Welcome to Spring!

With the arrival of spring each year, comes the inevitable spring cleaning.  If it’s been a while since you did a “spring cleaning” of your retirement accounts, there’s no time like the present. 

Leading off this month is an article entitled, “What Should I Do With My Old 401(k)?”  The career path of many Americans is strewn with the wreckage of old and neglected company retirement plans.  If you have ever felt confused about your options, this is a good article for you.

Our guest contribution this month is from the co-founders of Road to College, Chuck Hughes and Steve Pemberton.  Road to College is a college consulting firm offering personalized college preparation solutions for students and their parents.  Chuck and Steve are well-known experts in their field, having been featured in several national publications such as Forbes Magazine and the Chicago Sun Times.  I’m grateful for their article about financial aid, entitled “College Financing Revisited.”  If you have children in high school, consider calling Road to College for assistance with financial aid as well as the college selection process.

And finally, I’d like to shed some light on those yellow elastic bands you may see people wearing on their wrists.  Up until a few months ago, I had no idea what they were all about.  As I learned recently, the bands are distributed by the LIVESTRONG Resource for cancer survivors, an educational program of the Lance Armstrong Foundation.  I hope you’ll check out “Wear Yellow.”

If you like the newsletter, feel free to pass it on.  Thanks for reading and for your continued support!

Best regards,

David Chwalek
Capital Retirement Strategies

In This Issue
What Should I Do With My Old 401(k)?
College Financing Revisited
Wear Yellow

What Should I Do With My Old 401(k)?

In today’s world of job changing, downsizing and moving up the corporate ladder, it’s unusual for someone to stay at the same job for more than a few years.  In fact, most of us will work for at least five different companies over the span of our career.  What happens to our old 401(k) plans when we change jobs?

For many Americans, the old 401(k)’s are quickly forgotten or neglected.  This can be a major mistake, especially if you’re planning on retiring someday!

There are generally four options that are available when you leave a job- and the 401(k) behind:

1. Take it in cash- This is usually the worst choice you can make.  If you take your 401(k) balance in cash, you will owe federal and state taxes, as well as a 10% early withdrawal penalty if you’re under age 59½ .  While there may be times when your situation calls for emergency cash, this should really be a last resort.  There are a few special circumstances in which the early withdrawal penalty can be avoided- a disability, for example- but be sure to consult your tax advisor before choosing this option.
2. Leave it where it is- This isn’t a bad idea for the short-term, especially if you’re carefully weighing your other options.  There are some restrictions that may limit the long-term appeal of this choice.  For example, your investment choices are limited to what’s available in the plan.  And you won’t be able to contribute any more money to the plan or take loans, because you’re no longer an employee of the company.  If your vested account balance is less than $5,000, your employer may automatically cash you out.
3. Move your money into your new company’s plan- While this may seem like a convenient way to consolidate your old and new retirement accounts, be sure to do your due diligence on the new plan before you decide.  Is there a waiting period for new employees before they can enroll in the company retirement plan?  What are the investment options?  Are there good fund choices in a variety of asset classes?  Are there several money managers in the plan or just one mutual fund company?
4. Roll it over to an IRA- By initiating a rollover of your old 401(k), you maintain the same tax-deferred protection you enjoyed through your employer’s plan.  With a rollover IRA, you often have more investment options than a typical company retirement plan.  IRA accounts can be invested in mutual funds, stocks, bonds and bank savings instruments, like certificates of deposit.  An IRA generally gives you greater control of your funds and has fewer limitations and rules than an employer-sponsored plan.  You may also continue to add money to your new IRA.

Every situation is different, so weigh your options carefully and consider seeking the advice of a tax or financial professional.  Don’t ignore this important piece of your financial plan!

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College Financing Revisited

By Chuck Hughes and Steve Pemberton – Co-Founders of Road To College

Financial aid, or better yet, receiving financial aid, all starts with your EFC. You’re going to see a bunch of acronyms from now until you head off to college, but this alphabet soup will soon be part of your daily vocabulary.  The letters stand for “Expected Family Contribution.”  The EFC is the result of a formula that tells you how much money your family might have to come up with to pay for college.

