LeTort Trust Foundation donated $25,000 to the Bethesda Mission Community Center as its first charitable contribution under the new name.

Harrisburg, PA April 10, 2024- LeTort Trust Foundation, formerly known as the Atgooth Foundation, proudly donated $25,000 to support phase two of the Bethesda Mission Community Center expansion project. Having supported phase one of the expansion with an initial donation of $25,000 in 2016, we were thrilled to witness the profound impact it had on the youth of our community. We recognized the tremendous opportunity this brought, and we were eager to support the additional expansion. As the charitable arm of LeTort Trust, this marked the foundation’s first contribution under its new name.

The Bethesda Mission Community Center has been supporting the community for over 30 years, providing children and their families with resources and skills to help enrich their lives. In August of 2023, several members of LeTort Trust had the privilege of touring the completed project and discussing the facility’s needs for the ongoing expansion of the Community Center with the Youth Ministry Manager, Nashon Walker. Nashon shared his enthusiasm and passion for providing a safe space for the community’s youth to come and have engaged experiences with their families.

LeTort Trust President, Katie Clarke, shared, “It was Nashon’s passion for his community that inspired us to pledge our support to the organization for phase two of the Community Center expansion. This next phase will provide much-needed space for the youth and their families, so it just made sense to support their continued expansion. They were changing lives and supplying opportunities to the children and families that were part of the program, which reflected the LeTort Trust Foundation’s mission and commitment to building brighter futures in our community.”

As part of this contribution, LeTort Trust presented a check to the Bethesda Mission, symbolizing the foundation’s ongoing support for the mission’s initiatives. Accepting on behalf of the Mission was Nashon Walker, along with Cindy Mallow, Director of Development and Andre Cooper, Basketball Coach and Community Center Director. Andre shared, “That this is a huge blessing. Support from organizations like LeTort Trust, help us to facilitate our Seven C’s objectives, while expanding services to the youth and their families at the same time.”

 

 

 

To find out how you can support the Mission’s Youth Center Expansion Project, visit their website at Bethesda Mission.

About LeTort Trust
LeTort Trust is a private Trust Company, providing comprehensive Qualified Retirement Plan and Wealth Management services, designed for complex financial needs of businesses and individuals.

IRA and Retirement Plan Limits for 2024

WASHINGTON — The Internal Revenue Service announced today that the amount individuals can contribute to their 401(k) plans in 2024 has increased to $23,000, up from $22,500 for 2023.

The IRS today also issued technical guidance regarding all of the cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2024 in Notice 2023-75.

Highlights of changes for 2024

The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan is increased to $23,000, up from $22,500.

The limit on annual contributions to an IRA increased to $7,000, up from $6,500. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment but remains $1,000 for 2024.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan remains $7,500 for 2024. Therefore, participants in 401(k), 403(b), and most 457 plans, as well as the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,500, starting in 2024. The catch-up contribution limit for employees 50 and over who participate in SIMPLE plans remains $3,500 for 2024.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increased for 2024.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase‑out ranges for 2024:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $77,000 and $87,000, up from between $73,000 and $83,000.
  • For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $123,000 and $143,000, up from between $116,000 and $136,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $146,000 and $161,000 for singles and heads of household, up from between $138,000 and $153,000. For married couples filing jointly, the income phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $76,500 for married couples filing jointly, up from $73,000; $57,375 for heads of household, up from $54,750; and $38,250 for singles and married individuals filing separately, up from $36,500.

The amount individuals can contribute to their SIMPLE retirement accounts is increased to $16,000, up from $15,500.

Additional changes made under SECURE 2.0 are as follows:

  • The limitation on premiums paid with respect to a qualifying longevity annuity contract to $200,000. For 2024, this limitation remains $200,000.
  • Added an adjustment to the deductible limit on charitable distributions. For 2024, this limitation is increased to $105,000, up from $100,000.
  • Added a deductible limit for a one-time election to treat a distribution from an individual retirement account made directly by the trustee to a split-interest entity. For 2024, this limitation is increased to $53,000, up from $50,000.

