Back to School Edition
(Get Schooled By The Zen Mensch)
Q: How can I save for Molly’s college AND my retirement ?
–Yale Mary, No Haven, CT
A: Most of us cannot. It helps if you marry young, have two stellar jobs with pensions, produce 1.7 genetically modified children with perfect grades, and have an inheritance from Granny. Even then, it’s virtually impossible to guarantee yourself a comfortable retirement and accumulate sufficient savings to pay your kids’ way — even one is a Herculean task. (And we won’t even talk about if you have to help Granny financially.)
The general rule of thumb is to make funding your retirement the priority. No one else will do it for you; on the other hand, Valeriedictorian may get a full scholarship, work for Oprah or simply not go to college, sleep late and refuse to either move out of the nest OR pay you rent.
If you are able to putting some money away for college, I recommend you look into the many state-sponsored “529 college savings plans” that are managed by private investment companies and allow your investments to grow on a tax deferred basis. They are not for everyone, however.
(Yes, we do financial planning to help you navigate all this. E-mail me.)
Q: I’m doing neither college nor retirement savings because I’m sending Constantine to an expensive Catholic high school. Tell me about the tax breaks.
–Jorge Mario Bergoglio, Vatican City
A: Sorry Big Pappy — there aren’t any. The best you can do is a Coverdell Education Savings Account, which lets you grow after-tax dollars tax deferred and use them for K-12 expenses. Then again, the limit on contributions to such accounts is $2,000 per year, which may explain why you’re more familiar with obscure facts like the name of your local City Councilor.
Q: My schools are non-denominational, although we accept tuition in any denomination. Okay?
–Maria Montessori, Franchiser
A: Okay, but this is not about religion, Maria. There are tax breaks for higher education at any qualified institution, including private religious ones. There are no equivalent ones for elementary and secondary education, at least on the federal level. You can always make tax deductible contributions if your private school has obtained charitable non-profit status.
(Do you want to submit a guest post for a future Dispatch? E-mail me.)
Q: Hooray! I graduated from Medical school and am only $300,000 in debt. But at least I can write-off my student loan debt!
–Gregory House, Imperial MD
A: Joke’s on you Doc; you’ve misdiagnosed this one. You thought the tax system was logical. You incur that debt so you can make a good living as a professional — and then when you finally start earning more than a pittance, lose your eligibility for the small deduction. That might be malpractice. (The 2013 threshold is $75,000 for single filers and $155,000 married joint )
Q: You seem to have a theme here, Mr. Mensch. As in, don’t rely on the tax code to help Princess get through school?
–”What’s the Matter with Kids Today?” Bye Bye Birdie, Sweet Apple, Ohio
A: Nice insight. Many would argue that making social policy through the tax code is ineffective and even wasteful. If you go to a community college and have limited income the tax benefits will be useful. If you go to just about any four year college the benefits for your parents will be marginal at best — and, yes, the higher education tax credits I spoke of earlier also phase out with income. Your folks worked their butts off to put you through school and as a result don’t get any tax credits because of income limitations– they made too much. You’re paying your own way? Great — but then your income may be too low to have much of an impact on your tax liability.
