Attention all college students!
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With books (and tuition) stacking up, make sure you are maximizing your savings now and for your future. Check out our top 5 strategies for college students.
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Receive up to $2,500 credit per eligible student for undergraduate college education – that’s $10,000 in savings over a four-year college education! You may receive 100% of the first $2,000 of qualified education expenses, and 25% of the next $2,000. As an added bonus, 40% of the American Opportunity tax credit is refundable, up to $1,000. So even if the credit reduces your tax bill to zero, you can receive money back as a refund. Click the button above to visit the IRS website for details and eligibility.
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Receive up to $2,000 credit (20% of the first $10,000) for undergraduate, graduate, and professional degree courses, including courses to acquire or improve job skills. There is no limit on the number of years you may claim this credit. Unlike the AOTC, this is not refundable – you may use it to pay tax owed, but will not receive credit back as a refund. Click to take a look at LLC qualifications and further details.
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Consider taking classes through a community college. Be sure to confirm credits will transfer before enrolling. Maximizing credits at a community college can save thousands of dollars of higher education expenses, reduce student loan debt, and allow students to enter the work force or begin graduate courses earlier. With college expenses exceeding $20,000 per year in Virginia, this has never been more important.
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Total student loan debt has surpassed $1.5 trillion, up from $600 billion ten years ago. Student loan debt is crippling. Although some student loan debt may be necessary to achieve your goals it’s important that our next generation of workers understand the crippling impact. Maximizing 1, 2, and 3 are some of the strategies that can help limit the amount of student loan debt accrued during college. Consider looking for student job opportunities to help limit the amount of student loan debt taken each semester. Remember, just because you are eligible for X amount of debt, doesn’t mean that it all must be taken or used. Don’t make the mistake of using your student loans to finance spring break trips or post-graduate travel expenses.
Example:
Virginia Tech tuition, fees, and room and board expenses total a whopping $22,554 for 2018-2019. If 100 percent of college is financed through student loans the student will graduate with $90,216 in student loan debt, assuming no increases over the 4 years. With an interest rate of 5.05% on undergraduate loans, a payment of $715.77 would be required to pay off the debt in a 15 year time period (age 37) and would result in total interest of $38,623.38! Assuming a 30 year repayment of $487.06 per month, the debt will now be paid off at age 52 and result in an interest expense of $85,125.44, which is almost double the amount of the original loans!
Budget: Consider the impact of student loans on a recent graduate’s budget based on a $50,000 salary.
50k Salary with a Single and 1 W4 election results in a bi-weekly deposit to checking account of approximately $1575, before state taxes, or $3,150 per month.
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Rent $1,000 per month
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Auto Loan $400 per month
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Student loan $715.77 per month
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Cell Phone $50 per month
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Health Care $200 per month
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VA state taxes $200 per month
$584.23 surplus before food, entertainment, other insurance needs and etc. It’s clear that there isn’t much room for saving for retirement, establishing an emergency fund, purchasing life insurance to protect their family, and to do the other things that our next generation needs to do to reach financial security.
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If you are working, consider funding a Roth IRA while you are in college. While retirement may seem like a long way off, starting young and contributing regularly to your retirement savings is so important. If you make the most of each of the strategies above, and can set aside $458 per month, you can max fund a Roth IRA. Over the course of 40 years, a $458 monthly contribution invested at an 8% rate of return equates to $1.5 million, not taxable when you withdraw at retirement! The earlier you start building your retirement savings, the better. You will thank yourself later!
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Mason & Associates, LLC | (757)223-9898
11827 Canon Blvd. Ste. 204 Newport News, VA 23606 | www.masonllc.net
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Michael R. Mason, CFP®, CLU®, ChFC®, Kenneth T. Mason, RICP®, and John M. Mason, CFP® offer securities & advisory services through Centaurus Financial, Inc., Member FINRA and SIPC, a Registered Investment Advisor. Mason & Associates, LLC and Centaurus Financial, Inc. are not affiliated companies. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in the following states: Arizona, California, Colorado, Florida, Indiana, Maryland, North Carolina, and Virginia.
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