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FSA vs. HSA: Which Is Right for You?

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If you’re in the position of having both a Flexible Spending Account (FSA) and a Health Savings Account (HSA) available to you, you might be wondering which way you should go.

Most consumers don’t totally understand account-based health plans, including HSAs and FSAs, according to a survey by health care and benefit payment firm Alegeus Technologies. Case in point: Only half of FSA holders passed an FSA proficiency quiz, and just 30% of HSA holders passed an HSA proficiency quiz.

If you aren’t sure which account is the best pick — or even what they can do for you — here’s a breakdown of your options.

What’s a Health FSA?

A health Flexible Spending Account is an employer-sponsored medical savings account into which you can contribute pre-tax dollars that you can use toward qualified health care expenses. This generally includes deductibles, copayments and qualified medical expenses that your insurance doesn’t cover, such as prescription medication, contraceptives and orthodontia.

In 2016, you can contribute as much as $2,550 to an FSA.

FSA Pros:

If your employer offers an FSA — and a majority do — signing up during open enrollment (usually in the fall) is easy, and setting aside funds pre-tax lowers your taxable income, which means you pay less in taxes overall.

FSA Cons:

The money you contribute to an FSA must be used by December 31 of the contribution year, unless your employer offers either a grace period (in which case you must use all funds by March 15 of the following year) or a $500 carryover option, in which you can roll over up to $500 in unused funds to the next FSA year. Otherwise, the unused funds are forfeited to your employer.

This means you must be fairly accurate at guessing what your healthcare expenses will be in the future, which isn’t always so easy. And you can only change how much you contribute to your FSA during open enrollment, or after a life change (such as a marriage or birth of a baby) or change in employment.

FSAs are employer-specific. If you change jobs, you’ll generally lose your FSA.

What’s an HSA?

A Health Savings Account is a medical savings account into which you can deposit pre-tax money, available to consumers enrolled in an HSA-qualified high-deductible health plan. Like an FSA, the funds can be put toward out-of-pocket health care expenses.

In 2016, the contribution limits for HSAs are $3,350 for individuals and $6,750 for families.

HSA Pros:

The money you put into an HSA can stay there until you use it — no end-of-year deadline. You can save now and pay for medical costs in 20 years if you wish. To make high-deductible health plans (and accompanying HSAs) more enticing to employees, many employers sweeten the deal by contributing some amount to the HSA annually — an average of $515 per employee in 2014, according to United Benefit Advisors.

You also have the ability to invest the funds in your HSA, ostensibly giving you another way to grow your savings. You won’t be taxed on any earnings or distributions from the account.

You can change your HSA contribution amount at any point during the calendar year. Had an unexpected medical expense? Put pre-tax money into your HSA to cover it.

HSAs are not employer-specific, so you can take your HSA with you even if you change jobs.

HSA Cons:

Not everyone is eligible for an HSA. You must be enrolled in a qualified high-deductible health plan (HDHP), so if you aren’t, an HSA isn’t an option for you.

For 2016, an HDHP would be self-only health insurance with a deductible of $1,300 or more or family health insurance with a deductible of $2,600 or more. To have an HSA, your HDHP would have to be your only plan, you shouldn’t be Medicare-eligible, and you can’t be claimed as a dependent on anyone else’s taxes.

The Bottom Line

So which should you choose? That depends on your circumstances. If you’re eligible for both, an HSA has more advantages in terms of flexibility, the ability to roll it over year after year, and the chance to invest the funds.

If you’re not eligible for an HSA, and your employer offers an FSA, the choice is easy: Sign up for the FSA.

You can’t have both accounts at once unless your employer offers a limited purpose FSA that could be used to pay for out-of-pocket dental and vision expenses. Your benefits department should be able to tell you whether that’s the case.

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The Ultimate Guide to Bitcoin

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It’s irresistible, and painful, to play the what-if regret game with investments. What if you bought Apple or Amazon stock back in 1997? What if you bought a condo in that tough city neighborhood ten years ago? What it mom didn’t throw out that full set of 1969 Topps baseball cards? Millennials didn’t invent FOMO; investors have struggled with the fear of missing out forever.

Those missed opportunities pale in comparison to what’s going on with Bitcoin, however. Price of a single bitcoin just passed $1,000 in February. It had climbed 15-fold by December, less than one year later. Travel back another few months, or years, and the windfall for early virtual currency buyers is almost unfathomable. Writer Kashmir Hill captured it well; four years ago, she lived all-Bitcoin week for a story, and found a restaurant where she could use the digital currency to buy her friends a sushi dinner. The price: 10 bitcoins. By the end of November, the coins she spent on the sushi would have been worth about $100,000. And now?

“That sushi dinner could have paid for an ivy league degree,” she lamented on Twitter. Now, that’s a regret.

How could a sushi dinner turn into a six-figure windfall? How can you buy a dinner with virtual “money” in the first place? And what should you be doing when it seems like the whole world has gone crazy for digital currencies?

We’ll try to answer those questions for you here.

Before we get started, however, it’s important to remember that the fear of missing out has driven people to make many bad choices in investing, and in life, (you should have stayed at that party and met your future wife, dummy!) for a very long time. So if you are tempted to dip your toe in this brave new world, it’s critical that you understand what you think you are missing out on.

Tom is a virtual currency investor who agreed to speak on condition of anonymity. (Bitcoin hackers are very aggressive and scour the Internet for targets, finding them when people brag about their holdings; so if you invest in Bitcoin, keep it to yourself.)

Tom got in early, but he’s suffering from investment regret, too.

“That would be because I sold the bulk of it way back when it was $4000, because I very wrongly thought the bubble could not go much higher,” he said. “Crypto right now is like the wild west … It really is.”

What is Bitcoin? A brief history

To start at the ending, Bitcoin took a big step away from the Wild West this week when a traditional market tied to the virtual currency allowed U.S. investors to make Bitcoin bets the old-fashioned way: through brokerage accounts. On Dec. 10, the Chicago Board of Exchange began the buying and selling of futures contracts on Bitcoin’s value. Investors don’t buy actual coins through these contracts; instead, they are making bets with each other about the future value of Bitcoin. Still, the event marked a remarkable step for an idea that was born from the musings of Internet radicals and almost killed by child pedophiles.

The birth of cryptocurrencies

In the Internet’s early days, no one was really sure how people like Jeff Bezos would make money. To be specific, no one was sure how sites like Amazon would be able to collect money. Credit cards seemed like a risky way to transmit “cash” across the Web — anti-fraud systems were essentially unheard of — so there was a race to create a new kind of cash that could be sent digitally. “Currencies” with names like DigiCash, backed by MIT’s Nicholas Negroponte, and E-gold sprouted up to fill the void. Eventually, eGold would swell to 3.5 million users worldwide.

Virtual currencies offered the added digital-age benefit of making international transactions easier and far cheaper, as they can be used to circumvent transfer fees imposed by of traditional banking systems..

The philosophical origins of virtual currency predate these digital currencies, however, to a group of hackers with a libertarian vibe generally referred to as cypherpunks. They dreamed of creating a money system that was entirely beyond the reach of governments. They blamed much of the world’s ills — inflation, poverty, concentration of wealth — on the power governments can exert by controlling national currencies.

By combining the secrecy of cryptography with a currency, cypherpunks imagined a world of free, anonymous money flows that drained traditional governments of their source of power.

Early hits and misses

Early supporters like Rik Willard, founder of Agentic Group — a consortium of firms that advocates use of blockchain technologies — have always had lofty goals for cryptocurrencies.

“To me, Bitcoin is a globally distributed proof-of-concept for a new understanding and subsequent reconfiguration of intrinsic value creation,” he says. “Like any radical technology before it, digital value will begin to shape us in unimaginable ways, with the end goal, hopefully, of more financial inclusion and an end to enforced scarcity and unnecessary poverty.”

Creating new currencies is tricky work, however, largely because criminals often flock to platforms that seem to be beyond the reach of law enforcement and traditional institutions. E-Gold ultimately collapsed, and its founder jailed, after a 2007 indictment on money laundering charges.

“The E-Gold payment system has been a preferred means of payment for child pornography distributors, identity thieves, online scammers, and other criminals around the world to launder their illegal income anonymously,” the Department of Justice said.

