plan, visit http://www.collegesavings.org/index.aspx.
Interest rates on Stafford and PLUS student loans have been dropping during the past few years and the new rates for 2010 have dropped as well. Interest rates on Stafford and PLUS loans are set each year beginning on July 1 based on the 3-month Treasury Bill. The rates for July 1, 2010 through June 30, 2011 are as follows:
The fixed interest rates for loans issued on or after July 1, 2006:
* Subsidized Stafford Loans for undergraduates: 4.5%.
* Subsidized Stafford Loans for graduate and professional degree students: 6.8%.
* Unsubsidized Stafford Loans for undergraduate and graduate students: 6.8%.
* Direct PLUS Loans: 7.9%.
The interest rates for loans issued after July 1, 1998 and before July 1, 2006:
* Stafford Loans (subsidized or unsubsidized in repayment status): 2.47%.
* Stafford Loans (subsidized or unsubsidized in school, grace period, or deferment status): 1.87%
* Direct PLUS Loans (any status): 3.27%.
These new rates may provide borrowers with a good opportunity to consolidate their existing student loans. For more information as well as an online loan consolidation calculator, visit the Federal Direct Consolidation Loans Information Center at http://www.loanconsolidation.ed.gov/index.html and https://loanconsolidation.ed.gov/loancalc/servlet/common.mvc.Controller.
My husband and I are planning on starting a family during the next couple of years. Can we set up a 529 account and contribute funds to it for our unborn child today?
In order to set up a 529 college savings plan account, you will need to name a beneficiary of the account and provide their Social Security number. Unborn children cannot be named as beneficiaries of 529 accounts. However, you can set up a 529 account for your or your husband’s future education expenses and name you or your husband as the beneficiary. Once your child is born and you’ve obtained a Social Security number for him/her, you can change the beneficiary designation of your account to your child.
From an overall financial planning standpoint, I would generally encourage you to make sure that your other financial goals are in order before funding a 529 account for your unborn child. For example, making sure that you have an adequate amount saved for your emergency fund and paying down any consumer debt are important considerations especially during these uncertain economic times. While 529 plans are a great way to save for college there are disadvantages if you need to tap these funds for non-educational expenses.
Congratulations on your recent graduation. You have no doubt worked diligently over the years and should be proud of your successes. I am not quite sure if you will be moving on to college, the military or other envious endeavors. Nevertheless, you should be advised of how the real world works. The real world is a lot like gardening. If you combine your God given talents (the soil), with knowledge and hard work, then you will reap a wonderful harvest. Take away just one of these items, and your success will be disproportionately reduced. Remove knowledge, and you will likely yield no harvest. Increase your education and knowledge and your harvest will be wildly abundant.
While I am proud of your recent graduation, the education that you have just received is woefully inadequate. Much of the public school curriculum was developed in the 19th century. My grandmother took much the same course work in the 1930’s that I did in the 1980’s and now you have continued the tradition to the 21st century. Unlike wine, this curriculum has not improved with age. Case in point: One skill that you will need to use almost daily in life and will contribute greatly to your success or failure is personal finance. However, you have not even been offered this in your curriculum. Yet your school continues to teach rope answers in subjects such as trigonometry that will never be utilized again by 99 percent of the student population.
You have just participated in commencement, which means “the beginning”. Regardless of if you are off to university or not, this is the beginning of your education process not the ending. One of your goals in life should be self-sufficiency. You do not want to rely on your employer or the government to provide for you. If you rely on these parties, you will clearly be disappointed. When I graduated high school 20 years ago, we were taught that Social Security will provide for us in retirement. Now, only a fool would believe that the government will be there to provide these benefits. Alternatively, ask a laid off General Motors employee if reliance on their employer worked out well for them. Wouldn’t you much prefer to retire on your terms, at an age you decide, with an adequate stream of cash flows to provide for you and your family without external aid? This can be accomplished much easier if you start now and learn about success.