Details on these and other retirement-related cost-of-living adjustments for 2024 are in Notice 2023-75, available on IRS.gov.

LeTort Trust announces the renaming of the Atgooth Foundation to the LeTort Trust Foundation

Mechanicsburg, PA, (March 6, 2024)- This was a move intended to better align the business success with its charitable giving, LeTort Trust proudly announces the official name change of its charitable foundation from Atgooth Foundation to the LeTort Trust Foundation.

The Atgooth Foundation was originally founded in 2011 as the charitable arm of LeTort Trust. Leveraging the financial success of LeTort Trust, the foundation has been primarily dedicated to providing financial literacy and educational opportunities for youth in the Harrisburg area.

Over the last 13 years, LeTort, through the Foundation, has supported organizations in the Greater Harrisburg and surrounding areas that have helped fulfill our mission, including The Joshua Group, Junior Achievement of South Central Pa, the Foundation for Free Enterprise Education (PFEW), Harrisburg University and the STEAM Academy, among many others. The Foundation has also extended its support beyond the general mission to respond to general community aid, through financial gifts to organizations such as the YWCA, the Bethesda Mission, Leadership Harrisburg Area, CREDC, and the Central Pennsylvania Food Bank. Since the foundation’s initiation, LeTort has supported local non-profit initiatives and organizations with direct gifts exceeding $1.5 million dollars.

LeTort Trust President, Katie Clarke, expressed enthusiasm about the change, stating, “We are excited to unveil our new identity as the LeTort Trust Foundation. The communities in which we serve have been critical to our business success. This name change brings it all together.”

The LeTort Trust Foundation’s commitment to making a positive impact in our community remains steadfast, and the name change is just the next step in our continued journey to support our local youth to live better lives and brighter futures.

About LeTort Trust
LeTort Trust is a private Trust Company, providing comprehensive Qualified Retirement Plan and Wealth Management services, designed for complex financial needs of businesses and individuals. For additional information on LeTort Trust or LeTort Trust Foundation, please visit our website at www.letorttrust.com.

LeTort Trust Announces the Appointment of Aimee Hultzapple as Communications Manager

Mechanicsburg, PA (January 23, 2024) – LeTort Trust is pleased to announce the recent appointment of Aimee Hultzapple as Communications Manager.

Communication Manager LeTort Trust

Aimee is responsible for overseeing the strategic planning of all our internal and external communications, including client communications, press releases, website administration, and the maintenance of the Financial Literacy program. She plays a key role in preserving LeTort’s story and mission. Before joining LeTort Trust, Aimee held the position of Head of Communications, where she managed strategic and corporate communications, media relations, and event planning.

Aimee earned her Bachelor of Arts Degree in Communication and Media Studies from Penn State University.

“We are thrilled to welcome Aimee to the LeTort Trust team,” said Katie Clarke, President of LeTort Trust. “We are confident in her ability to foster effective communication strategies through her art of visual storytelling and compelling narratives. Aimee brings a touch of innovation that will be critical in continuing to evolve LeTort’s digital presence and strengthen our relationships with clients and the community.”

LeTort Trust is an Independent Trust Company, providing comprehensive Qualified Retirement Plan, Personal Trust and Wealth Management services designed for the complex financial needs of businesses, institutions and individuals. For further information on LeTort Trust, please visit our website at www.letorttrust.com.

LeTort Trust Announces the Appointments of Tya Rumbel and Katrina Douglas

Camp Hill, PA (September 7, 2023) – LeTort Trust is pleased to announce growth to our Operations Team through the recent additions of Tya Rumbel as Operations Specialist and Katrina Douglas as Client Concierge.