The age of Bitcoin

But the dream of a currency not issued by governments wasn’t dead. About a year later, in August 2008, someone registered the domain name Bitcoin.org. Two months later, a paper attributed to “Satoshi Nakamoto” was posted to a cryptography mailing titled Bitcoin: A Peer-to-Peer Electronic Cash System, laying out the concepts for a new kind of virtual money. By January 2009, the first Bitcoin network came online.

What was different about Bitcoin?

When traditional currency is used for transactions, third parties are always involved. Cash changes hands, but a government provides that cash and promises it has a certain value. When money is electronically wired, banks add or subtract the money from balance sheets. More important, they supply “trust” that enables parties to believe they are getting what they deserve out of a transaction. Outside of old-fashioned bartering, there was no way to conduct business without invoking a third party institution to provide trust.

Bitcoin changes this model by allowing peer-to-peer transactions that don’t require outside blessing and verification. Instead, all transactions are published online, in a completely transparent format as a shared ledger, so they are verified — not by a bank or a government — but by the network itself. No trust required. Blocks of data are continually added to a chain providing an audit trail that confirms every transaction. Ever. That’s the blockchain.

The decentralized nature of the blockchain is key. Whenever there’s a discrepancy — say, someone tries to add inaccurate information — the many nodes on the network arm-wrestle over which data is correct and builds consensus. Then, the data is replicated across the network.

This decentralized-by-design feature means there isn’t one central authority which could be manipulated for fraud purposes, or by a government or corporation seeking control. It also means it’s virtually impossible to fake a blockchain transaction once it’s approved, or to remove one. This is sometimes called distributed “trustless” consensus. In anarchy, security.

The comeback cryptocurrency

Bitcoin’s timing was impeccable. The cryptocurrency’s radical libertarian (anarchist?) ideology found plenty of bedfellows in the early stages. The global financial crisis that began in 2008 stoked the flames of bank skepticism and helped create a population ready to consider dramatic alternatives. In 2011, Bitcoin immediately became popular with Occupy Wall Streeters, who used it to accept donations and run some operations.

But it was still a bumpy ride. While Bitcoin transactions are very public, the parties in the transaction can remain anonymous. They use a cryptographic key to access their money, hence the term cryptocurrency.

So Bitcoin predictably attracted the same crowd as eGold. In 2013, Bitcoin faced an existential threat when U.S. federal authorities cracked down on a criminal haunt called Silk Road, a popular site used to buy and sell illicit drugs. Bitcoin was the currency of choice for Silk Road criminals, and authorities seemed ready for another E-gold-like crackdown. The FBI seized 174,000 Bitcoins when it shut down Silk Road, leading many to fear that users would abandon the cryptocurrency.

While Bitcoin’s value fell briefly by about one-quarter after Silk Road’s closure, it quickly recovered (to $125…feel that pang of regret again?), and transactions kept flowing. Meanwhile, rather than marginalize Bitcoin, governments around the world slowly started to legitimize it.

Ironically, a decision in 2013 by the U.S. Treasury Department’s Financial Crimes Enforcement Network to require Bitcoin exchanges to register as money-service businesses — like payday lenders and other non-bank financial institutions — probably helped Bitcoin along. It was seen as tacit admission by the U.S. that it could not afford to drive Bitcoin overseas and cede the development of cryptocurrencies to places like Asia.

Since then, numerous factors have contributed to the meteoric rise in Bitcoin’s value. Chief among them: copycats, called alt coins.

There’s hundreds of cryptocurrencies now, all trying to cash in on the Bitcoin craze through their own Initial Coin Offerings. When these occur, buyers leap in, usually investing with Bitcoins. Later, they often convert the new coins into Bitcoins.

All that activity pushes up the demand for Bitcoins. Other reasons are critical, too. Many startups are encouraging investments in Bitcoin. The echo chamber of financial media keeps focus on fantastic returns early investors are getting, whipping up the FOMO, which in turn leads to more investment, which whips up the price.

And finally, perhaps the biggest reason: Everyone from taxi driver to baristas to grandparents are now talking about Bitcoin. Cryptocurrencies aren’t just for early adopters any more; now they have attracted what Wall Street calls “retail investors.”

That means there’s a lot of more money from a lot more people kicking the tires on a Bitcoin investment. More buyers and more money mean higher prices.

How to buy and sell Bitcoin

value of bitcoin

So, how do you get in on this?

There are two ways to obtain Bitcoins; you can buy them, or you can “make” them, through a process called mining.

New Bitcoins are created, it would seem, out of thin air as a “reward” when computers compete to do the nuts and bolts work of confirming blockchain transactions. Anyone can mine —investor Tom, mentioned above, mines for alt coins using a network in his garage — but as time goes by, the processing power required to mine continues to swell.

Enormous server farms around the world are now devoted to “winning” Bitcoins, using copious amounts of electricity as they do it.

So most people obtain coins by buying them, usually on a Bitcoin exchange, where traditional currency, like dollars, can be traded for cryptocurrency.

The largest bitcoin broker is called Coinbase, which says it now has 13 million accounts — more than stock brokerage Charles Schwab. Coinbase works like an exchange for beginners, but it’s really a front-end for an exchange called GDAX, or Global Digital Asset Exchange, formerly called Coinbase Exchange.

To buy Bitcoin from Coinbase or another broker or exchange, you’ll have to download software called a cryptocurrency wallet. The wallet will be used to store the cryptographic keys that are needed to unlock virtual currency value. Coinbase, like other brokers and exchanges, also supports some alt coins, like Ethereum and Litecoin.

People invest in alt coins because they are much cheaper, and theoretically offer a chance at greater investment returns, though they can also be more risky. Not all coins, or all exchanges, are supported by all wallets.

Selling coins simply requires reversing the process. Bitcoin holders use a broker or exchange to move transfer virtual currency back into traditional currency, like dollars. That money is then transferred back to a traditional bank account.

Can you buy Bitcoins with a credit card?

Yes. But only through a wallet application and an exchange.

To keep things simple, a new user who wanted to get started on cryptocurrency can download wallet software from Coinbase, link a traditional bank account (such as a checking account or a credit card) to the Coinbase account, and begin buying bitcoins almost immediately. There’s a fee associated with each transaction (at Coinbase, it’s 3.99% for credit or debit card transactions).

No one gets rich on Coinbase in a week or two. New investors can only buy tiny fractions of Bitcoins — credit and debit card depositors are limited to $150 during the first week, for example.

But note,Buyers can’t sell right away. They have to wait a week; that can be frustrating if the value of a coin investment rises quickly, as it has recently. Coinbase users can increase their buy/sell limits through a variety of steps, including identity verification and creating a history of transactions. The throttled on-boarding process helps prevent fraud.

Bitcoins can also be purchased and sold using ATMs that are scattered around the world. They aren’t very practical, however. Transaction fees are high, and there are only a few thousand machines. They’re more of a novelty.

Spending Bitcoin

Spending bitcoin is no picnic. Many journalists have imitated Hill’s “live life for a week on Bitcoin” project; they usually come away frustrated. Yes, Bitcoin acceptance has slowly increased.

BitPay.com claims 100,000 merchants worldwide accept it. Earlier this year, Starbucks announced support for Bitcoin through its mobile app and integration with a wallet called uPayYou. Plenty of familiar online services, like Overstock.com and Expedia, take Bitcoin, too.

There are plenty of pain points along the way, however. If you thought waiting for chip-enabled credit card transactions was annoying, wait until you get held up making a Bitcoin-based purchase. Bitcoin transactions must be confirmed and added to the Blockchain, which can take several minutes, or even hours.

Risk & Rewards

There’s an bigger challenge with larger transactions. Bitcoin is so volatile that it’s risky to use for large purchases.

“Shark Tank” star Kevin O’Leary recently told CNBC that when he recently tried to settle a $200,000 international Bitcoin transaction, the other party insisted he buy insurance to guarantee the value of the Bitcoins wouldn’t fall. The risk outweighed any savings that might have been earned by avoiding bank fees or currency conversion fees.

Bitcoin comes with an even greater risk, however: It comes with virtually no consumer protections. If Bitcoins are lost or stolen, they are gone forever.

Tom says he mined 100 Bitcoins fairly early on, but his hard drive crashed, so they are simply gone. Coin thieves are also hard at work hacking wallets, which don’t necessarily come with built-in security.

Writing in Medium, Cody Brown tells the painful story of looking on helplessly while a criminal took control of his cell phone, opened his wallet, and drained $8,000 worth of Bitcoins. Users are so concerned that some have taken to purchasing physical “hardware” wallets they can essentially hide at home.