You will need to take charge of your education on the topic of success. Spend a half hour a day, reading and learning about personal finance, successful people, goal setting, etc. Choose college course work, seminars, webinars and other educational tools that will help you pursue this topic. If you study success now, then you will be much better off at your ten year reunion than all of your peers. More than likely, you will be completely self-sufficient. Here are a few books to get you started on the process:
- Rich Dad Poor Dad: What the Rich Teach Their Kids About Money-That the Poor and the Middle Class Do Not! by Robert T. Kiyosaki
- Rich Dad’s Guide to Investing by Robert T. Kiyosaki
- Think and Grow Rich by Napoleon Hill (offered for free as the copyright has expired)
- The Power of Positive Thinking by Norman Vincent Peale
- Everything written by Jeff Gitomer
- Lead the Field by Earl Nightingale
It used to be that kids were removed from their parents' health care insurance once they turned age 19. Coverage could be extended until age 23 if the child was a full time college student, but by the time most students graduated from college they found themselves without coverage unless they had a job with benefits.
However, a recent change announced by the White House now allows adult children to remain on their parents' plan until they are age 26. Under the new rules, insurance plans must offer coverage for plan participant's children up to the age of 26 and there is no requirement that the child has to live with their parents or attend college or even be a dependent -- they can even be married and still qualify for coverage. The only people who wouldn't be eligible for coverage would be those who work at a job where health care insurance is available. In that circumstance, the adult child would be expected to obtain coverage through their employer. In total, this change is expected to result in 1.2 million people gaining access to coverage.
So, who will bear the cost of this important coverage? All participants who currently have family insurance plans. Estimates vary, but the cost for family plans are expected to rise by about 1 percent.
Technically, this change applies only to new plans that begin after September 23rd of this year, but many insurance companies have voluntarily agreed to provide coverage right away (and not wait until September or January 2011 when plans typically renew their coverage).
Plans must provide a 30 day window for the adult children to enroll in their parents' plan so if you want to add your children to your policy, be sure to keep your eyes open for the opportunity. If you aren't sure whether your current plan covers adult children immediately or imposes some restrictions, check with your benefits department or plan administrator.
A will can generally be used to:
- Pass property/assets to heirs in a manner that differs from those stated in the state's intestacy law;
- Pass property/assets to those who would not normally inherit it under the state's intestacy laws;
- Prevent a person (other than a surviving spouse or minor child) who would normally inherit property under the state intestacy laws from inheriting it;
- Name a personal representative for the estate;
- Nominate a guardian for minor children;
- Name a custodian or guardian to hold or manage the assets of their minor children;
- Provide instructions on how to pass property in the event that a beneficiary child predeceases the decedent; and
- Establish a trust upon your death such as a Bypass Trust or Special Needs Trust.
Regardless of the size of your estate, I generally recommend that every adult have a will so they can control the passing of their property. If you have minor children, it is even more important to have a will so you can nominate a guardian for your children.
One of the many ways parents can save for their children's college education is to use Coverdell Education Savings Accounts. These accounts, which were previously called education IRAs, were never as exciting as 529 accounts because the amount you were allowed to contribute was very low - $2,000 per year per child - and there were income limits as well. Income phase-outs on contributions started at $95,000 for individuals and $190,000 for joint filers. In comparison, the contribution limits for 529 plans are upwards of $300,000 and there are no income limits.
However, one of the neat features about Coverdells was that the money in the account could be used for pre-college education expenses. So, if your son or daughter were attending a private elementary or high school, you could take tax free withdrawals from the Coverdell to cover those expenses. With 529 accounts, withdrawals have to be for qualified college expenses.
So, Coverdells did have their place, and some people really liked them, but now the rules for Coverdells are changing. Starting next year, withdrawals from Coverdells that are used to pay for expenses for private kindergarten through 12th grade will no longer be tax free and it appears that the contribution limit will fall from $2,000 to $500. (It is possible that Congress will step in at the last minute and prevent these changes from happening, but that seems unlikely.)
If you have a Coverdell now and still contribute to it, you should give some thought to using the money in the account for expenses that you will incur this year. In addition to private school tuition, you can use Coverdell money to pay for books, computers, tutoring services, room and board expenses, school uniforms and transportation to and from school. Given the relatively low contribution limits, it is unlikely that very many people have large Coverdell balances, so cleaning out the account by the end of this year might be pretty easy. But what if you don't have any expenses to claim this year? There is no problem there either as Coverdell money can just as easily be used for college expenses. Remember, the only "catch" with using Coverdell money for college age students is that any money remaining in the account when the beneficiary turns 30 will generally be distributed (and will be taxable) unless the person who originally opened the account changes the beneficiary.