Tya provides support to the Personal Trust department, focusing on essential functions such as client bill pay, distributions, and compiling documentation for new accounts. Tya has an extensive background in the financial services and banking industry, most recently working as a Financial Service Representative for Ameri Choice Federal Credit Union.

Katrina plays a pivotal role in creating a welcoming environment for our clients, partners, and team members. She manages front office operations and is the point of contact for clients needing assistance. Prior to joining LeTort Trust, she worked as an Administrative Assistant for Ross Buehler Falk & Co.

“We are thrilled to welcome Tya and Katrina to our growing Operations Team. Their unique skill sets align seamlessly with LeTort’s values, and their expertise will undoubtedly contribute to our mission of providing clients with top-of-the-line customer service and account management,” said Greg Campbell, Director of Operations.

LeTort Trust is an Independent Trust Company, providing comprehensive Qualified Retirement Plan, Personal Trust and Wealth Management services designed for the complex financial needs of businesses, institutions, and individuals.

IRS announces administrative transition period for new Roth catch up requirement; catch-up contributions still permitted after 2023

Washington (August 25, 2023) – Today, the Internal Revenue Service announced an administrative transition period that extends until 2026 the new requirement that any catch-up contributions made by higher‑income participants in 401(k) and similar retirement plans must be designated as after-tax Roth contributions.

At the same time, the IRS also clarified that plan participants who are age 50 and over can continue to make catch‑up contributions after 2023, regardless of income.

Today’s announcements were included in Notice 2023-62PDF, now posted on IRS.gov. This notice provides initial guidance for section 603 of the SECURE 2.0 Act, enacted in December 2022. Under that provision, starting in 2024, the new Roth catch-up contribution rule applies to an employee who participates in a 401(k), 403(b) or governmental 457(b) plan and whose prior-year Social Security wages exceeded $145,000.

The administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement. The notice also clarifies that the SECURE 2.0 Act does not prohibit plans from permitting catch-up contributions, so plan participants who are age 50 and over can still make catch-up contributions after 2023.

The Treasury Department and the IRS plan to issue future guidance to help taxpayers, and the notice describes several positions that are expected to be included. In addition, the notice invites public comment on the matters discussed in the notice and suggestions for the future. The notice provides details on how to submit comments.

Five Ways SECURE 2.0 Changes the Required Minimum Distribution Rules

The SECURE 2.0 legislation included in the $1.7 trillion appropriations bill passed late last year builds on changes established by the original Setting Every Community Up for Retirement Enhancement Act (SECURE 1.0) enacted in 2019. SECURE 2.0 includes significant changes to the rules that apply to required minimum distributions from IRAs and employer retirement plans. Here’s what you need to know.

What Are Required Minimum Distributions (RMDs)?

Required minimum distributions, sometimes referred to as RMDs or minimum required distributions, are amounts that the federal government requires you to withdraw annually from traditional IRAs and employer retirement plans after you reach a certain age, or in some cases, retire. You can withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you will be subject to a federal tax penalty.

These lifetime distribution rules apply to traditional IRAs, Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs, as well as qualified pension plans, qualified stock bonus plans, and qualified profit-sharing plans, including 401(k) plans. Section 457(b) plans and Section 403(b) plans are also generally subject to these rules. (If you are uncertain whether the RMD rules apply to your employer plan, you should consult your plan administrator or a tax professional.)

Here is a brief overview of the top five ways that the new legislation changes the RMD rules.

1.  Applicable Age for RMDs Increased

Prior to passage of the SECURE 1.0 legislation in 2019, RMDs were generally required to start after reaching age 70½. The 2019 legislation changed the required starting age to 72 for those who had not yet reached age 70½ before January 1, 2020.

