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Order priorities before applying to colleges

Published October 5, 2003

It's college application time again. While high school seniors fret over required essays, their parents worry about the financial aid forms they soon will have to fill out.

Some parents readily mortgage their futures to give their children the college experiences of their dreams. Others refuse to make even the smallest sacrifices.

How can your family strike a balance? Start by conducting your own financial reality check. If you know upfront what's realistic and what isn't, you can make sure your child applies to at least one college your family can afford.

First find out what your expected family contribution is likely to be when colleges consider your child's financial aid application. Go to for calculators that will give you an estimate. College planning books such as Paying for College Without Going Broke also contain worksheets you can use to figure this out. Need-based financial aid will not cover your expected family contribution, although you can borrow the money.

The next step is to sit down with your bank, investment and credit card statements and ask yourself some important questions: How much of your income and how much of your savings could you use for college each year? How much could you afford to borrow, recognizing you would have to pay it back? One way to approach this is to write down all your monthly expenses and see what you have left. Try keeping a spending journal for a while if you are not sure where your money is going. Then look for places you could pare back to free up money for college.

If expectations and reality are far apart, talk about it with your child. Encourage a scholarship quest, especially if your child is an academic or athletic star, but explain what you can afford if no big merit scholarship comes along. I told my two children: "You can go to any public college or university in the state of Florida; your choice."

That may sound provincial, but it was our way of balancing our priorities. Education is important in our family, but so are saving for retirement and staying out of debt. Our daughter, now a college junior, is talking about graduate school. The good news is that if she goes, she will not be weighed down by loans from her undergraduate days and neither will her parents.

Your family may have different priorities. Whatever they happen to be, the key to financial balance is naming priorities, then tailoring your spending and savings decisions accordingly. If you have younger children, you can save more aggressively now to give them more options when their turn at college arrives.

Q. In the case of a do-it-yourself divorce, what is the procedure to transfer a Roth IRA and a rollover IRA from one spouse to another? Can this be done?

It certainly can be done. It is called a "transfer incident to a divorce" and it requires a court order specifying who gets what. Take or send the order to the IRA custodian to arrange the transfer.

It sounds as though you and your soon-to-be ex have reached an agreement about dividing your assets. While that's good, you still might benefit from professional advice to make sure you are not overlooking any important issues. For example, some assets, such as your rollover IRA, have a built-in tax liability that reduces their real value. Other assets, such as a pension or business, may be difficult to value without professional help. And to divide or transfer ownership of any company retirement plan, you need a lawyer experienced in drawing up qualified domestic relations orders, known as QDROs.

Q. I recently refinanced my house. What can I claim as a deduction for next year's tax return?

Refinancing costs are not deductible except for "points" paid to obtain a mortgage, which are considered prepaid interest. If you paid points, they should show up on your settlement statement, although they may be labeled something like "loan origination fees" or "discount points." To be deductible, they must be calculated as a percentage of the loan amount.

Unfortunately, you can deduct only part of your points on next year's tax return. First, you can deduct the points attributable to any part of the loan used for home improvements. The rest of the deduction has to be allocated over the life of the new mortgage. If that life ends prematurely because you sell the house, pay off your mortgage or refinance, you can deduct any remaining points.

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified October 5, 2003, 01:49:47]

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