Bonds and College
January 24, 2010 6:46 PM Subscribe
How should I handle US Savings Bonds? My husband has a payroll deduction plan for buying savings bonds, and he enrolled years ago as a way to supplement the rather meager pension plan. This has worked well for us because we are really bad at putting money away by ourselves. The bonds are earmarked for retirement, and that's the way he wants to keep it.
We now have a child in college, and are applying for financial aid. On the FAFSA form, it asks about assets, including savings bonds. Would it be better for us to cash the bonds in now and put the money into some kind of an IRA?
Additional data:We are talking about probably $15000 in bonds. Our income is relatively high, but our expected financial contribution from the FAFSA last year was $40,000, and it's killing us.
Any advice welcome.
Anonymous because I am really uncomfortable talking about money with strangers. Throwaway email: bondsncollege@live.com
We now have a child in college, and are applying for financial aid. On the FAFSA form, it asks about assets, including savings bonds. Would it be better for us to cash the bonds in now and put the money into some kind of an IRA?
Additional data:We are talking about probably $15000 in bonds. Our income is relatively high, but our expected financial contribution from the FAFSA last year was $40,000, and it's killing us.
Any advice welcome.
Anonymous because I am really uncomfortable talking about money with strangers. Throwaway email: bondsncollege@live.com
Also, the college's financial aid office would likely be happy to help you figure out the financial aid implications of cashing in the bonds vs keeping them. They cannot sort out whether it makes sense for you financially, but they would probably be able to give you an idea as to whether it makes sense to pursue that idea further. One way or another however, you guys should take advantage of this situation to shore up your financial planning.
posted by zachlipton at 7:05 PM on January 24, 2010
posted by zachlipton at 7:05 PM on January 24, 2010
You need an independent financial adviser, stat.
I would really second that.
As to the question of whether you should cash the bonds and put the proceeds into an IRA or some other retirement account: you need an independent financial adviser, stat.
Don't rely on the advice of strangers on AskMetafilter.
posted by dfriedman at 7:09 PM on January 24, 2010
I would really second that.
As to the question of whether you should cash the bonds and put the proceeds into an IRA or some other retirement account: you need an independent financial adviser, stat.
Don't rely on the advice of strangers on AskMetafilter.
posted by dfriedman at 7:09 PM on January 24, 2010
Definitely get a financial advisor/accountant. Depending on the series of the bonds, you may be able to cash them in for your child's education tax-free. See here for details.
posted by melissasaurus at 7:43 PM on January 24, 2010
posted by melissasaurus at 7:43 PM on January 24, 2010
Depending on the type of bonds and how long you've owned them, it is quite possible that some of the bonds may not be accumulating additional interest. You can punch in the serial number of each bond at http://www.treasurydirect.gov/BC/SBCPrice and it will tell you the current status and value of each savings bond you own. That's a good starting point, then, as others have mentioned, take the time to find a good independent financial and tax adviser(s) to walk you through this.
posted by webhund at 7:57 PM on January 24, 2010
posted by webhund at 7:57 PM on January 24, 2010
You need an independent financial adviser, stat. Savings bonds are low-risk investments to be sure, but they also generally earn a very low rate of return compared to a diversified portfolio.
Well, be careful about investing in this market. My mom talked to a financial adviser in '08 who advised her that she should put all her money in financial stocks! I suppose there are semantic issues about what exactly an "independent" financial adviser is, but a lot of them actually do work for large financial institutions.
Saving bonds at this point are about equivalent to holding cash these days, though.
posted by delmoi at 8:38 PM on January 24, 2010
Well, be careful about investing in this market. My mom talked to a financial adviser in '08 who advised her that she should put all her money in financial stocks! I suppose there are semantic issues about what exactly an "independent" financial adviser is, but a lot of them actually do work for large financial institutions.
Saving bonds at this point are about equivalent to holding cash these days, though.
posted by delmoi at 8:38 PM on January 24, 2010
Finding a good financial advisor can be tough. (Short answer: be suspicious of anyone who works for "free." It's not a job that people do for the hell of it, they do it for money, and somebody is footing the bill. Whoever is paying them is who they really work for. Never forget that.) A lot of "retirement planning advisors" are just salespeople working for various brokerages, and on commission. Be very careful.
It might be easier to find a CPA or tax advisor who can answer your tax, college, and retirement-related questions. Same rules apply — beware of anyone apparently working for free, and take all recommendations of particular brokerages or companies with a grain of salt, always do your own research / double-checks, etc. — but I haven't seen quite as much shifty stuff going on under the guise of tax advice as I have under the guise of "retirement planning." And someone who's an actual CPA ought to be safe, although the CPAs I know do corporate/business rather than individual asset planning, so they might not be of much help. You should definitely shop around.
I suspect, just based on my own experience, that the big question is whether you're actually going to be able to put all that savings-bond money into a retirement account, or if you're going to hit annual contribution maximums. (The maximums depend on type of account and then they have income caps, IIRC.) If the bonds have been purchased with post-tax income, you're going to want to put them into something like a Roth ... and Roth accounts only let you put in a relatively small amount per year. However, there are certain circumstances where you can put large amounts into a Roth, usually by "rolling over" a traditional pre-tax 401(k) and paying the tax. But maybe there's something you can do.