Worst of all, exchanges themselves have proven to be unreliable. The Japan-based Mt. Gox exchange, once the world’s largest, closed in 2014 after $450 million worth of Bitcoin were lost or stolen. Dozens of smaller security incidents at exchanges are chronicled at the website Blockchain Graveyard.

To security expert Harri Hursti of Nordic Innovation Labs, this fragility is cryptocurrency’s Achilles’’ heel.

“The one key feature of conventional financial systems is that pretty much any erroneous transactions or illegal actions can be unwound and reversed,” he says. “In a blockchain economy, your monetary value can disappear in a cloud of bits with a typo — not to mention intentional crime.”

Is Bitcoin an investment or a currency — or both?

Because there’s still a lot of friction involved in spending Bitcoin — certainly more than many other methods, from debit cards to Apple Pay — Bitcoin is a poor currency at the moment. It’s most practical use as a currency is probably in third-world countries and places where the existing currency is already volatile and Bitcoin provides an immediate benefit.

Outside of these extreme environments, there’s plenty of debate about Bitcoin’s long-term potential as a currency. Brian Armstrong, founder of Coinbase, says that Bitcoin is largely an investment at the moment.

“Bitcoin is 80% people buying and selling as an investment and 20% usage. I think in five years those numbers could be inverted,” he wrote last year.

That split isn’t necessarily a bad thing. As an investment, Bitcoin also serves as a store of value, the same purpose traditional gold serves for people who think their government’s policies will lead to dramatic inflation. You could also think of Bitcoin as the digital-age version of hiding money in a mattress.

Should I invest in Bitcoin?

It goes without saying that consumers shouldn’t invest money in Bitcoin that they can’t afford to lose, or that they’ll need for something in the next couple of years. Whether or not you can stomach that risk is a question only you can answer for yourself.

As a high volatility investment, impacted by hundreds of factors that create a calculus beyond the capacity of individual investors to compute, it really isn’t much different from gambling.

A long list of investing titans, beginning with Warren Buffett, have warned consumers not to throw money at Bitcoin. Remember, fear of missing out can make you do dumb things.

One reason not to avoid investing in Bitcoin: Because you think it has no intrinsic value, it’s not worth anything in the real world, or any those similar arguments. All currencies have this problem. Why is a hundred dollar bill worth $100? Because Uncle Sam says so. If you recycled that piece of paper, you’d get a tiny fraction of that. So dollars have no intrinsic value, either. All currencies — including hard currency, like gold — are ultimately some form of group delusion.

It’s not the intrinsic value that matters; it’s the depth of the “delusion.” As long as people have faith a currency is valuable, it is.

Now, you might not trust the Bitcoin mania, or the exchanges, or your own hard drive, and those would all be sensible reasons to stay away — for now. But people like Willard believe virtual money, in some form, is inevitable.

“Whether Bitcoin, as a brand, lives or dies is ultimately inconsequential. The fact is that natively digital currencies are here to stay and a multiplicity of new digital value possibilities is inevitable,” says Willard.

There is wide consensus that the blockchain technology underlying Bitcoin is of real and lasting value. As with so many gold rushes before, the only group nearly guaranteed to make money are — not people digging for gold — but companies selling the shovels to the diggers. While the metaphor is inexact, that’s partly why Tom isn’t buying cryptocoins, but rather mining for them.

The way he looks at it, even if the coins he mines fall to zero value, he still hasn’t lost everything. He still has his servers in his garage.

“I can, as an example, build and sell gaming machines on top of them, and potentially recoup my entire investment if things went sideways,” he says.

In other words, if his cryptocurrency investment fails, there’s always video games.

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4 Big Legal Changes That Will Hit Your Wallet in 2018

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With all eyes on the GOP’s sweeping plans for tax reform, it’s easy to lose sight of other policy changes that could have an impact on your wallet.

In 2018, there are at least three key policy changes to keep tabs on — adjustments to Social Security benefits, 401(k) contribution limit changes, and the preservation of one of the year’s most controversial financial rules.

Here’s what you need to know:

More Social Security benefits

For Social Security beneficiaries, there is a lot to be excited about in 2018.

The cost-of living-adjustment, which determines the amount of money people receive from the system, is rising by 2 percent, the largest increase in five years. This means a growth in benefits for the more than 61 million recipients currently who currently utilize Social Security in America.

Additionally, the maximum payout—which is the amount you can receive once you’re eligible for 100 percent of your benefits—is also increasing, with the figure growing from $2,687 per month to $2,788 per month.

Greater 401(k) contributions

Saving for retirement will also be a little easier in the coming years, as the Internal Revenue Service announced that the annual limit for 401(k) contributors will increase by $500 in 2018.

Previously, anyone participating in a 401(k) or 403(b) plan, the majority of 457 plans, or the  Thrift Savings Plan could set aside $18,000 per year, but the number will grow to $18,500. To see how much this change might affect your retirement funds, you can use this calculator to track how your 401(k) funds will grow over time.

Mandatory arbitration contracts

Earlier this year, the Consumer Financial Protection Bureau (CFPB) issued a regulation banning mandatory arbitration clauses, the often-controversial sections of consumer contracts that effectively prevent customers from filing class-action suits against a company they are doing business with, such as a bank.

However, this law, which was set to come into effect in 2018, has been overturned by Congress, meaning the rule will remain in effect.

Martin Lynch, the compliance manager and director of education for Cambridge Credit Counseling Corp. in Agawam, Mass., says the repeal of the CFPB’s rule is a major defeat for consumers because forced arbitration is often used to scare customers out of taking action against the corporate world.

“That’s not fair, almost by definition,” says Lynch, who is also a member of the board of directors for the Financial Counseling Association of America. “It’s why the concept of consumer protection exists in the first place.”

Still to be determined: The GOP tax bill

It seemed as though 2017 might be yet another slow year for tax legislation. Then earlier this month Republican lawmakers moved to pass what is could be the biggest American tax overhaul since the 1980s.

While the U.S. House of Representatives and Senate still have to agree on a singular version of the new bill, which likely include close to $1.5 trillion in total tax cuts — $900 billion of which will be for businesses alone — they’re rushing to meet President Donald Trump’s Christmas deadline.

“If any or all of the proposed changes get enacted, we will have a lot to be concerned with,” says Cindy Hockenberry, director of tax research and government relations for the National Association of Tax Professionals.

So how will the Republican tax bill—in its current form—most affect consumers? Next year, not very much. The plan’s changes, which technically go into effect on Jan. 1, 2018, will be mostly marginal until 2019 because Americans will mostly be able to file their taxes in April under the current rules.

Being aware of these changes can help you plan in advance because filing taxes in the coming years might be extremely different, depending on your income bracket and your usual deductions. While the bill—officially named the Tax Cuts and Jobs Act—is not yet finalized, here are the parts of the bill’s current form that consumers are likely to feel the most:

  • Your income tax bracket could change: The House version of new law would reduce the number of standard tax brackets from seven to four, meaning many Americans would pay a new percentage of their income in 2019. You can check out this chart of the proposed percentages to see how your taxes might change.
  • Your state and local tax deductions will probably go away: The Senate plan would eliminate the State and Local Tax (SALT) deduction. This means that if you typically itemize your taxes—instead of just taking the standard deduction— you will be unable to write off taxes paid to state and local governments on your federal filing.
  • You will no longer be able to deduct a personal exemption: Currently, you can take a $4,050 “personal exemption” from your return that doesn’t count toward your taxable income. Under both the House and Senate bills, this option would disappear, however the standard deduction you can take each year would almost double—increasing from $6,350 to $12,200 under the House bill.

Hockenberry, who is based in Appleton, Wis., says the most important part of the plan is its proposed elimination of the personal exemption and a number of itemized deductions. Some Americans might have to pay more each year, she added, because the increase in the standard deduction might not be enough to make up for these changes, causing some consumers’ taxable income to grow.

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How to Maximize Your FSA and Transit Benefit Before You Lose It

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By Brittney Laryea & Shen Lu

 

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The end of the calendar year is generally an important time to pay attention to your workplace benefits accounts. You may already have gotten an email from the head of your workplace’s HR department about making your elections for the coming year and maybe even made them already. While you’re at it, take a look at the balances in your flexible spending accounts and transportation benefits accounts — they may need your attention.