About four years ago, I made a profound decision that has benefited me greatly. I made the decision of what I want to do for the rest of my life. I finally had a singular focus and committed to spending the remainder of my career working at a public accounting firm. While I had spent much of my post college years working at public accounting firms, I was never entirely committed to the profession.
At that time, I lived in South Boston and would see ships leaving Black Falcon terminal. Every departing ship had a destination when they left port. However, for the first 33 years of my life, I had no destination. Anything that caught my eye was a potential to receive my time and attention. One day I wanted to shift to investment banking, another day I wanted to pursue a job in sales, another day I just wanted to be a better golfer, the next day I wanted to obtain my pilots license. Life is full of opportunities and I wanted to pursue all of them. Unfortunately, this meant that I never really pursued any. It also meant my actual career in public accounting was suffering.
My anecdotal evidence suggests that a lot of people act the way I did for 33 years. They do not have a real destination or goal. However, once this important decision is made, life becomes much easier. Here are the benefits to making a decision on your final career and destination:
Persistence – I have never met someone who was an overnight success or made a quick fortune. I am sure they exist, but they are the exception not the rule. Every person I have met that is successful has toiled at their craft for many years. All have made plenty of mistakes, but kept pursuing their final destination. There are ups and downs for sure, but nothing stops them from reaching their goal. Calvin Coolidge said the following: "Press on. Nothing in the world can take place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education alone will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent." Words to live by.
Specialized knowledge – I now spend about an hour per day reading. This time is devoted to improving my knowledge of my profession and career. I have read more in the last four years than I did while I was in college. Consequently, I have learned more. Do you think reading for an hour a day for four years will improve your career and skill set in a knowledge based society? Do you think it will set you ahead of your competition? I certainly do.
Repetition – I used to despise the repetitive nature of work. Now I relish in it. I look for ways to improve what I am doing, how I deliver services to customers, and any ways that I can improve a process. In this way we can increase our value to our customers and employers. Creating value will always lead to greater financial rewards.
Gives meaning – While life with a single focus may sound boring and utilitarian, quite the opposite is true. The journey has become more enjoyable. I know my goals and am quite satisfied when I obtain them.
No longer be the one that says "I don't know what I want to be when I grow up."
Working in a service industry requires a certain level of daily production. The more a person produces over the long term, the more the person will be paid. This is a truth with very few exceptions. With this in mind, I noticed that my daily work production has declined in recent years. My typical day is spent juggling multiple client needs and office administrative issues. Additionally, the emails keep coming and the phone keeps ringing. I am also guilty of opening up boston.com a few times a day to see what is happening outside my four walls. At the end of the day it is difficult for me to see what I have produced.
This is not how it used to be. I recall early in my career, prior to the proliferation of electronic communications, where I could reasonably concentrate on a single task for hours, days or weeks on end. Except for lunch and a cigarette break, daily interruptions were minimal. Only upon completion of a task would I move to the next task. Production at the end of the day could be easily seen and measured.
Over the last few weeks, I have tried to revert to my former days of production greatness (self-proclaimed). To accomplish this, I am employing many of the tactics used earlier in my career. My early results are quite promising. My productivity has risen, and hopefully increased pay will follow. Here is what I have done:
Priority list – At the end of each work day, I create a "to do" list for the following work day. I prioritize each item based on importance. The next day I start working on the item of highest importance. Only once I am complete with this task, do I move to the next task. I have effectively ended multi-tasking. By focusing on a single task, my productivity has increased. I highly recommend it. If I get through everything on my list early, I go home for the day and spend time with my daughter, Madeline. This is much more enjoyable than unproductive time at the office.
Email – One of the worst features of Microsoft Outlook is the one which notifies you every time a new email arrives. On my version of Outlook, a small window opens on the bottom of the screen alerting me that an email has arrived. Regardless of what I am working on, I usually will read the email. Many times, I get sidetracked and will address a new task as required by the email. This is multi-tasking at its worst. The last few weeks, I no longer leave Microsoft Outlook open on my desktop. I only open email at the beginning of the day, at lunch and at the end of the day. Less multi-tasking equals more productivity.