Also ... depending on what kind of bonds your husband is buying, he may be getting a pretty raw deal right now. They are paying atrociously low interest rates, and some of them aren't indexed to inflation, so they're practically guaranteed to lose purchasing power over time. I would think hard about this strategy and, in addition to your immediate question of how you separate your retirement assets from the ones you have available for college funds, find a retirement-savings strategy that is an appropriate level of risk/reward for where you are in life. (And keeps you from filching the money for other purposes, if that's a concern.)
posted by Kadin2048 at 11:11 PM on January 24, 2010
It might be easier to find a CPA or tax advisor who can answer your tax, college, and retirement-related questions. Same rules apply — beware of anyone apparently working for free, and take all recommendations of particular brokerages or companies with a grain of salt, always do your own research / double-checks, etc. — but I haven't seen quite as much shifty stuff going on under the guise of tax advice as I have under the guise of "retirement planning." And someone who's an actual CPA ought to be safe, although the CPAs I know do corporate/business rather than individual asset planning, so they might not be of much help. You should definitely shop around.
I suspect, just based on my own experience, that the big question is whether you're actually going to be able to put all that savings-bond money into a retirement account, or if you're going to hit annual contribution maximums. (The maximums depend on type of account and then they have income caps, IIRC.) If the bonds have been purchased with post-tax income, you're going to want to put them into something like a Roth ... and Roth accounts only let you put in a relatively small amount per year. However, there are certain circumstances where you can put large amounts into a Roth, usually by "rolling over" a traditional pre-tax 401(k) and paying the tax. But maybe there's something you can do.
Also ... depending on what kind of bonds your husband is buying, he may be getting a pretty raw deal right now. They are paying atrociously low interest rates, and some of them aren't indexed to inflation, so they're practically guaranteed to lose purchasing power over time. I would think hard about this strategy and, in addition to your immediate question of how you separate your retirement assets from the ones you have available for college funds, find a retirement-savings strategy that is an appropriate level of risk/reward for where you are in life. (And keeps you from filching the money for other purposes, if that's a concern.)
posted by Kadin2048 at 11:11 PM on January 24, 2010
I don't have any advice about the bonds, but I can tell you that eliminating $15,000 from your assets is not going to make a bit of difference in your FAFSA or in the actual aid that your child might qualify for.
When my second child entered college, we thought we would be getting a break since tuition for both of them would be exactly equal to my very-generous-but-nowhere-near-wealthy annual salary. Our expected contribution was $24,000 each, about half of their need. After we got the letter saying we got nothing (except loans), I called to inquire about it (see - there are now 2 of them, perhaps you forgot to take that into account!!) and they just laughed at me - the only people actually getting any aid have expected contributions of 0 - $2000.
We're living on husband's (lower) salary this year and next.
(I hate that loans are considered "aid". I want money that doesn't have to be paid back.)
posted by CathyG at 7:18 AM on January 25, 2010
When my second child entered college, we thought we would be getting a break since tuition for both of them would be exactly equal to my very-generous-but-nowhere-near-wealthy annual salary. Our expected contribution was $24,000 each, about half of their need. After we got the letter saying we got nothing (except loans), I called to inquire about it (see - there are now 2 of them, perhaps you forgot to take that into account!!) and they just laughed at me - the only people actually getting any aid have expected contributions of 0 - $2000.
We're living on husband's (lower) salary this year and next.
(I hate that loans are considered "aid". I want money that doesn't have to be paid back.)
posted by CathyG at 7:18 AM on January 25, 2010
Also ... depending on what kind of bonds your husband is buying, he may be getting a pretty raw deal right now. They are paying atrociously low interest rates, and some of them aren't indexed to inflation, so they're practically guaranteed to lose purchasing power over time.
To expand on this, there are two types of savings bonds, I and EE. EE bonds are the most common for payroll deductions and are not a particularly good investment. Their rate is awful and the only saving grace is that they guarantee 3.5% annual if you hold them for 20 years. I bonds on the other hand are a decent investment. They have a fixed rate part and a floating part that is set by inflation. Currently the fixed rate part is fairly low (0.3%), but keeping ahead of inflation is still worth something. And if there is deflation (like last year when oil prices went down), they never go negative like some inflation protected securities.
posted by smackfu at 8:37 AM on January 25, 2010
To expand on this, there are two types of savings bonds, I and EE. EE bonds are the most common for payroll deductions and are not a particularly good investment. Their rate is awful and the only saving grace is that they guarantee 3.5% annual if you hold them for 20 years. I bonds on the other hand are a decent investment. They have a fixed rate part and a floating part that is set by inflation. Currently the fixed rate part is fairly low (0.3%), but keeping ahead of inflation is still worth something. And if there is deflation (like last year when oil prices went down), they never go negative like some inflation protected securities.
posted by smackfu at 8:37 AM on January 25, 2010
« Older I'm a night owl and people don't like it | How to reclaim or restrain someone impersonating... Newer »
This thread is closed to new comments.
The answer to your question depends very much on your individual situation, tax bracket and other tax considerations, retirement expenses, college expenses, employer retirement contributions (if any), your risk/reward tolerance, and a gazillion other factors. An independent financial adviser (e.g. one you pay for his/her time, not through commissions for pointing you towards overpriced investments) can help you sort this out and find a system that balances your current college finance needs, your future retirement needs, present and future tax expenditure, and risk tolerance. This is your retirement we're talking about, and as great as Mefi is, you need at least a few hours of professional advice because you don't want to screw this one up.
posted by zachlipton at 7:02 PM on January 24, 2010