I've been running lots of numbers over the last couple weeks to help us plan for college and to adjust for my husband's promotion which should be effective on December 1. It remains to be seen how long it will take to get the correct pay.
Just a little update, slightly unrelated, our oldest daughter graduated college in May with about $5,500 in student loans. She starts her first full time job on November 30. She has been preparing a budget and asking about things we pay for that she will take over, which is primarily auto insurance. Her paycheck in comparison to ours which has grown over time is stressing me out and giving me flashbacks to our early married years! I'm proud that she is thinking ahead and trying to figure it all out. I reminded her that some of what she has saved was a housing refund from the spring and should be applied to her loan. While I don't think she wants to see her savings go down, she seemed to be relieved about a much lower balance to work on!
Our youngest daughter just took her last final of the semester. A few weeks ago she signed up for spring classes and determined that she can't keep up the 18 credit hours per semester as an engineering major. This means she will be extending her time at the university by one semester. For us that means four full semesters of tuition and housing left to pay. She has just under $12K in an Educational Savings Account (ESA), around $4K in a UTMA and 8 months of Post 9/11 GI Bill benefits to use. We also save $500 a month for college expenses to cover at least $4000 in eligible expenses so we can take advantage of the American Opportunity Tax Credit(AOTC). We do seem to find a way to spend the full $6000 we save each year towards her expenses.
The current plan is to pay out of pocket for tuition in January, using her ESA to pay for housing. We will begin using the Post 9/11 GI Bill benefits in August 2021. It will cover all of January 2022 and possibly a small portion of her final semester in August 2022. The final semester will be a larger bill as her scholarship will have run out, but we have figured out that we will have the money on hand to pay it as we continue to save the $500/month. We might have extra funds that we won't use, but that will be determined by how much tuition rises over the next two years. I started the process to start using the GI Bill benefits this spring, but when we realized she was going to need an extra semester it made sense to wait, primarily so we could also get benefit of the AOTC in 2021, very helpful as we adjust to the raise my husband is getting. In 2022, we will no longer be eligible to use the AOTC, but the Lifetime Learning Credit is an option and also provides some tax relief.
In reviewing our taxes for this year and next, I had to calculate my husband's future pay and how taxes would affect the increase which is significant as he is being promoted to the next rank. We have maxed out our Roth IRA for quite a few years now, including the catch up amount for my husband because he is over 50. We have been in the lowest two (I think) tax brackets and it made sense to pay the taxes now knowing we aren't likely to be in even lower tax brackets at retirement. Without any deferred retirement we most definitely hit the 22% tax bracket. However, I am considering putting the amount he puts into his Roth IRA all into a Traditional IRA or adding it to his TSP (Thrift Savings Plan). We save on taxes now and will likely be in a lower tax bracket when these funds are withdrawn on these funds and their earnings. I think that is the plan anyway. I may go back and see if I can figure out a smaller amount to add to the TSP to keep the taxes low, but also put some into the Roth. Just takes time to figure out and I do feel good that I have a plan for now at least!
The next step is to determine what we do with the extra income. Do we just save it? Should we save it in a mutual fund or look for a great CD rate (do those exist?!)? I feel like we are in a new place with our income, so it's time to start dreaming what this extra money could do!
Have you made any adjustments to your finances as you look ahead to 2021?