Blackberry / PDA – This is another interrupter of productivity. It reminds me of interruption advertising models used on television, where once you get focused on something, the station changes over to an advertisement. Your whole train of thought is interrupted. The vibrate function on my Blackberry was going off constantly and each time was interrupting my workday. Now I leave most settings to silent and only answer the phone if my wife or a client calls. Unknown numbers, friends, time wasters, etc. go straight to voicemail. Text messages only get answered at the end of the day.
Cigarette breaks – While I miss my nicotine fix, this is not an area I am reverting. Caffeine is my new stimulant.
In almost all cases, a person that produces less or an inferior product will be paid less. Keep searching for ways to improve the amount you produce and the dollars will follow. If you know any other productivity improvement ideas, please submit them on the bottom right side of this webpage.
The FAFSA form is intended to be a snapshot of your family's financial condition at a given point in time. Therefore, if the information on your form is incorrect or out-dated, you should correct it so that the schools have a more accurate picture of your financial condition upon which to base your eligibility for aid. There are several ways to make corrections and updates. Parents and students can make changes to a previously submitted FSA form via the Web, by paper or by telephone.
To make corrections via the Web go to the FAFSA's web site at www.fafsa.ed.gov. You will need to log in to the site with your PIN to submit any changes. You can use this system to submit most types of changes except for social security number changes.
In addition, you can submit changes online even if you did not complete your original application online. Changes can also be made by mail by correcting your Student Aid Report (SAR) and mailing it to the address listed on the SAR. The SAR is a summary report that you receive after your FAFSA is processed. If you did not receive a paper SAR because you applied online or via the FAFSA web site, you can call the FAFSA at 1-800-4-FED-AID (1-800-433-3243) to request a paper version of your SAR.
The FAFSA also allows parents and students to make changes and corrections by telephone. However, the types of changes allowed are generally limited to processing errors. In addition, you will need your DRN (data release number) from your SAR to be able to make corrections by telephone. To make changes by phone call the Federal Student Aid Information Center (FSAIC) at 1-800-4-FED-AID (1-800-433-3243).
For more information visit the FAFSA web site at www.fafsa.ed.gov.
In a few weeks high school students across the country will start receiving acceptance letters from the colleges to which they’ve applied. Hopefully your student will get into the school of his or her dreams. You might wish you were dreaming when you see the tuition bill, however. Even though tuition increases were only around 4 percent last year – less than the long-term average of 6.5 percent – it is still getting harder and harder for families to afford to foot the entire bill. Here are a few tips that might help you manage the cost of college:
- Ask the college if you get a discount for paying the entire year's cost up front.
- Some colleges give a discount if you allow them to debit your bank account directly.
- See if you can spread the payments over 12 months, instead of paying larger sums 2-3 times during the academic year.
- Be realistic about meal plans – will your child really eat 3 meals a day in the dining hall? I don’t know any high schooler who doesn't get up 5 minutes before they have to dash off to school, skipping breakfast on a regular basis.
- Have your student earn some college credits while in high school. Local community colleges are a great way to take basic freshman year courses for a fraction of the cost. This can be done during their senior year (note to parents of 10th or 11th graders) or over the summer.
- Defer college for a year. Once you are accepted, many schools allow students to postpone starting for one year, allowing the student to work and earn money for tuition.
- Work part-time while in college. I would suggest holding off on this for the first semester, but once the student is acclimated they may find they have plenty of time to fit in a job that can earn them enough for spending money, travel costs, books, etc.
- Finally, if you apply for financial aid and the package you are sent isn’t feasible, call the Financial Aid Dept. and talk to them. Explain why the aid package doesn’t meet your needs and see if they can be more generous.
Have you been thinking about starting your own business, but don't know where to start? Or have you already started your own business, but need some advice on how to take it to the next level?
Accountant and Managing Your Money blogger Jamie Downey, who specializes in the area of small businesses, will be here on Tuesday, Oct. 13, at 1 p.m. to take all of your questions about the world of small business.
It’s fall, time for high school seniors to start the college application process. When you and your child are thinking about what colleges your child should apply to it’s important to think in terms of value. A higher cost school doesn’t necessarily translate into a higher income through life. That may be the case initially, but salaries 10 years out of college are determined just as much by the ambition and drive of the student (now an adult) than what college they attended. What is important is to get an education without strapping you or your student with a lot of student loans, and without jeopardizing your retirement by diverting contributions to the college bills.