Workplace benefit accounts like your health flexible spending account (FSA) and transportation benefits accounts help you save money on the important line items in your budget like your healthcare bills and getting yourself to and from work. Since the accounts are funded with pre-tax dollars, you could help your dollars go up to 40% further on common expenses — like getting a checkup or a bus pass — that help you keep and maintain your job. However, if you don’t quite know how to best use these accounts, you could actually end up losing the money you have socked away in your benefits accounts.

Read on or click ahead to learn the ins and outs of using these benefits accounts and what you can do, if anything, to save your money when you’re in danger of losing it.

Flexible spending accounts

What is a flexible spending account?

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A flexible spending account (FSA) is an employer sponsored reimbursement plan. It allows you to set aside pre-tax money and spend it on eligible medical expenses.

For 2018, you can contribute up to $2,650 to your health FSAs, up from the 2017’s limit of $2,600.

In an ideal world, you’ll avoid losing income by using up all your funds for eligible medical expenses by deadline. But the reality is that it’s tricky to budget for medical expenses for the next year (generally you can only adjust your contribution from each paycheck during open enrollment or during a qualifying life event, such as marriage or birth of a child). Many find themselves with excessive balance in their medical FSA at the end of the year.

It’s actually not that flexible given its “use it or lose it” rule — you have to use all the funds by the deadline, otherwise you lose the money. Several plan advisers confirmed to MagnifyMoney that many people underutilize their medical benefits. FSAStore.com, a one-stop-shop website stocked with FSA-eligible products, reported that each year, hundreds of millions of dollars was forfeited back to employers simply because consumers do not deplete the funds in their accounts.

So how can you make the best use of your medical FSA and avoid wasting money? We have done research and asked experts for you.

How can I use my health FSA funds?

First off, the medical FSA reimburses you for you or your dependent’s expenses that are not paid by your health insurance.

The eligible expenses include copayments, coinsurance and deductibles, prescription costs, vision and dental expenses and many over-the-counter (OTC) items — prescribed or unprescribed. But note that you cannot pay your monthly insurance premiums with the FSA.

If you have money left over in your FSA, you may want to consider getting new prescription glasses, prescription sunglasses and contact lenses. Those are some of the most common big-ticket items you can purchase with your FSA.

You can also stock up on things like first aid kits, contact solution, bandages and sunscreen that you may use year-round.

Your FSA plan provider will have a list of eligible over-the-counter items you can purchase at the pharmacy with your FSA, such as this one. Many of the pharmacy sites have sections of their sites that list all the FSA eligible items.

Another possible way to use the money would be scheduling check-ups with all your physicians. Your annual physicals and other preventative care are covered by your health plan, but if you need special medical treatment, you can use the remaining funds for copays, coinsurance or prescriptions.

Many FSA providers recommend you visit FSAStore.com.

How much should I contribute to my health FSA?

Becky Seefeldt, director of marketing at Benefit Resource, a benefits programs provider, said the average 2017 contribution was $1,250, based on the company’s 300,000 participants. That’s roughly half of the maximum amount one could contribute for the year. For those who over-contribute to their FSAs, by the end of the year, Seefeldt said, they usually have less than $100 left in their account.

Experts suggest you contribute conservatively because there is a chance that the unspent money might be forfeited. But everyone has a different situation; it’s hard to give a single guideline that fits all.

You really need to do the math when budgeting your contribution for the next plan year during open enrollment.

Nicole Wruck, a national health practice leader at Alight Solutions, told MagnifyMoney that most of the company’s clients over-contribute every year. She suggests consumers keep track of their health care expenses they had over the last year and plan accordingly for the coming year.

You will need to do the math based on the factors below:

  • What did you spend on prescription drugs?
  • What did you spend at the doctor, or the dentist, or the eye doctor?
  • Do you have any upcoming things planned in the next year that might make you experience some additional costs? For example, are you or your dependent expecting a baby? Will you need new glasses?

To help yourself run the numbers, you will want to study your health care plans. Know your deductibles — the amount you pay for health care services before your health insurance begins to kick in — as well as your copays and coinsurance. Learn what your out-of-pocket maximum is — the most you have to pay for health care services in a plan year. After you hit your out-of-pocket max, your insurance company covers your healthcare costs for the rest of the year.

Visiting your doctors can also help. Sometimes your year-end doctor visits can help you estimate your next year’s out-of-pocket medical expense. For instance, if your dentist tells you that you will need orthodontic treatment in the near future, then consider maxing out your FSA for the next plan year to cover the big dentist bills your insurance company won’t pay.

What happens to leftover funds at the end of the plan year?

Traditionally, you would have to use up all your remaining funds by Dec. 31. But there are two options employers can adopt to make the rules more lenient now.

The roll-over option. It allows up to $500 in your FSA per year to roll over into the next plan year, so participants don’t have to rush to use the remaining funds. Seefeldt said about 40 percent of employers now adopt the roll-over option.

An extended grace period. This gives participants an additional two and half months — through March 15 — to use up the money from the previous year. At the end of the grace period, all unspent funds will be forfeited to the employer.

Depending on how your company decides to do with the FSAs, you may have a little bit more leeway to use your funds by the year end. Check with your human resource department and your FSA plan provider to find out which option is available to you.

What happens if I leave the company before I use all my FSA funds?

If your eligible expenses incurred before you left the company, you may be able to request reimbursement through your company’s claim submission deadline.

If you leave the company in the middle of the year but you have used more funds in your flexible spending account than contributed. You may not be required to pay back your company.

You have access to the total amount you have allocated for the year after your first medical FSA deposit, regardless of the balance in your flexible spending account. You are reimbursed based on your company’s pay schedule as you submit claims.

For example, if you elected to put $2,000 into your FSA throughout the year, and you have a $2,000 dental expense in May, your FSA would reimburse you for the whole $2,000, even though you’ve only contributed about $833 by then.

If you jump ship in August, you may not have to pay back the rest of your contribution. Your company will cover it: It agrees to take the potential financial risk when it signs up for the FSA program. Don’t feel too guilty just yet — your company may be able to offset the financial loss with the unspent funds forfeited from other employees.

Now, if you have money left unused in your FSA, first, try to use it as much as you can before you part ways. But If you can’t use it up by your last day, you may have a chance to extend your FSA benefits if you choose to enroll in COBRA.

COBRA allows former employees, retirees, spouses and dependents to get temporary continuation of health benefits at group rates. FSA is one of the COBRA-eligible benefits.

Generally, you have until the end of plan year to use up money left in your FSA through your prior employer, but it’s most common for someone to take their FSA COBRA for one or two months and use the funds quickly, Seefeldt said. Under COBRA, you can continue to make your health plan contributions (but pay an additional 2 percent administrative fee) before the new plan kicks in, according to the Society for Human Resource Management.

Say you leave your company in August but there is $400 left in your FSA, and you plan to continue your health insurance coverage through your previous employer for two months before your new insurance plan kicks in, you can keep submitting expenses up to $400 in that period of time but pay an administrative fee that’s 2 percent of your monthly premium. But you are not required to purchase the health coverage in order to use your FSA balance.

Again, money in your FSA cannot be used to pay your premiums. But you can use it to cover eligible medical costs.

If you’re not eligible to continue your FSA through COBRA, try to use up the money before your job ends so that you won’t leave it on the table.

Transportation benefit accounts

What are commuter benefits?

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Transportation benefit accounts, also known as commuter benefits accounts, let employees use pre-tax dollars to pay for the costs of commuting. The accounts are meant to act as an incentive for employees to use eco-friendly transportation options like carpools, mass transit or bikes on their commute to the workplace.

Commuter benefits help many workers save on their transportation costs. But, it’s possible just as many workers aren’t completely sure how their transit benefit account works, or how to make the most of it.

How can I use my commuter benefits?

If you drive to a park-and-ride, catch mass transit or ride a bike to get to work, you may be able to use pre-tax dollars contributed to a commuter benefits account to cover some or all of the cost of your commute. However, if you ride solo to work or don’t use a bike or mass transit options available to you, you won’t be able to use commuter benefits to, let’s say, pay for the gas your personal vehicle burns during your bumper-to-bumper commute each morning.

However, you may be able to take advantage of parking benefits, which we’ll explain below.

