You Lose Some, You Win Some, v.2

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Life is pretty calm around here for the most part, with days flowing in and out of each other without a whole lot of turmoil and/or surprise.

This week is already begging to be different, with both good and bad news showing up.

Bad news out of the way first:

I don’t know what’s going on with my computer. It’s doing the whole overheating and battery draining again but it’s been inconsistent. I’ll have a bad day where I wonder if it will make it through the day and then the next day everything is perfectly normal (like yesterday). On Sunday afternoon it got so bad that I decided I’d better order a new laptop, and of course right after I did the overheating stopped and the battery began operating normally. Then, Monday morning the overheating and battery issues returned with a vengeance and hung around all day, but yesterday it was back to operating normally. This morning it’s fine again . . . so far. The new laptop arrives today but I don’t know whether to keep it or return it. I’m afraid if I don’t keep it this one will soon up and die, but if I do keep it this one will continue to run fine. Arrrrgh! I’m more than a bit upset about (possibly) having to buy a new laptop after only two years, especially after paying several hundred dollars to have this one repaired just six months ago for the same issues. I’ve been using a Mac for over 24 years now, and have never had a problem until I got this one.

I spoke with my phone service provider on Sunday morning about not being able to call or text with the new phone I had just received last week, and that tech support had determined the phone was defective. The rep I talked with was wonderful, and agreed to replace the phone without hesitation. However, I first had to pay for Phone #2, so that’s two phones out of our account right now (along with a new laptop). However, when Phone #1 is returned I will be credited back the full amount (free shipping for return is provided). Then, I got a notice on Monday afternoon that my new phone would arrive . . . in two weeks. What? Two weeks with no phone? But, late yesterday I received another email that the phone had shipped (!!!) and should be here tomorrow!

Staying on the winning side of things, I found both a great price and great schedule for WenYu’s and my flight back to Boston this summer. There were a few flights with cheaper prices (although not by much) but they either had l-o-n-g layovers or not enough layover (like only 35 minutes between flights, not enough time to even move the luggage from one plane to another, let alone passengers). Each of the less expensive flights also had a redeye segment, and after last month’s trip to Colorado neither WenYu nor I was eager to repeat that experience – we were both zombies when we arrived. The new flight schedule gives us a full 13-hour overnight layover, enough time to get a good night’s sleep and breakfast in a nearby hotel before returning to the airport in the morning and heading on to Boston, and with our luggage still checked through. I also got a terrific price on a nonstop flight between Boston and Denver – less than $200! – as well as for my flight from Denver back home – $328 – which includes a nonstop flight between Seattle and Lihue (we paid $378 per ticket just for the Seattle-Lihue non-stop, which was a bargain, when we moved in 2014). I also was able to reserve a room in the same B&B YaYu and I stayed at in Colorado when we visited in 2012 – it was the most reasonable place to stay in the area, is an easy commute to my mom’s residence, and the breakfasts are to die for. All that’s remaining to arrange now is ground transportation and hotel in Massachusetts, and I’m closing in on that.

And, saving the best for the last, WenYu was notified on Monday that she had been selected as one of ten statewide finalists and will be receiving a $3,000 scholarship!! One student from each high school in the state was chosen to receive a $1000 scholarship, then ten were chosen from among those students for the top finalist awards. This means that all of her costs this year at Wellesley will be met through scholarships and grants, that she will not need any federal financial aid to cover expenses. Brett and I are so proud of this girl we could just about burst!

You lose some, but you win some too! I’m still wondering though what the rest of the week will bring . . . .

When Retirement and College Clash

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The dream of buying a home or giving our girls an affordable college education collided with each other last week, and college won.

To help cover the down payment and closing costs on the condo we wanted to buy, Brett and I had planned to withdraw some of our savings that’s sitting in an IRA. As we’re both over 59 1/2, there’s no penalty for withdrawal, and the way our retirement is funded we had only planned to use those savings when we had to make mandatory withdrawals at age 70 anyway.