There are hundreds of good schools out there, but how do you know which ones to apply to? A college counselor can help you find ones that fit your child’s interests, personality and budget. In addition a good counselor can help you find schools that want your student, increasing the possibility of receiving financial aid. Instead of blindly choosing colleges based on name recognition or a neighbor’s recommendation, talk to your high school college counselor or consider a private counselor, who may be worth the cost in what they’ll save you in tuition. Click here for more information about private college counselors.
On October 9, 2009, Michelle’s Law (H.R. 2851) goes into effect. Passed on October 8, 2008 by President Bush, Michelle’s Law allows full-time college students to take a medical leave of absence without losing the health insurance coverage they receive as a dependent under their parent’s health insurance plan. Prior to the passage of this law, students between ages 19 and 24 could receive coverage under their parent’s health insurance policy, as a dependent, as long as they remained a full-time student. Students who lost their full-time status due to illness or injury were left with the choice of going without coverage under their parent’s plan (because they no longer qualified as a full-time student) or to continue coverage under COBRA, which could be prohibitively expensive for many families. This law prevents the loss of coverage under those situations.
Michelle’s Law was created based on the predicament faced by Michelle Morse. Michelle was a full-time college student who was diagnosed with cancer while attending college in New Hampshire. As Michelle went through chemotherapy treatments, her physician recommended that she reduce her full-time course work at school to deal with the debilitating treatments. However, doing so would cause her to lose her health insurance coverage because her family could not afford the premiums under COBRA. Faced with this no-win situation, Michelle decided to maintain her full-time status. Michelle passed away as result of her battle with cancer. To ensure that other students would not have to go through what Michelle did, Michelle’s family took the issue to their state’s legislature, who passed a law protecting students like Michelle. Other states followed and in 2008 President Bush signed it into federal law.
Here are the details about Michelle’s Law:
- The law applies to full-time students who are covered as dependents by their parent’s health insurance.
- Students are allowed to take up to 12 months off for a “medically necessary” leave of absence without losing their coverage. This also applies to students who reduce their course work to a less than full-time status because of medical necessity.
- In order for this law to apply, the leave of absence, reduction in course work, or change in full-time status must:
* Be medically necessary as determined by the student’s physician;
* Commence while the student is suffering from the illness or injury; and
* Cause the student to lose their dependent health insurance coverage.
For more information about Michelle’s Law visit http://www.michelleslaw.com/.
The National Association of Personal Financial Advisors (NAPFA), a professional association of fee-only financial advisors and advocate for consumer protection in the financial industry is launching a series of free webinars designed to help educate consumers about various personal finance topics and issues.
The series will begin on August 7, 2009 and will run each month for an entire year. Consumers will be able to register to attend the live session online or listen to the recorded session at a later time. Each session will last for 1 hour and start at 1pm Eastern time.
The dates and topics will include:
August 7, 2009 - Money 101: Knowing the Basics
September 4, 2009 - Kids & Money
October 2, 2009 - What is Financial Planning?
November 6, 2009 - Protecting What You Have
December 4, 2009 - Investments: The Basics
January 8, 2010 - Investments: Advanced Concepts
February 5, 2010 - Managing Your 401(k)
March 5, 2010 - Leaving a Legacy
April 2, 2010 - Women and Money
May 6, 2010 - Financial Planning and Small Business Owners
June 4, 2010 - Your Retirement
July 1, 2010 - Financial Windfalls
If you have any interest in learning more about these specific topics, I encourage you to register and attend. With the economy down, you certainly can’t beat the price.
To register for the 2009 sessions or to learn more about NAPFA and these sessions, go to http://www.napfa.org/consumer/ConsumerWebinarSeries.asp.
There's good news on the horizon for those with federal student loans. The government is introducing a new income-based payment program on July 1.
The timing of this program couldn't be better - new college graduates are coming into a very poor job market. With an unemployment rate currently hovering around 9 percent there are plenty of college graduates without jobs, or forced to accept low-paying jobs, faced with student loans averaging $22,000. And they don't have much time to line up work - borrowers must begin to repay their federal loans within 6 months of graduation.