You can use the money in a transportation benefits account to pay for any of the following eligible expenses:

  • A ride in a “commuter highway vehicle” to or from home and work.
    • This is another way of saying carpooling. Riding to work in a commuter highway vehicle counts if the vehicle can seat at least 6 passengers, according to the IRS. You might not have to go through the hassle of organizing a carpool with your coworkers or neighbors to use your transportation funds this way. Some commuter benefits programs allow you to carpool using rideshare apps like Lyft or Uber, too. All you’d need to do is use your commuter benefits card to pay for UberPOOL or Lyft Line rides and join the carpool when it arrives to pick you up.
  • A transit pass.
    • A transit pass is any pass, token or other tool that permits you to ride mass transit — like a train, ferry or bus — to work.
  • Qualified parking.
    • If you need to pay to park on or near your workplace, or you have to pay for parking in order to catch a ride on public transit for work or you pay for parking for any other work-related reason, you can use your transportation benefits to cover the charge.
  • Qualified bicycle commuting reimbursement.
    • You can use up to $20 per month in transportation benefits to purchase a bicycle, make improvements or repairs to the bike, and pay for bike storage as long as you use the bicycle for regular travel between home and your workplace. Be warned: If you use your transportation benefit to be reimbursed for commuting via bicycle at some point during the month, per IRS rule, you won’t be able to use the transportation funds for any of the three aforementioned eligible expenses in that particular month.

How much should I contribute to my transit benefit?

How much you contribute to your commuter benefits account will depend on how much you spend on transportation to and from work each month. Look at your monthly commuting expenses. Do the math to figure out what you would need to contribute from each paycheck to cover the cost of your commute to work. To avoid over-contributing to your transportation benefits account, be sure to to pull out a calculator.

Step 1: Estimate how much you spend on transportation expenses — monthly parking pass, bus pass, etc. — each pay period.

Estimating your commuter benefits should be easier than, say, trying to guess how many doctor’s visits or prescriptions you’ll need to cover in the coming year. “With a commuter benefit you are making an estimate,” says Joseph Priselac, Jr., CEO P&A Group, a Buffalo, N.Y.-based employee benefits administration company. “As long as you have a job and you know you’re going to keep going to it, you know how much you will spend.”

Step 2: Elect to contribute that amount for the year. The amount you elect will be divided by the total number of remaining pay periods for the year. The benefit will be deducted from each paycheck and placed in your transportation account for your use when you need it. If you change your annual contribution, the remaining number of deductions will be adjusted accordingly to reflect the change. If, for example, you elect $1,200 for the year and are paid monthly, $100 pre-tax will be deducted from your paycheck to your transportation account.

Beware of contribution limits

Commuter benefits: In 2017, the maximum monthly pre-tax contribution limit for commuter benefits is $255, or $3,060 in a year. Moving forward, the IRS may decide to change that limit. The federal agency reviews and sets the limit annually. If you bike to work, you max out at $20 per month.

Parking benefits: An additional $255 per month. If you’ve got to ride mass transit to get to work and pay for parking, Priselac says that limit is technically doubled, since you can max out $255 for parking and another $255 for mass transit passes each month.

Unless you are certain sure you will use up the maximum in transportation spending for the year, don’t simply contribute the maximum amount you can to your transportation benefits account.

What if I want to reduce my contribution?

If, for whatever reason, you decide you don’t need to contribute as much or you want to contribute more to your transit benefit fund during the year, that’s not a problem.

Unlike an FSA, for which your contribution election can’t be changed during the year, “you can change your election anytime you want,” says Priselac.

To clarify, you can change your commuter benefits election as often as your company allows. For some, that may be once per pay period, for others, it may be once per quarter. It’s one of the few benefits you can change mid-year. Consult with your employer’s human resources department to find out how often you are able to change your election.

“If you’re not sure how much you will be spending, start by contributing a small amount,” says Caspar Yen, Senior Director of Product Management at Zenefits, a human resources software company. “There’s no need to over contribute to play it safe.”

That said, if you feel you’ve contributed too much to your commuter benefits account to use up within the period, you can stop the deductions and use up the balance you’ve accumulated until it runs out, then restart your contributions. Just be sure to keep an eye on your transportation benefits balance so you know when to restart your contributions.

What happens to leftover funds at the end of the year?

Transit benefits rollover each year so long as you are still with the company and the company still offers the benefit. That means you don’t have to rush to use leftover funds at the end of the year.

This is in contrast to a flexible spending account, which has a ‘use it or lose it’ rule, which we covered above.

In a sense, there is no ‘plan year’ for transportation benefits, although your company may ask that you confirm you’d like to stay enrolled in the program each year when you elect your annual benefit contributions. Transportation benefits accounts roll over each pay period and should roll over into the coming period at the end of the year. That means there’s no danger of losing any of the money you’ve contributed so far, as long as you remain employed with that particular employer.

What if I quit my job or get laid off?

“As long as you are still working there and you have work related transit expenses the money stays,” says Priselac.

But if you quit your job or are laid off you could lose some or all of the money remaining in your transportation benefits account. If you’ve been over-contributing, any money you don’t use up will be lost to you, and returned to your employer.

The good news is that some benefit programs will give employees a grace period to submit reimbursements requests for any transportation expenses incurred during their employment — even if they quit.

If you know you may no longer be with the company or the company is planning to terminate its program, there’s one thing you can do to save your money.

“Before leaving a company, employees can make a large eligible purchase,” says Yen.

In the Bay Area, for example, an employee can purchase a clipper card with up to $300 in credits. If the transit method you take offers individual tickets, you could purchase a large number. Or, if you are able to load your transit pass with cash, you could place a large amount on your pass.

For example, those in the New York City metro area might load a large amount of money onto their MetroCard and use it up until it’s depleted.

Whenever you’re making a decision about benefits, it helps to talk to your HR department or the benefit provider, just to be sure you understand the rules. Mistakes you make when choosing benefits can end up costing you a lot of money, so ask questions and avoid leaving your decisions to the last minute of open enrollment.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

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How Apple Pay Cash Stacks Up Against Venmo

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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As part of an early release of its updated iOS 11.2 mobile operating system, Apple is rolling out a P2P payments platform, Apple Pay Cash, available to anyone with an iPhone or Apple tablet, Apple Watch.

Apple Pay Cash already has a lot of competition. The person-to-person (P2P) payments market is fairly saturated with other platforms like Venmo, Paypal, Square Cash, Google Wallet and the like. At the moment, Apple’s largest competition in the P2P space is social payment app Venmo, which is owned by yet another competing payments processor, Paypal. Like competitors Venmo and Paypal, Apple Pay Cash is easy to use with one way we communicate most: via text. But unlike its major competitors, Apple is leveraging its user base to provide a P2P service that comes along with ownership, rather than requiring you to download another application.

Venmo uses emojis and a social feed in an attempt to take the “awkward” out of paying or charging your friends money. The tactic seems to work. Venmo’s user base completed $9 billion in transaction last quarter, about 93% more than the same quarter a year earlier. Since September 2016, the app allowed its users to pay via iMessage and Siri, expanded its online payments business, and tested out a physical debit card with some users. The company is also reportedly, like many other P2P processors, exploring instant deposits, too, to the tune of about $0.25 per transfer.

Apple Pay Cash seems to imitate several of Venmo’s features, so the 68% of millennial mobile payment users who say they use Venmo most seemingly won’t have too much incentive to make a switch to Apple Pay Cash. However, a relatively easy setup with Apple Wallet, may appeal to those outside of the millennial demographic who aren’t already attached to Venmo, but need to send mobile payments, too.

What is Apple Pay Cash?

Apple Pay Cash is Apple’s person-to-person money transfer service. Apple users can use Apple Pay Cash to quickly send and receive money to and from friends, acquaintances and family members using Apple’s built-in messaging app iMessage. The service is available in the U.S. on iPhone SE, iPhone 6 and later, Apple Watch, iPad Pro, iPad 5th Generation, iPad Air 2 and iPad mini 3 or later. You can also ask Apple’s intelligent personal assistant, Siri, to pay someone via Apple Pay Cash.

Source: Apple

How does Apple Pay Cash Work?

You can say, “Hey Siri, send $[an amount of money] to [one of your contacts]” to prompt a message asking them which app you want to use to send the funds, including Venmo. You can also send money via iMessage by tapping the app store icon and selecting Apple Pay at the bottom.