SECURE 2.0 raises the trigger age for required minimum distributions to age 73 for those who reach age 72 after 2022. It increases the age again, to age 75, starting in 2033. So, here’s when you have to start taking RMDs based on your date of birth:

 Your first required minimum distribution is for the year that you reach the age specified in the chart, and generally must be taken by April 1 of the year following the year that you reached that age. Subsequent required distributions must be taken by the end of each calendar year (so if you wait until April 1 of the year after you attain your required beginning age, you’ll have to take two required distributions during that calendar year). If you continue working past your required beginning age, you may delay RMDs from your current employer’s retirement plan until after you retire.

2.  RMD Penalty Tax Decreased

The penalty for failing to take a required minimum distribution is steep — historically, a 50% excise tax on the amount by which you fell short of the required distribution amount.

SECURE 2.0 reduces the RMD tax penalty to 25% of the shortfall, effective this year (still steep, but better than 50%).

Also effective this year, the Act establishes a two-year period to correct a failure to take a timely RMD distribution, with a resulting reduction in the tax penalty to 10%. Basically, if you self-correct the error by withdrawing the required funds and filing a return reflecting the tax during that two-year period, you can qualify for the lower penalty tax rate.

3.  Lifetime Required Minimum Distributions from Roth Employer Accounts Eliminated

Roth IRAs have never been subject to lifetime Required Minimum Distributions. That is, a Roth IRA owner does not have to take RMDs from the Roth IRA while he or she is alive. (Distributions to beneficiaries are required after the Roth IRA owner’s death, however.)

The same has not been true for Roth employer plan accounts, including Roth 401(k) and Roth 403(b) accounts. Plan participants have been required to take minimum distributions from these accounts upon reaching their RMD age or avoid the requirement by rolling over the funds in the Roth employer plan account to a Roth IRA.

Beginning in 2024, the SECURE 2.0 legislation eliminates the lifetime RMD requirements for all Roth employer plan account participants, even those participants who had already commenced lifetime RMDs. (Any lifetime RMD from a Roth employer account attributable to 2023, but payable in 2024, is still required.)

4.  Additional Option for Spouse Beneficiaries of Employer Plans

The SECURE 2.0 legislation provides that, beginning in 2024, when a participant has designated his or her spouse as the sole beneficiary of an employer plan, a special option is available if the participant dies before required minimum distributions have commenced.

This provision will permit a surviving spouse to elect to be treated as the employee, similar to the already existing provision that allows a surviving spouse who is the sole designated beneficiary of an inherited IRA to elect to be treated as the IRA owner. This will generally allow a surviving spouse the option to delay the start of required minimum distributions until the deceased employee would have reached the appropriate RMD age, or until the surviving spouse reaches the appropriate RMD age, whichever is more beneficial. This will also generally allow the surviving spouse to utilize a more favorable RMD life expectancy table to calculate distribution amounts.

5.  New Flexibility Regarding Annuity Options

Starting in 2023, the SECURE 2.0 legislation makes specific changes to the required minimum distribution rules that allow for some additional flexibility for annuities held within qualified employer retirement plans and IRAs. Allowable options may include:

  • Annuity payments that increase by a constant percentage, provided certain requirements are met
  • Lump-sum payment options that shorten the annuity payment period
  • Acceleration of annuity payments payable over the ensuing 12 months
  • Payments in the nature of dividends
  • A final payment upon death that does not exceed premiums paid less total distributions made

These are just a few of the many provisions in the SECURE 2.0 legislation. The rules regarding required minimum distributions are complicated. While the changes described here provide significant benefit to individuals, the rules remain difficult to navigate, and you should consult a tax professional to discuss your individual situation.

It is important to understand that purchasing an annuity in an IRA or an employer-sponsored retirement plan provides no additional tax benefits beyond those available through the tax-deferred retirement plan. Qualified annuities are typically purchased with pre-tax money, so withdrawals are fully taxable as ordinary income, and withdrawals prior to age 59½ may be subject to a 10% federal tax penalty.