If you are unemployed you can apply to defer your payments for up to 3 years. But what if you have a job, but not a lot of income? Under the Income-Based Repayment plan (IBR) your payments are capped to no more than 15 percent of discretionary income, an amount that is based on the federal poverty guideline. "Discretionary income" is defined as the difference between adjusted gross income and 150 percent of the federal poverty line that corresponds to your family size and the state you live in (from www.finaid.org).
This program applies to anyone with federal loans: the Stafford, Grad Plus and federal consolidated loans. Your loans must be in good standing.
If your reduced payment doesn't cover the interest accruing on the loan the unpaid interest will be added to the balance. And no matter how much you have repaid, the loan is forgiven after 25 years as long as you've made all of your payments.
This program is intended to encourage college grads to accept jobs in low-paying fields, but has the unintended benefit of helping out during this difficult economic time. It will enable those who otherwise might have defaulted on their loan, creating a poor credit history, to keep the loan in good standing until income goes up in the future.
You'll need to contact your lender to enroll in the program. There is a lot more information about the program at www.ibrinfo.org.
A friend asked me last week, “What is the best piece of financial advice you ever received”? Without much thought, I responded, “invest your time, don’t spend it”. I got that sage advice from Jeff Gitomer, an entrepreneur and author of several best selling books. While the idea is not original to Mr. Gitomer, I had never read it so succinctly nor contemplated so thoroughly.FULL ENTRY
My elderly grandfather is a cosigner for my $25,000 student loan and I am worried about how this might affect his modest estate after he dies. I plan on paying off the loan when the time comes and I assume I will not be in default when he dies. But what if I default after he dies? How long after his death are my grandfather and his estate on the hook? I don't want my mom, uncles and aunts to be burdened with the specter of this cosigned loan.
Good question! Unfortunately, there is not a single universal answer to this. Similar to when a borrower dies, it generally depends on the type of loan or loan program, the guarantor or lender, and the specific terms of the loan. As the economy tightens and lending standards increase, borrowers are increasingly turning to other options to improve the chances of successfully securing a loan. One option has been to seek someone to co-sign the loan. Often this means asking a family member, a relative or a close friend to assist. Although a co-signer may not have primary responsibility for the repayment of the loan, their obligations (or their estate’s obligations) may continue after death.
According to a recent study by Fidelity Investments, more than a third of the nation's parents have decreased the amount they are saving or have stopped saving entirely for their children's college education. Given the current level of financial anxiety out there and the recent increase in unemployment, this statistic really isn't surprising, but with the market down, now would be an excellent time to be investing new money.
The study also found that 60 percent of parents have at least started saving for college but only 30 percent are investing in a dedicated investment vehicle like a 529 plan. This is interesting because the survey results indicated that most parents can afford to pay just 21 percent of expected college expenses, but parents who save in 529 plans can afford to pay for 40 percent of the expected college expenses.
An even more startling statistic was that 35 percent of the parents surveyed expect that they will have to delay their retirement in order to meet college expenses. These individuals are taking a risk that they will be healthy enough to continue working and that they will have jobs to work at.
If parents are saving less, the remainder has to come from somewhere and the study indicates that 55 percent of parents will be expecting their children to work part time while in college, 44 percent plan to have their children live at home while commuting to college, 37 percent will be encouraging their children to attend a less expensive public school and 23 percent will ask their children to graduate in fewer semesters.
Also, more and more parents will be relying on student loans. In 2007, 52 percent of parents planned to rely on loans to help meet college expenses. In 2008, that figure had risen dramatically to 62 percent.
It seems that I have been fielding a lot of questions lately relating to 529 plans. Today I will talk about how to invest your money once you have selected a specific 529 plan.
Every plan is different, but speaking in very broad terms, most plans offer age-based portfolios, target (or static) portfolios, and the ability to select individual funds.
With age based funds, you pick the fund that most closely maps to your childs current age. If you have three kids who are five years apart, each child would probably be invested in a different fund. The portfolio of the oldest child would be invested less aggressively than the middle child who would be invested less aggressively than the youngest child.
Typically, the age "bands" are three to five years. A 15 year old child might have a portfolio containing 40% equities, while a 10 year old child might have 60% equities, and a 5 year old might have 80% equities.
Over time, each age based portfolio automatically changes and becomes more conservative. This is the option to choose if you want to invest your money on "autopilot" and not have to be revisting your investment choices.