The money you send will come from one of two sources in the Apple Wallet application: The digital Apple Pay Cash Card or any linked debit or credit cards in your Apple Wallet. The transaction is free if you pay someone using a debit card. If you use a credit card to pay another person, you’ll be charged a 3% fee. Payments are approved using a finger with Touch ID or a smile with Face ID if you have an iPhone X.

When you get paid, the money you receive is automatically credited to a digital Apple Pay Cash Card that lives in Apple Wallet, for use right away. Unlike Square Cash, you don’t get a physical card to use, but the digital Apple Pay Cash Card, like a gift card, can be used like any other debit or credit card in the Apple Wallet. You also have the option of transferring the funds on your Apple Pay Cash Card to a bank account, but that may take up to three business days.

When not using Apple Pay Cash to pay a roommate your share of the light bill or charge a friend for his share of the a group vacation, you can use the digital Apple Pay Cash Card — or another card in your Apple Pay account — at any of these retailers to pay online or in stores.

How do I get Apple Pay Cash?

To do to gain access to Apple Pay Cash, update your compatible device to iOS 11.2 or watchOS 4.2 and set up the Apple Pay Cash Card in Apple Wallet. Apple Pay Cash is not available on non-Apple devices or for use outside of the United States.

Step 1: Update your Apple device

To update the device, go to Settings, then General, then Software update. An on-screen message will let you know what version of iOS your device is running and prompt you to update if you’re using old software.

Step 2: Set up your Apple Pay Cash card

Once the device is updated, it’s time to set up the Apple Pay Cash card. In Settings, go to Wallet & Apple pay. There you will see the “Add Credit or Debit Card” option or your Apple Pay Cash card. Click on the card to set it up. Hit continue, and agree to the terms and conditions after reading them thoroughly.

Verification

The device may or may not prompt you to verify your identity when setting up the Apple Pay Cash card, but you should if you want to send or receive more than $500 per transaction.

To verify on iPhone, click the small ‘i’ with a circle around it next to the Apple Pay Cash card in the Apple Wallet app and tap Verify Identity. You will be prompted to enter personal information like your name, Social Security number and date of birth. You may also need to answer questions about your personal history or submit an image of a photo ID like a driver’s license for verification.

You can then load the card with funds using other linked debit or credit cards in Apple Wallet. The Apple Pay Cash card requires a minimum $10 deposit. However, users don’t have to load and Apple Pay Cash card with funds before you can use Apple Pay Cash to send and receive funds. They can use Apple Pay Cash with any of their other linked debit or credit cards in Apple Wallet.

When the two steps are complete, you can then begin using Apple Pay Cash.

Source: Apple

How does Apple Pay Cash stack up to Venmo?

Apple’s main competition in the P2P space is Venmo. Here’s a breakdown of how Apple Pay Cash stacks up to the leading P2P payments platform.

Where Apple Pay Cash beats Venmo

No need to download an app

Apple Pay Cash is built into Apple’s iOS operating system, so you don’t have to download another app that could take up precious phone memory drain your battery life. To use Venmo on the go, you need to download and set up the Venmo app, which can be a tedious hurdle for some.

Easily change between payment options

You can’t easily switch between payment options in iMessage using Venmo like you can with Apple Pay Cash. The only way to switch payment option is using the Venmo app and changing payment options requires going to Settings, then Banks and Cards, then setting one card or bank account for use in payments to peers. After going through multiple screens to complete that process, you can then pay with the selected payment source.

With Apple Pay Cash, you can switch payment options in your Apple Wallet right in the iMessage app, in the middle of making a transaction.

Apple Pay Cash automatically gives you an in-app card

The Apple Pay Cash card is an interesting addition to the P2P space, as it allows you to automatically access to the funds you receive via Apple Pay Cash. The digital card lives in Apple Wallet and can be used like a gift card to make purchases in physical stores or online at retailers who use Apple Pay.

Source: Apple

Transfer limits

Apple Pay Cash lets you send more money per transaction and on a weekly basis than Venmo does. Apple lets you send up to $3,000 in a single transaction and $10,000 in a seven-day period. Venmo has a $2,000 transaction limit and a seven-day limit of $2,999.99. Venmo users can send or receive up to $4,999.99 in a seven-day period and may not complete more than 30 transactions in a 24-hour period.

Where Venmo has the edge over Apple Pay Cash

Venmo has a wider reach

Venmo offers its same P2P service online at Venmo.com, where you can log in and do everything you do on the Venmo app on your desktop or laptop. Apple Pay Cash is exclusively offered on Apple’s mobile devices. Exclusivity may or may not be a downfall for Apple Pay Cash, as exclusive offerings like iMessage and FaceTime have long set Apple apart from its competitors. Those who own Apple Macbooks or desktop devices can pay for items online using their Apple Wallet but aren’t be able to set up Apple Pay Cash without access to an iPhone or iPod touch. Android users and those who don’t have a mobile iOS device, can’t use Apple Pay Cash.

Venmo might give you a physical debit card

Venmo reportedly sent some users invitations to test out a physical Venmo card over the summer months in 2017. Users who opt ed in didn’t pay a fee to use the card, which pulls funds from the user’s Venmo balance. There is no confirmation of a future rollout of physical-card invites to all users.

Send money from a bank account

You cannot use Apple Pay Cash to send money directly from a bank account, like you can using Venmo and practically any other existing P2P platform. Apple Pay Cash does allow you to send money using linked debit cards, however. Arguably, sending money using a debit card is the same thing as sending money from a bank account, as the funds generally come from the same place.

Where Apple Pay Cash and Venmo are the same

Ask Siri to send

When you ask Siri to send money to a contact, the AI doesn’t automatically send the funds using Apple Pay Cash, but, instead, asks you to select from the options you have that can perform the task. Apple Pay is an option, but so is Venmo, if you have that downloaded.

Pay in Messages app

Way ahead of Apple, Venmo released its in-app iMessage integration back in September 2016 (also when Venmo released its Siri integration). Now, you can do the same thing with Apple Pay Cash.

B-to-C payments

In addition to paying friends and family, Apple Pay lets you pay businesses using Apple Pay Cash. You could technically already use Apple Pay where available in stores and online, but now you can use the balance accrued from received payments or loaded onto an Apple Pay Cash card in Apple Wallet. Venmo users can also complete online transactions to businesses using Venmo, a feature Venmo debuted October 2017.

Cost

There is no cost difference between Venmo and Apple Pay Cash. Both systems charge no fee to send money using a debit card and charge a 3% fee to send money using a credit card. Venmo also doesn’t charge for sending money from a linked bank account. Apple pay Cash doesn’t offer the option to link a bank account.

The bottom line

If you are a loyal Apple user and a late adopter to person-to-person payment systems, Apple Pay Cash could act as a kind nudge into the P2P payments space. In addition, Apple Pay Cash’s iMessage integration and quick setup process make it easy for the less-tech-savvy among us to start sending and receiving funds electronically. On top of that, having an Apple Pay Cash card already in our Apple Wallet makes it easy to spend any money you receive at vendors that accept Apple Pay, without having to wait a day or two for the money to show up in your bank account.

If you’re already a Venmo user, other than Apple Pay Cash’s automatic addition into your Apple devices with the iOS 11.2 update, there’s far less incentive to switch over to Apple Pay Cash. If you like to make your P2P payments and requests on a desktop or want to send funds directly from your bank account, stick with Venmo.

Aside from those features, Venmo and Apple Pay Cash cost the same and are about as simple to use. 

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Brittney Laryea
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Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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The Best Places to Work Your Way Through College and Avoid Student Loan Debt

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The average cost of a four-year college education was almost five times higher in 2015 than a mere twenty years earlier, making the cost of an education seem out of reach for many. But, the data is clear: someone with a four-year college degree can expect to make $32,000 more a year than a high school graduate, or a whopping $1.4 million over the course of a working life. This forces American students (and their parents) into difficult and confusing decisions about how to approach a college education and what kind of student loans to take on.

It turns out that if you attend a public four-year university in one of these places, the days of working your way through college may not be over, despite common perceptions to the contrary. This is especially true when we consider that many, if not most, students are awarded various grants and scholarships to take the edge off an already (relatively) low in-state tuition.

A summer job doesn’t do it anymore, but a student who works – for minimum wage – about 20 hours a week while school is in session, 40 hours a week when it’s not, and takes a couple of well-deserved weeks off, can avoid student debt by paying off tuition in more places than you think, and may even have something left over for living expenses. Even if you earn enough to pay income taxes, spending your earnings on education can means substantial tax credits and deductions.