 

IMPORTANT DISCLOSURES
LeTort Trust does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax
professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources
believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2023

LeTort Trust Assists Hampden Township Police Department with Backpack Project 2022

Camp Hill, PA (August 23, 2022) LeTort Trust was delighted to assist our friends at the Hampden Township Police Department with Backpack Project 2022 which will help get essential school supplies to students in need.
 
Detective Redifer with the police department started this project, knowing first-hand, how important it is for kids to feel prepared on their first day of school and how detrimental it can be when they don’t. She said she saw a need in the community and wanted to do everything in her power to make sure the local students have the supplies they need.
 
 Hampden Township Police is hosting the school supply giveaway event on August 27th and asking you to contact Detective Redifer (credifer@hampdentownship.us) if you know of a child who could benefit.
 
 

Phyllis Harmon Selected for Tribute to Women of Excellence Class of 2022

The YWCA Greater Harrisburg has announced their nominations for the 33rd Annual Tribute to Women of Excellence, Class of 2022, including LeTort’s Chief Operating Officer & Director of Wealth Management, Phyllis Harmon. Phyllis is passionate about helping our clients, a mentor to our staff, and dedicated to giving back to our community. She has made a difference in so many lives. 

During the last 33 years, the YWCA has honored well over 700 extraordinary women for their contributions to our region, both professionally and philanthropically.

Nominees:

  • participates actively in the community as a mentor, volunteer or role model
  • demonstrates integrity, strength of character and leadership
  • and embraces the vision and mission of the YWCA.

The full class of 2022:

Lynn Brooks, Life’s Journey Therapy Solutions

Melisa Burnett, Hamilton Health Center

Raeann Buskey – EMERGING LEADER, The Foundation for Enhancing Communities

Susan Cort, JPL

Katharine Dalke, MD, Penn State Health

Joyce Davis – LEGACY AWARD, PA Media Group

Lindsay Drew, iChase Solutions Marketing, LLC

Heather Eickhoff, PHR, SHRM-CP, Gannett Fleming

Suzanne Engels, Capital Blue Cross

Tracy Fleager, Penn National Insurance

Jeshanah Fox, Brown Schultz Sheridan & Fritz

Dr. Oralia Garcia Dominic, Highmark

Annie Garner, Dauphin County Library System

Becky Giannelli, PSECU

Shannon Gierasch, West Shore Home

Jodi Griffis, M&T Bank

Dr. Kimberly Harbaugh, Penn State Health

Phyllis Harmon, LeTort Trust

Brenna Kernan, Members 1st Federal Credit Union

Emily Lewis, The Hospital and Healthsystem Association of Pennsylvania

Dr. Kit Lu, UPMC

Ashley Mentzer, Thrive Fit Co.

Rosie Mesich, KPMG

Elizabeth Mihmet, Hospice of Central PA

Meera Modi, McNees Wallace & Nurick

Leah Payne, Christian Churches United

Susan Roof, Board of the Central PA Food Bank

Lauren Turnbull, Hershey Entertainment & Resorts

The Tribute to Women of Excellence event also raises essential funds so that the YWCA Greater Harrisburg can continue providing life-changing programs and services.

Saving for College and Retirement

What is it?

These days it’s not uncommon for parents to postpone starting a family until both spouses are settled in their marriage and careers, often well into their 30s and 40s. Though this financial security can be an advantage, it can also present a dilemma–the need to save for college and retirement at the same time.

The prevailing wisdom has parents saving for both goals at the same time. The reason is that older parents can’t afford to put off saving for retirement until the college years are over, because to do so means missing out on years of tax-deferred growth. Moreover, because generous corporate pensions (and lifetime job security) are now the exception rather than the rule, employees must take greater responsibility for funding their own retirements.

First, determine your monetary needs

The first step is to determine your projected monetary needs, both for retirement and college. This analysis will reveal whether you are on a savings course to meet both goals, or whether some modifications will be necessary.

You’ve come up short: what are your options?