Target or Static Portfolios
Alternatively, target or static portfolios have a constant allocation. The 100 percent equity fund, for example, would always be 100 percent invested in equities. The 20 percent equity fund would always have a 20 percent equity exposure. Oftentimes these funds are simply labeled "Aggressive", "Moderate", or "Conservative".
These portfolios do not change based on the age of the beneficiary. If you think a portfolio with a 60 percent allocation to equities is "about right" for now and the forseeable future, and you don't want your portfolio to get very conservative as your child approaches college age, these portfolios may be for you.
Lots of people select the 100 percent equity portfolio for a young baby and leave it that way for 10 years or more. When the child approaches the teen years, the parents may switch to a more moderate portfolio. These portfolios are often used by people who want a little bit more control over the investments.
Finally, many plans offer the ability to pick individual mutual funds and the big attraction here is that you can allocate your money across the different funds however you want. This is my favorite option and it is popular among the "I must have total control" crowd. Usually, there are 15 to 20 fund possibilities and you can tailor the portfolio to include exactly what you want. Depending on which funds are selected, these portfolios may be more volatile than the typically more broadly diversified age based portfolios and target portfolios.
In summary, I encourage you to read the enrollment handbook for any plan that you are considering. Most are very easy to read -- not at all like a mutual fund prospectus. After reading the handbook, you should have a pretty good idea of how you want to invest. And, don't forget that you are free to change your mind. The owner of the account can change the allocations once per calendar year or upon a beneficiary change.
Should I take the money I have invested in mutual funds and start a 529 plan for my 18 month old daughter? What will the tax implications be?
529 accounts can only be funded with cash, so if you wanted to open a new 529 account using money that is currently invested in mutual funds, you would need to sell the mutual funds first.
If you have held the funds for more than one year and they are currently worth more than what you paid for them, you would have a long term capital gain. The highest rate that would apply to these gains would be 15 percent and it is possible that a 0 percent rate could apply (depending on your current tax bracket). If you have held the funds for less than a year, any gains would be taxed at ordinary income rates.
If the shares are worth less than what you paid for them, you would have a loss. This loss could be used to offset other gains and then up to $3,000 in ordinary income. Whatever losses you couldn't use this year could be carried over to future years.
It might be better (and easier) for you to simply open a new account and sign up for automatic monthly contributions. Many plans waive all fees if you commit to making monthly contributions of $25 or $50.
Remember, there is no guarantee that your daughter will attend college. The odds may be good, but if she never goes to college and there aren't any brothers or sisters to transfer the money to, taxes and a 10 percent penalty would be due on any earnings withdrawn from the 529 account that weren't used for qualified education expenses.
One of the advantages of saving for college using a 529 plan is that earnings will not be taxed until they are distributed and if the earnings are distributed to pay qualified education expenses, no federal taxes will ever be due.
For gift tax purposes, contributions to 529 plans are considered to be a gift so in 2008, you can contribute up to $12,000 to an account without the contributions being considered a taxable gift. If you want to make a larger gift, contributions of up to $60,000 are possible if you file a Federal Gift Tax return and elect to treat the deposit as if it were made over 5 years.
I am interested in saving for college for my 8 month old daughter, are 529 plans the best way to save and how do I find the best plan?
Last year, private college costs increased at 6.3% and public college costs increased at 6.9% according to The College Board, so it makes sense to start saving for college as early as you possibly can. Starting before your daughter turns one will reduce the amount you need to save each month. If she goes to a college costing $20,000 per year, you need to be saving approximately $500 per month if you can start now and earn 7% on your investments. Wait 5 years and the monthly savings increases to $750 per month.
I used to be a fan of saving for college by using the Coverdell Savings Accounts and 529 plans because money saved in Coverdells could also be used to pay for private elementary and secondary school expenses if needed, but that won't be the case in 2011. Now, I focus almost exclusively on 529 plans. As I've mentioned in previous posts, I like the Fidelity UFund and the College Savings Plan of Nebraska. Both of these direct-sold plans were recently recognized as top performing plans on Joe Hurley's savingforcollege.com website. The other top plans included:
West Virginia's SMART 529 Plan
Kansas' Learning Quest 529 Plan
Nebraska's TD Ameritrade 529 College Savings Plan
Kansas' Schwab 529 Plan
Missouri's MOST 529 Plan
Indiana's CollegeChoice 529 Investment Plan
Nevada's UPromise College Fund
Utah's Education Savings Plan
This list contains only those plans that are "direct sold", which means that parents invest in the plans directly. The same website also maintains a list of "broker-sold" plans. Direct sold plans tend to have lower expenses, so if you don't feel you need advice about how much to save and what savings vehicle to use, a direct sold plan will probably meet your needs.