If You’re On Your Own…

There’s no question that working to pay your tuition bill is hard enough, but covering the basic costs of living on top of that can seem downright impossible.  If you’re doing it yourself, these areas might offer a workable path to economic security. It takes a lot of work, but students can still pay off that tuition bill and the leftover income will go a lot farther towards necessities.

100 communities were scored on four factors: 1) Average rent compared to the rest of the country, 2) average cost of goods compared to the rest of the country, 3) the amount of average in-state tuition someone could pay off working 1,280 hours a year at minimum wage, and 4) the unemployment rate for people between the ages of 16 and 24 years old. A score of 51 represents the average score of the 100 largest Combined Statistical Areas we reviewed. The highest score is 76, and the lowest is 10.

1 – Springfield, Missouri

At just 7.2 percent, the Springfield-Branson area of Missouri boasts the lowest unemployment rate for young people among all of the communities we examined, and it’s the fifth cheapest place to live (McAllen, Texas is the cheapest, but that only gets it a score of 46, as youth unemployment is significantly higher than other places, state tuition is a touch higher than average, and the minimum wage is the lowest allowable by federal law). You can expect to pay 34 percent less in rent than your friends in the rest of America, and about $1,000 less in tuition. A minimum wage of $7.70 means you won’t have tons of money left over after paying your tuition (a student can earn about 111 percent of his or her full course tuition and fees), but you can buy more with what you do have.

Local public universities include Missouri State University. US News & World Report gives it a Regional Universities Midwest ranking of 106, reports that tuition for the 2017-18 academic year is lower than the state average at $7,060 (not including room and board), and notes admission is selective with an acceptance rate of 86 percent.

2 – St. Louis, Missouri

Both the first and third ranked areas have lower average rents and youth unemployment rates than St. Louis, but a cost of goods that’s seven percent lower than the national average just edges this community to a higher score than Little Rock, Ark. Even so, the rent is an impressive 18 percent lower than the national average, and at 11 percent the youth unemployment rate is still about 13 percent less than the average of the communities we examined. Students can plan to earn about 111 percent of their full course load tuition. It’s also the most metropolitan area to place in the top 10, with a population of almost three million.

The big caveat is that this really only applies to people who live on the western side of the Mississippi River, because the average tuition in Illinois is the fifth highest in the nation at $13,620. Unfortunately, a student would only cover 72 percent of that by working for minimum wage.

Local public colleges and universities for Missouri residents include University of Missouri St. Louis. US News & World Report gives it national ranking of 231-300, reports that tuition and fees for the 2017-18 academic year were $10,275 (not including room and board), and notes that admission is “more selective” with an acceptance rate of 71 percent. At just over half the price, Harris-Stowe State University in St. Louis gets a US News & World Report Regional Colleges Midwest ranking of 62-80, has a reported 2017-18 academic year tuition and fees cost of $5,220 (not including room and board), and admission is designated “least selective” despite an acceptance rate of 55 percent.

3 – Little Rock, Arkansas

A comfortably low average state tuition, combined with a better-than-typical minimum wage of $8.50 (34th highest among the 100 communities we examined), means that students here can hope to have a bit of money left over, since they can earn about 127 percent of their full course load tuition. The cost of goods are four percent lower than the national average and rents that are 29 percent lower, which means that money you work so hard for can go further. The youth unemployment rate of 9.8 percent is also significantly less than our median rate of 12.5 percent. Finally, students also have more options than in some of our other highly scored areas, with three public four-year universities in the area.

Local public universities include the flagship campus of The University of Arkansas-Little Rock. US News & World Report gives it a national ranking of 231-300, reports that tuition for the 2017-18 academic year is $8,401 (not including room and board), and notes admission is “selective” with an acceptance rate of 77 percent. The University of Central Arkansas in Conway gets a Regional Universities South ranking of 72 from US News & World Report, and has a reported tuition for the 2017-18 academic year of $8,524 (not including room and board), and is considered selective with an acceptance rate of 90 percent. US News & World Report gives University of Arkansas-Pine Bluff a Regional Colleges South ranking of 50, reports that tuition for 2017-18 is $7,336, and note admission is less selective with an acceptance rate of 42 percent.

 

If You Live at Home…

Most college bound kids dream of leaving home as soon as they can, but delaying gratification can have a big, long-term payoff if you’re from one of these areas.  Who knows, maybe you even like your parents, or at least all the things they do and buy for you.

Low in-state tuition, youth unemployment rates, and high minimum wages give you the best chance of completely paying off your tuition by working part time while school is in session and full time when it’s not. Statewide, Florida comes out on top, and even expensive places, like the Bay Area, get high scores thanks to higher wages.

These communities are scored on two factors: 1) the amount of average in-state tuition someone could pay off working 1,280 hours a year at minimum wage, and 2) the local unemployment rate for people between the ages of 16 and 24 years old. A score of 51 represents the average score of the 100 largest Combined Statistical Areas we reviewed. The highest score of the communities we examined is 94, and the lowest is nine.

1 – Cape Coral, Florida

2 – Lakeland, Florida

3 – Palm Bay, Florida

The bronze, silver, and gold all go to communities in the Sunshine State. That’s because Florida has a state-wide minimum wage right at the median for all the cities we reviewed and the absolute lowest average in-state tuition. Combine that with the low youth unemployment rates these three cities boast, and we see some A grades. If you were lucky enough to grow up in paradise, sticking around a little longer in the sun and surf isn’t just enticing – it’s the responsible financial choice. In all three places, you can expect to earn about 163 percent of your full course load tuition by working 1,280 hours at minimum wage.  Another bonus?  While Florida’s state universities have selective admissions, every single state college is open admission.

The three communities span the state from east to west, with Cape Coral on the Gulf Coast, Lakeland just east of Tampa, and Palm Bay nestled between extensive nature preserves and the Atlantic Ocean.

Just because you’re in paradise doesn’t mean the cost of living is as high as one might expect, either: the cost of goods is four percent lower than the national average. Cape Coral ticks just over the national average for rent.

In fact, the cost of living is so low in Lakeland, with rents a full 17 percent lower than the national average, it ties for the number five spot on our list of best places to work your way through college if you don’t live at home. In other words, even if your parents ask you to kick in some money for expenses, you should be okay.

Palm Bay comes in at eight percent lower rent than the national average, earning it the number 10 spot on our other list. The hitch is that the nearest public, four-year institution is about 40 miles away in Fort Pierce, but it may be worth it for a 2017-18 academic year tuition of – ready? – $2,640. Heck, you could pay the room and board of $5,700 and still come out better than most American students are paying for in-state tuition alone.

Local public colleges and universities in the Cape Coral-Fort Myers-Naples area include Florida SouthWestern State College (formerly Edison State College) in Fort Myers. US News & World Reports doesn’t give it a ranking, but notes that last year’s tuition was an astoundingly low $3,401. It is “least selective”, with an acceptance rate of 81 percent. Also in Fort Myers is Florida Gulf Coast University, which was awarded a Regional Universities South ranking of 73 by US News & World Report, which reports this year’s tuition and fees (not including room and board) is $6,118, and notes admission is “selective” with an acceptance rate of 56 percent.

Local public colleges and universities in the Lakeland-Winter Haven area include the University of South Florida in nearby Tampa.  US News & World Reports gives it a national ranking of 140, and notes that it is “more selective” with an acceptance rate of 47 percent.  Another option is Polk State College in Winter Haven. US News & World Reports doesn’t give it a ranking, but notes that last year’s tuition was an astoundingly low $3,366. It is “least selective”, and the acceptance rate isn’t available.

Unfortunately, you have to drive a fair distance to reach a public, four-year university near Palm Bay-Melbourne-Titusville, but if that’s doable, the closest schools include Indian River State College in Fort Pierce. US News & World Reports gives it a Regional Colleges South ranking of 60-79, reports that tuition and fees for this year is – just when you thought tuitions couldn’t get any lower — $2,640 (not including room and board). The school is “less selective” and has a 100 percent admission rate. If you’re willing and able to drive fifty miles, the University of Central Florida in Orlando gets a national ranking from US News & World Reports of 171, has a 2017-18 academic year tuition and fees (not including room and board) of $6,368, and is designated “more selective” with a 50 percent admission rate.