You’ve run the numbers on both your anticipated retirement and college expenses, and you’ve come up short. The numbers say you won’t be able to afford to educate your children and retire with the lifestyle you expected based on your current earnings. Now what? It’s time to sit down and make some tough decisions about your expectations and, ultimately, how to compromise.

The following options can help you in that effort. Some parents may need to combine more than one strategy to meet their goals.

Defer retirement

Staying in the workforce longer is one way of meeting your retirement and education goals. The longer you wait to dip into your retirement funds, the longer the money will last.

Reduce standard of living now or in retirement

You may be able to adjust your spending habits now in order to have more money later. Consider making a written budget to track your monthly income and expenses. If your monetary needs have fallen far short of the mark, you will need to make a bigger spending adjustment than you would with a lesser shortfall. The following are some suggested changes:

  • Move to a less-expensive home or apartment
  • Sell your second car and carpool whenever possible
  • Reduce your entertainment budget (e.g., bring your lunch to work, eat out once a month instead of every week, rent movies instead of going to the cinema)
  • Get books and magazines from the library instead of the bookstore
  • Cancel any club memberships (e.g., golf club, health club)
  • Set a limit on birthday and holiday gifts for family members
  • Forgo expensive vacations
  • Shop for clothes in the off-season, when they’re likely to be on sale
  • Buy used furniture and used big-ticket items
  • Limit your child’s extracurricular activities, like music lessons or hockey camp

If you’re unable or unwilling to lower your standard of living now, perhaps you can lower it in retirement. This may mean revising your expectations about a luxurious, vacation-filled retirement. The key is to recognize the difference between the things you want and the things you need. The following are a few suggestions to help reduce your standard of living in retirement:

  • Reduce your housing expectations
  • Cut back on travel plans
  • Own a less-expensive automobile
  • Lower household expenses

Note: There’s a difference between reducing your standard of living in retirement and drastically reducing your standard of living in retirement. Most professionals discourage the use of retirement funds for your child’s education if paying college bills will leave you high and dry in your retirement years.

Work part-time during retirement

About 25 percent of retirees work part-time. You may find that the extra income enables you to enjoy the kind of retirement you had anticipated.

Increase earnings (i.e., spouse returns to work)

Increasing earnings may be another way to meet both your education and retirement goals. The usual scenario is that a stay-at-home spouse returns to the workforce. This has the benefit of increasing the family’s earnings so there’s more money available to save for education and/or retirement. However, there are drawbacks. The additional income may push the family into a higher tax bracket, and incidental expenses like day care and commuting costs may eat into your overall take-home pay.

In addition to a spouse returning to work, one spouse may decide to increase his or her hours at work, take another job with better compensation, or moonlight at a second job. Factors to consider here include the expectation of increased job pressure, less availability for child rearing and household management, the amount of extra income, the opportunity for advancement, and job security. Another way to create extra income is for a spouse to turn a hobby into a business.

Be more aggressive in investments

Your analysis has shown that your current savings (and the accompanying investment vehicles) will leave you short of your education and retirement goals. One option is to try to earn a greater rate of return on your savings. This may mean choosing more aggressive investments (e.g., growth stocks) over more conservative investments (e.g., bonds, certificates of deposit, savings accounts). This strategy works best the more years you have until retirement.

The more aggressive the investment, the greater the risk of loss of your principal. This strategy isn’t for people who shudder at the slightest downturn in the stock market. If you’ll have trouble sleeping at night, you probably shouldn’t take on greater risk in your investment portfolio.

Reduce education goal

One of the realities parents may have to face is that they can’t afford to fund 100 percent (or 75 percent, or 50 percent, as the case may be) of their child’s college education. This is often an emotional issue. Parents naturally want the best for their children. For many parents, this translates into sending them to (and paying for) college (especially in cases where one or both parents didn’t have such an opportunity).

You may have dreamed that your child would go to a prestigious Ivy League school. Well, with a year’s cost at such a school hovering at the $40,000 mark, maybe you need to lower your expectations. That small liberal arts college or the big state school may challenge your child just as much and at a far lower cost. Remember, there are loans available for college, but none for retirement.