Remember that you are free to invest in any state's plan -- you can live in Massachusetts, invest in Utah's 529 Plan, and send your child to college in New York. Many states offer deductions or credits for 529 plan contributions but, unfortunately, Massachusetts does not.
Later this week, I will talk about the broad categories of investment options offered within 529 plans.
Volkswagen is introducing a new minivan to the US market next month and it is also introducing a fairly innovative incentive. If you purchase or lease a Routan minivan by August 31, 2008 and take delivery by November 30, 2008, Volkswagen will deposit $1,500 into an account held by its partner in this effort, Upromise. Money deposited into the Upromise account can then be moved into a Section 529 college savings fund. The cost of the brand new Routan ranges from $24,700 for the S model to $38,400 for the SEL. For more information on this offer, you can visit the Upromise website.
Volkwagen reports that 6,000 people have signed up for the offer so far, but is this really a great deal? Maybe, maybe not. Oftentimes, when dealers are running special promotions like this, they are less willing to "deal" on the price of the car. So, you might get a $1,500 contribution to a 529 plan but maybe if they weren't running a special, you would have been able to pay $1,500 less for the car simply by being an aggressive negotiator. You are probably still coming out a little bit ahead with promotions like these (and the ability to negotiate well) but you probably aren't really getting a $1,500 windfall.
That being said, are there really any "no brainer" ways to grab free cash for college? The Upromise program is probably as close as you will come. Upromise has been around for about 7 years and it has more than 8 million members. The company reports that its members have earned over $425 million in member rewards. Membership is free and you earn credits by shopping at grocery stores, drug stores, gas stations, and restaurants that are part of the Upromise network.
I also like the credit cards that credit a percentage of everything you charge to a 529 account. My favorite is the Fidelity 529 College Rewards Card. 1.5 percent of everything charged on this card gets credited to a Fidelity-managed 529 account. There is an annual maximum reward contribution of $1,500 but you would have to charge over $100,000 per year in order to bump into that limit. Grandparents and other relatives can also get their own cards and their credits can be directed to your child's 529 account. If you pay off your credit card bill each month, this could be a good card for you. With college costs rising so rapidly, every little bit helps.
My step-daughter will be applying to colleges in the fall. What is the best way her father and I can prepare ourselves financially? And how is a student with divorced parents affected in terms of financial aid?
The rules for financial aid for the children of divorced parents can be very complicated. However, the general guideline is that the custodial parent is the person responsible for completing the Free Application for Federal Student Aid (FAFSA) form. If your stepdaughter lives with you and your husband for most of the year leading up to the filing of the FAFSA, your husband is likely the custodial parent. Otherwise, the custodial parent is your stepdaughter's mother.
When it comes to determining financial aid, the Federal government does not consider the income and assets of the non-custodial parent. One the other hand, most private colleges do consider the non-custodial parent's income and assets. So, the distribution of aid from the college itself will probably be determined using both parent's income, but Federal and State aid (which would include subsidized Stafford loans)will be based only on the custodial parent's family income.
If your husband is the custodial parent, you should be aware that your income is considered to be available to meet college needs. This is true even if you were married the week before the FAFSA form was filed and you have four children of your own to support. Most people are surprised to hear this, but it is true. If you haven't planned appropriately, you could find yourself with a very high expected family contribution (EFC) because of the inclusion of your income. To determine what your EFC might be, check out this calculator.
That doesn't mean that the non-custodial parent is "off the hook" when it comes to paying for college. Many divorce decrees specify that the non-custodial parent must pay a certain amount of percentage of college costs. Massachusetts is one of the states where payment of college expenese can be ordered by a judge.
For more information on this topic, check out the FinAid website. Also, it never hurts to contact the financial aid officers at the schools your daughter is considering attending. They should be able to tell you, at least in general terms, how they make financial aid decisions for the children of divorced parents.