By Guest Blogger Jennifer Johnson, partner with Blue Rock Wealth Management

Summer is now upon us! For most people, your mind drifts to thoughts of lounging at the pool with a cool drink. Definitely enjoy some leisure on your break, but summer is also an opportunity to get ahead financially. Here are some simple things you and your kids can do.

Kids & Summer Jobs: Summer jobs are an opportunity to learn how to manage money in general, but also an opportunity to contribute to a Roth IRA. Kids likely aren’t earning enough to pay taxes anyway and if they have earnings they are eligible to contribute as much as $5,500 to a Roth IRA (or up to whatever they earn). This is an opportunity to learn about saving and investing and it also maybe a way to prepare for college.

There are some important things to know about using the Roth IRA.

What The Roth Money Can Be Used For: As long as the account has been open for five years, he or she will have options for how to use the money.

For retirement savings. The owner (the child who has grown up!) can withdraw the money after 59½. No taxes will be owed on the earnings.

To buy a house. The owner can withdraw funds to buy a house before reaching 59½. The money must be used as a down payment for closing costs. The withdrawal is limited to $10,000. Early withdrawals for a home purchases are penalty and tax-free.

For education expenses. The owner can withdraw money for college, but they will pay taxes on the earnings. However, there is no 10% early withdrawal penalty if the money is used for qualified education expenses (tuition, fees, books, supplies, equipment and most room and board charges).

As mentioned above, a Roth can be used for education expenses, but note you still pay tax on the earnings so it’s probably not ideal for that reason. If you’ve got a kid getting ready to go to college soon, use this summer to prepare for financial aid applications.

Here are a few tips for the parents of older students from Gregg Schlaudecker of Emerald College Planning:

  1. Use Summer vacation as an opportunity to visit colleges to show interest prior to applying.
  2. For rising juniors, use summer as a time to prepare and take the ACT.
  3. Seniors should seek out internships and job shadowing opportunities where their career interests lie — go into college with an eye toward getting out in 4 years and into your first job!
  4. Get ready to file your FAFSA on Oct 1st! Pay attention to student assets on the FASFA

Also let’s provide some guidance around avoidance of student loans. This is probably the season in which kids are deciding officially where to go and some colleges come with greater price tags. The Department of Education reports the typical borrower has around $27,000 in student loans. A US News & World Report article reported last year on a study of recent college graduates that student loans dramatically impact the student’s financial future. The study reported among other things:

“Respondents overwhelmingly reported not being prepared for borrowing student loans. Only 38 percent said that, prior to entering school, they fully understood the amount of debt they would be taking on.”

“According to the survey, 62 percent of respondents said their student debt posed a hardship on their personal budget when combined with all other household spending. Specifically, 35 percent said they found it difficult to buy daily necessities because of their student loans; 52 percent said their debt affected their ability to make larger purchases such as a car; and 55 percent indicated that student loan debt affected their decision or ability to purchase a home.”

This is the time to think about the impact of the college decision. Get prepared in every way possible –put money away from the summer job, prepare early to increase chances for student aid, and think carefully about where you will attend college! And try to have some fun while you’re doing it…


Jennifer Johnson is a partner and Certified Financial Planner(TM) with Blue Rock Wealth Management.  To hear more on this topic, listen to Jennifer on the Triad Podcast Network here!

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