The federal government looks at five factors to calculate your family’s EFC. 

• ASSETS – like those that make up your investment portfolio.  Now…… this doesn’t include the value of your primary residence if you happen to own a home

• INCOME – how much money both you AND your student make per year

• HOUSEHOLD SIZE – how many family members you’re financially responsible for

• NUMBER IN COLLEGE – how many people in your household are currently enrolled in college at least part-time

• AGE – how close the older parent is to retirement

Now…I don’t like to pay for things I can get for free.  If you’re like me in that way then know that there ARE online calculators that can help you figure out your unofficial EFC……. for free.  Once you know your estimated EFC, and have a general idea of the cost of the schools your child wants to attend, it’s then easy to figure out your estimated “FINANCIAL NEED” – or…..how much financial assistance your student might qualify for in order to attend a specific school.  Let’s go through a quick example.

Let’s take a look at how the EFC comes into play when figuring out what he/she needs in order to attend a public vs. a private college.  Let’s assume you have a student that’s considering more than one college right now. 

Let’s imagine that your child has narrowed his/her list down to two schools, one Public College and one Private College.  We’ll just say that Public College costs $15,000 per year, and the Private College costs $25,000.  Now let’s say for the sake of this exercise that your EFC is $10,000.  Based on the 5 Funding Factors we just talked about – your income, assets, household size, etc. – your family is expected to pay $10,000 per year toward the cost of your child’s education.  When you subtract those two numbers, what’s leftover is your “FINANCIAL NEED.” 

This means you might be eligible for up to $5,000 in financial assistance if your child happens to attend the Public College …..and $15,000 from the Private College.

The major point?   Did your EFC change even though one school had a higher price tag than the other?  No…it didn’t!  Did your financial NEED change?  Yes!  So when you hear that a private college can be AS affordable as a public college, this example shows you how that can be. This is also why you should never discount a school because of its price alone.        

Here’s the important part: the federal government calculates your official EFC based on a very special form called the FAFSA – yes…more alphabet soup for you - “FAFSA” stands for "Free Application for Federal Student Aid."   You fill out the form. They do the calculations.

How important is the FAFSA form?  The FAFSA is the “key to the safe” that holds the majority of financial aid.  No FAFSA, no aid. Remember that line.

No FAFSA, no aid.

So, you fill out the FAFSA and send it to the government.  (The FAFSA is available at your high school or through the government’s website: www.fafsa.ed.gov.) The government determines your EFC and sends that information to the financial aid offices of the colleges that your son or daughter is considering……… and that’s where your “financial need” will be calculated based on what it costs to attend that particular school. 

If you have further questions about the college financing process, do not hesitate to contact us at www.roadtocollege.com or (888) 835-4620.

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Wear Yellow

You’ve seen them everywhere- at your office, at the gym, at the supermarket… those yellow elastic bands people are wearing on their wrists.  Distributed by Live Strong, an educational program of the Lance Armstrong Foundation, the wrist bands are sold for $1 each on the Foundation’s website www.laf.org.  Lance Armstrong, the champion cyclist and cancer survivor, founded the organization in 1997 while undergoing treatment for cancer that had spread to several of his organs.  Prior to his diagnosis, Lance was already one of the world’s best cyclists, but it wasn’t until after his treatment and recovery that he started his amazing streak of six consecutive Tour de France wins.  Although he will probably go down in history as the greatest cyclist ever, his legacy will be much more than that.  To date, over 40 million yellow wrist bands have been sold, thanks in part to the popularity of one of the world’s most famous athletes. 

Live Strong is a resource for cancer survivors, as well as their friends and family.  The website (www.livestrong.org) features educational topics ranging from the side effects of various treatments to handling matters such as insurance and employment.  Live Strong seeks to be a resource not just for physical cancer-related issues, but for emotional and practical ones as well.

I have recently purchased a number of the wrist bands for my friends, associates and clients.  If you or someone you know would like to wear one of the yellow bands as a show of support for cancer survivors in our community, please send me an email and I will send you a free wrist band.

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