However, any funds we withdrew would count as income for this year, and it turned out that the increase in our income brought about by withdrawing enough for a downpayment and closing costs would negatively affect us not once but three times.

First would be the tax burden based on our withdrawal. We currently have a very small tax bill as we pay no state income tax in Hawai’i on our retirement income, and very little Federal tax. That would change as we would not only be hit with higher Federal taxes based on our increased income in 2015, but would pay state tax as well on our withdrawal from the IRA (our other retirement income would still remain untaxed by Hawai’i). We were prepared for this hit.

What we were not prepared for was the dramatic effect that increase in income would have on the girls’ financial aid prospects.

The reason our retirement savings are in IRAs is that they are protected there; college financial aid formulations exclude sheltered retirement funds. Unprotected, those funds would be quickly tapped, and with three college age children Brett and I would be left with little to no savings in short order. Even if we had planned to use our savings to pay for college, with today’s costs there is no way we could cover expenses for three children over the next eight years. Plus, Rule #1 about saving for retirement is that you never jeopardize your retirement to pay for your children’s college.

Meiling was awarded a four-year scholarship to the University of Oregon that covers all her tuition and fees (she pays for room and board). If we increased our income by withdrawing from our IRA this year the bump would be enough that she would no longer qualify for any Federal financial aid meaning she would lose her scholarship, and we would either have to raid our retirement accounts even more to cover her costs or she would not be able to afford to continue at the university. The federal government could care less that this would be a one-time increase to our income, and used only for the purpose of buying a home, when calculating Meiling’s aid award, and likewise the universities financial aid office. If we took more money out of our accounts to cover her expenses next year our income would of course go up even more, and we would be setting up something of a vicious circle. And, we’re just talking about Meiling here. WenYu also heads off to college next year, and any savings we spent on Meiling would mean less or nothing for WenYu, with the increase in our income also affecting any aid she might be qualified to receive. According to federal financial aid calculators, even with two children in school, with the planned IRA withdrawals our 2015 income would still be too much for either girl to receive much, if any, Federal aid other than unsubsidized loans (NO!!), and we could forget about any need-based aid from any college. There might be merit aid, but there’s no way to count on that.

So, there were two hits we would be taking if we withdraw anything now from our IRA. However, it turned out there was still one more sting waiting in the wings.

Starting in 2016, the FAFSA will be filled out beginning October 1 using the previous year’s income (2015). No more will families have to wait until January to submit their forms and tax information and then try to figure out what kind of aid they might qualify for or whether they really can afford College X or College Y. Colleges and universities will be required to present more up-front aid information, so students and families can make better choices about where to apply and what to expect. This is an important and long-overdue change, one I am greatly in favor of. This change however means that our 2015 income will not only be used to determine aid for the 2016-2017 school year, but for the 2017-2018 year as well. Our supposed one-time income bump from the IRA withdrawal would count against us for two years, effectively cutting the girls out of any financial aid until Fall 2018.

The decision of what to do was actually easy. We cannot harm our girls’ efforts and dreams, and we cannot damage our future financial security. We cannot deny the girls the opportunities that are available for them now just because we want to buy a house or a condo. They didn’t ask for this life, but have made the most of what they have been given so far, and we cannot pull their futures out from under them.

The condo was a great buy, and would have been a perfect home for us. We have the income and resources to buy it, but tapping into those resources came with consequences. We were devastated to have to let the condo go as well as our dream of buying a home on Kaua’i, at least for the time being. We don’t know if anything else will be available and affordable again in the future. Maybe yes, but there’s also the possibility of a big NO. But, it’s a risk that we are going to have to take. Brett and I will wait until the girls are through school before we think about buying again.

In the coming days we will untangle ourselves from this latest purchase contract. We will continue to rent where we are for the time being, and after the first of they year we will begin looking for a new rental home.

It is what it is.