WH Cornerstone Investments Newsletter
Turning your paycheck into a playcheck TM July 2004

in this issue

Reducing the College Cost Burden

Keeping a Long-Term Perspective

Growth in the Economy Near You

Bonds and Short-Term Interest Rates

529 Plans Offer an Attractive Combination

Countdown to Retirement

Preservation Principles


Reducing the College Cost Burden

There is no end in sight for the continually increasing cost of college. Four-year costs at some 4-year private institutions are exceeding $190,000. However, there is good news. The amount of financial aid that is available is at a record high and available to more families than ever before. This support, which comes in the form of tuition discounts, is not just reserved to families at the lowest income levels. As an example, for a family of five with two in college and an income of over $200,000 may be eligible for as much as $15,000 in need-based aid-per child for each year of college. This may come in the form of low-interest loans or scholarships.

As families save and prepare to pay for college, they should consider financial aid in their investment strategy. The free money that may become available from the government or colleges can outweigh by several times over earnings from investments and tax reduction or deferment benefits of some education investment strategies.

Here's one example: A family in the 25% tax bracket decides to gift $30,000 in stock (stock basis of $20,000) to their child for college costs. The logic behind this strategy is to shift the income from the sale of the stock to the child so that it will be taxed at the lower tax rate of the child (10%). As a result of this strategy, the family will save $1,500 on taxes. However, in the financial aid formulas, a child's asset is considered as available to pay for college at seven times that of the parents (35% vs. 5%). This means for the first year of college an additional $9,000 will be expected of the family as a result of the adjustment. This $9,000 may be available in free money. In addition to the looking at the owner of the asset and income stream, the formulas and specific colleges assign different values to the wide variety of elements in your portfolio.

What Should You Do?

  • Regardless of the age of your children, you should start by determining whether or not you might be eligible for aid. Unless you expect your income and assets to increase at greater than twice the rate of inflation (rate of college cost increases), you can anticipate that your financial aid situation will stay the same. There are online calculators available to determine eligibility. Campus Bound also provides free eligibility consultations if you would like help with this process.
  • Once you have determined your eligibility, you can begin to plan your investment strategy accordingly.
  • For families that are eligible or close to eligible, you should apply for aid in January of the student's senior year of high school. Colleges are using financial aid to entice desirable students and you may be pleasantly surprised. The cost to apply is nominal (or potentially free) and the potential savings is significant.

Find out more about Campus Bound....


We hope that you enjoyed your 4th of July activities with family and friends! We had prime seats for Duxbury's 112th annual 4th of July parade complete with floats, flying candy and politicians. June and early July have been very busy for us here. Bill was interviewed by the Boston Herald for the article Fed's rate hike means work for consumers. He also had an article entitled Is a real estate individual retirement account right for you? published in the June 14th edition of Mass High Tech. Paula had an article entitled Ladies - Take Charge of your Financial Future! published on the Downtown Women's Club website. Click on any of the titles to read the articles, if you haven't already read them. Summer is finally in full swing, take some time to enjoy!

Time to Share. Create a Buzz. This month's feature article is written by Gregg Cohen, founder and President of Campus Bound of Quincy, MA, an innovative service that is a leader in providing college admissions and financial aid support. Campus Bound offers personalized guidance on maximizing your financial aid package, assistance completing college and financial aid applications, and helps to ease the conflict and confusion that frequently arise during this increasingly complex process. For more information on Campus Bound call Gregg at 617.769.0400, info@campusbound.com or visit www.campusbound.com.

  • Keeping a Long-Term Perspective
  • According to a recent survey, many older workers have decided to delay retirement until they reach their 70s - or even 80s - largely because of retirement plan losses. In the past year, one-fourth of workers aged 45 and older have changed the age at which they plan to retire. And most of them did so for economic reasons.

    As stock prices improve, the natural temptation is to "make up for lost time" and consider adding a few more stock-related investments to your portfolio. A year or two of big returns, you might think, could put your portfolio back on track. But reacting to market moves - rather than relying on a long-term, diversified strategy - can expose your portfolio to unnecessary risks.

    Read on...
  • Growth in the Economy Near You
  • As a whole, the U.S. economy is growing at a favorable rate. The latest figures show gross domestic product growing at nearly a 4% annual rate in 2004. That's positive news, but it may not be the whole story.

    Most people are affected more by what's happening in their state or region than by what's happening on a national level. For example, the national unemployment rate gets lots of attention, but it may not reflect conditions in your area. In May, the U.S. unemployment rate was 5.6%, but it was 6.2% in California, 3% in Hawaii, and 5.8% in New York. The U.S. economy is a collection of many smaller economies with unique characteristics and conditions that are not visible when looking at the national picture. When tracking the economy for personal or investment decisions, here are some sources for economic conditions close to home.

    Read on...
  • Bonds and Short-Term Interest Rates
  • In recent years, interest rates have hovered near 40- year lows, easing the burden on borrowers and creating a flurry of activity in the refinancing industry. Because inflation has also remained low, the Federal Reserve has been able to maintain its accommodative stance toward the economy and keep target interest rates at bay.

    But as the economy improves, many people believe that short-term interest rates will soon be on the rise. If this is the case, fixed-income investors may want to develop an investment plan that takes advantage of fluctuating yields.

    Read on...
  • 529 Plans Offer an Attractive Combination
  • At the end of 2003, Section 529 plans held an estimated $32 billion in assets. In five years, if current trends hold, they are expected to increase by more than 400 percent in deposited assets. What's behind this surge in popularity?

    These college savings plans offer many benefits, including the combination of potential tax-deferred growth and federal tax-free withdrawals for qualified higher-education expenses. Also, 529 plans have no income limitations or age restrictions, and donors can give up to $11,000 per year ($22,000 for couples) without incurring gift tax penalties.

    Read on...
  • Countdown to Retirement
  • According to a recent survey, three out of four U.S. workers are able to make pre-tax contributions to an employer-sponsored retirement savings plan. And half of workers have accumulated other savings or investments in addition to retirement assets.

    It's not uncommon for retirees to have income from multiple sources. The order in which these assets are accessed for retirement income is important. It can influence your tax burden and potential returns throughout your retirement years.

    When your last day of work is over, will you know which assets to tap first to help make sure that your money lasts as long as possible?

    Read on...
  • Preservation Principles
  • Although Social Security is the largest source of income for many retirees, annual benefits may trigger a higher tax liability for those who have other significant sources of retirement income.

    Since 1984, Social Security beneficiaries with income exceeding certain levels have been taxed on a portion of their benefits. Today, the calculations for determining the taxability of Social Security benefits are complex and are based on a two-tiered system, under which either 50 percent or 85 percent of benefits may be taxable. This can pose a tax problem when income from other sources (including pensions, taxable investment income, and retirement plan distributions) puts a retiree's income over the income thresholds ($32,000 or $44,000 for married couples, $25,000 or $34,000 for single filers).

    Read on...
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