Children pay more and/or assume more responsibility for loans

With college costs continuing to increase at a rate faster than most family incomes, and with perhaps more than one child in the family picture, chances are that more responsibility will fall on your child to help fund college costs. This money can come from part-time jobs or gifts, though the majority of your child’s contribution is likely to come from student loans.

Though student loans can be a financial burden in the early years, when graduates are just starting out in their careers, many loan providers offer flexible repayment options in anticipation of this common situation. In addition, if your child meets certain income limits, he or she can deduct the interest paid on qualified student loans.

When children take out student loans, parents can always decide to help financially rather than mortgaging their house before college. Students who take out student loans to pay for college may have a more vested interest in their education than students who receive help from their parents.

Other ways to lower cost of college

In addition to reducing your education goal and having your child pay a portion of college costs, there are other ways to lower the cost of college. For example, your child can choose a college with an accelerated program that allows students to graduate in three years instead of four. Likewise, your child may choose to attend a community college for two years and then transfer to a four-year private institution. The diploma will reflect the four-year college, but your pocketbook won’t.

How do you decide what strategy is best for you?

This decision must be made on a case-by-case basis. What works for one family may not work for another family. In some cases, more than one strategy will be necessary to deal with the demands of educating children and retiring successfully. Factors influencing your decision may include the following:

  • The amount of your financial need
  • Your current income and assets and any expectation of significant future income (e.g., a bonus at work, exercise of stock options, an inheritance)
  • The number of years you have until retirement
  • Your willingness to reduce your standard of living (now or in the future) for the sake of your children
  • The number of children in your family who plan on attending college
  • The academic, athletic, or other notable skills of your child that may raise the possibility of a college scholarship

Can retirement accounts be used to save for college?

Yes. But should you? Probably not. Many financial advisors recommend against dipping into your retirement account to pay college expenses as a preferred strategy. But if you must, there are some tax breaks available.

It’s now possible to withdraw money from either a traditional IRA or Roth IRA before age 59½ to pay college expenses without incurring the 10 percent early withdrawal penalty that normally applies to such withdrawals. However, any distributions of earnings and deductible contributions from a traditional IRA and any nonqualified distributions of earnings from a Roth IRA may be included in your income for the year, which may push you into a higher tax bracket.

This college exception to the 10 percent early withdrawal penalty is a good reason to funnel your child’s income from a part-time job into an IRA.

Unfortunately, there’s no similar college exception for employer-sponsored retirement plans, such as a 401(k) plan. So, if you’re under age 59½, you’ll pay a 10 percent early withdrawal penalty on any withdrawals. As with an IRA, any withdrawals are added into your income for the year, which may push you into a higher tax bracket. Nevertheless, saving in a 401(k) plan can be an attractive option for some parents because the company may match employee contributions and because most employer plans allow you to borrow against your contributions (and possibly earnings) before age 59½ without penalty.

Some parents who have built a college fund within their 401(k) accounts, but who are not yet 59½ when the kids are in college, take out what’s called a bridge loan (such as a home equity loan) to pay their child’s college bills. A bridge loan is a source of funds that tides you over until it’s more economical to tap your retirement account. Although you pay interest on a bridge loan, it may still cost less than what your 401(k) funds can earn. Then, when you turn 59½, you can start tapping your 401(k) plan to pay off the bridge loan with no early withdrawal penalty.

A benefit of using retirement accounts to save for college is that the federal government doesn’t consider the value of your retirement accounts in awarding financial aid (the federal formula also excludes annuities, cash value life insurance, and home equity from consideration). However, most private colleges do consider the value of your retirement accounts in deciding which students are the most deserving of campus-based aid.

IMPORTANT DISCLOSURES
LeTort Trust does not provide tax or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax
professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources
believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2023