4 – San Francisco, California

Everyone knows the Bay Area in general, and San Francisco in particular, is one of the most expensive places in the world, so how can it come in fourth on a list of places where you can work your way through school? This community demonstrates the power of living in an expensive place – as long as someone else can cover your expenses – because higher costs can mean higher wages. San Francisco boasts a minimum wage of $14 and California has an average tuition rate of $9,680 for the current academic year, meaning a student can handily afford that tuition by working part-time during the school year and full-time during the summer. Combine that with a plethora of public schools – including world famous Berkeley – and prospective students might just learn to appreciate living with their parents a little longer. A student can expect to earn 159 percent of a full course load tuition.

Local public universities include one of the nation’s premier public universities, The University of California at Berkeley. US News & World Report gives it a national ranking of 21, reports that tuition for the 2017-18 academic year is higher than the state average at $14,098 (not including room and board), and notes admission is “most selective” with an acceptance rate of only 16 percent. For students who are just looking for something else, San Francisco State University gets a US News & World Report national ranking of 231-300, is actually cheaper than the state average, with a tuition for the 2017-18 academic year of $7,254 (not including room and board), and admission is “less selective”, with an acceptance rate of 68 percent. Other local public colleges and universities include California State University – East Bay in Hayward, and San Jose State University in San Jose.

Special Mention – Seattle, Washington

Seattle-Tacoma placed 13 on our list because its youth unemployment rate was at the median (and just slightly below average) of all the communities we examined. But if your teammate’s cousin’s girlfriend can hook you up with a job in Seattle proper, this community offers the best potential to cover tuition while working minimum wage of any community we rated.

You may remember when Seattle made headlines as the first place in America to raise minimum wage to $15 an hour, allowing locals to earn dramatically more than their peers around the country. With an average state school tuition of $9,480 (just under the nation’s median average in-state tuition of $9,580), working students can earn an amazing 203 percent of their full course load tuition costs… As long as they don’t have to pay their own living expenses. Despite the high minimum wage, Seattle didn’t fare well on our other list (ranking 81 out of 100), thanks to a high cost of living. Residents can expect to pay 26 percent more in rent than the average American, and even seven percent more for they stuff they buy.

Local public universities include the flagship campus of The University of Washington. US News & World Report gives it a national ranking of 56, reports tuition for the 2017-18 academic year is $10,974 (not including room and board), and notes admission is “selective” with an acceptance rate of 45 percent.

 

What’s the National Picture?

Compare where you live (or plan to live) to the averages and medians of the 100 Combined Statistical Areas we examined.

Working your way through school scores (Living on your own)

Metro

Score

Rent vs National Avg.

Cost of Goods vs National Avg.

Avg. In-State Tuition

Minimum Wage

Unemployment Rate
(Age 16-24)

% of Tuition Covered by Work

Albany, N.Y.

42

2%

-4%

$7,940

$9.70

13.5%

156%

Albuquerque, N.M.

65

-8%

-5%

$6,920

$8.50

13.0%

157%

Atlanta, Ga.

45

-10%

-4%

$8,570

$7.25

11.5%

108%

Augusta, Ga.

56

-32%

-5%

$8,570

$7.25

17.2%

108%

Austin, Texas

40

13%

-4%

$9,840

$7.25

10.8%

94%

Bakersfield, Calif.

53

-8%

-5%

$9,680

$10.50

19.0%

139%

Baton Rouge, La.

50

-16%

-5%

$9,300

$7.25

15.1%

100%

Birmingham, Ala.

47

-32%

-5%

$10,530

$7.25

15.3%

88%

Boise City, Idaho

65

-20%

-5%

$7,250

$7.25

13.4%

128%

Boston, Mass.

37

25%

-1%

$12,730

$11.00

11.0%

111%

Buffalo, N.Y.

66

-23%

-4%

$7,940

$9.70

10.3%

156%

Cape Coral, Fla.

65

1%

-4%

$6,360

$8.10

9.3%

163%

Charleston, W.Va.

66

-42%

-4%

$7,890

$8.75

14.7%

142%

Charleston, S.C.

31

-5%

-4%

$12,610

$7.25

13.8%

74%

Charlotte, N.C.

56

-16%

-5%

$7,380

$7.25

13.9%

126%

Chattanooga, Tenn.

62

-31%

-6%

$9,790

$7.25

13.9%

95%

Chicago, Ill.

23

13%

0%

$13,620

$11.00

14.2%

103%

Cincinnati, Ohio

69

-22%

-9%

$10,510

$8.15

11.3%

99%

Cleveland, Ohio

67

-24%

-6%

$10,510

$8.15

12.3%

99%

Colorado Springs, Colo.

43

3%

-5%

$10,800

$9.30

15.4%

110%

Columbia, S.C.

41

-22%

-5%

$12,610

$7.25

15.4%

74%

Columbus, Ohio

52

-18%

-4%

$10,510

$8.15

12.0%

99%

Corpus Christi, Texas

42

-16%

-4%

$9,840

$7.25

14.3%

94%

Dallas, Texas

39

0%

-4%

$9,840

$7.25

10.6%

94%

Dayton, Ohio

48

-30%

-4%

$10,510

$8.15

13.3%

99%

Denver, Colo.

41

21%

0%

$10,800

$9.30

9.3%

110%

Des Moines, Iowa

71

-10%

-6%

$8,760

$7.25

8.1%

106%

Detroit, Mich.

23

-13%

-3%

$12,930

$8.90

14.9%

88%

El Paso, Texas

48

-28%

-5%

$9,840

$7.25

14.6%

94%

Fayetteville, N.C.

53

-23%

-5%

$7,380

$7.25

19.5%

126%

Fort Wayne, Ind.

62

-31%

-4%

$9,360

$7.25

9.0%

99%

Fresno, Calif.

55

-11%

-5%

$9,680

$10.50

17.7%

139%

Grand Rapids, Mich.

51

-17%

-4%

$12,930

$8.90

11.1%

88%

Greensboro, N.C.

63

-30%

-4%

$7,380

$7.25

12.7%

126%

Greenville, S.C.

58

-31%

-4%

$12,610

$7.25

11.0%

74%

Harrisburg, Pa.

35

-14%

-4%

$14,440

$7.25

11.9%

64%

Hartford, Conn.

30

7%

-3%

$12,390

$10.10

13.2%

104%

Houston, Texas

39

0%

-5%

$9,840

$7.25

14.3%

94%

Huntsville, Ala.

54

-35%

-4%

$10,530

$7.25

12.4%

88%

Indianapolis, Ind.

51

-20%

-4%

$9,360

$7.25

11.1%

99%

Jackson, Miss.

55

-28%

-5%

$7,990

$7.25

17.6%

116%

Jacksonville, Fla.

57

-6%

-4%

$6,360

$8.10

12.6%

163%

Kalamazoo, Mich.

52

-24%

-4%

$12,930

$8.90

10.0%

88%

Kansas City, Mo.

72

-19%

-5%

$8,870

$7.70

9.5%

111%

Knoxville, Tenn.

72

-32%

-6%

$9,790

$7.25

11.0%

95%

Lafayette, La.

57

-31%

-5%

$9,300

$7.25

16.2%

100%

Lakeland, Fla.

72

-17%

-4%

$6,360

$8.10

10.2%

163%

Lansing, Mich.

31

-17%

-4%

$12,930

$8.90

15.0%

88%

Las Vegas, Nev.

64

-5%

-5%

$7,270

$8.25

12.5%

145%

Lexington,Ky.

51

-23%

-4%

$10,300

$7.25

11.5%

90%

Little Rock, Ark.

73

-29%

-4%

$8,550

$8.50

9.8%

127%

Los Angeles, Calif.

30

51%

2%

$9,680

$12.00

14.5%

159%

Louisville, Ky.

60

-25%

-5%

$10,300

$7.25

11.6%

90%

Madison, Wis.

56

2%

-4%

$8,960

$7.25

8.1%

104%

McAllen, Texas

46

-42%

-4%

$9,840

$7.25

16.3%

94%

Memphis, Tenn.

47

-24%

-4%

$9,790

$7.25

14.5%

95%

Miami, Fla.

42

24%

-2%

$6,360

$8.10

12.6%

163%

Milwaukee, Wis.

65

-7%

-6%

$8,960

$7.25

10.1%

104%

Minneapolis, Minn.

42

6%

2%

$11,300

$9.50

7.6%

108%

Mobile, Ala.

59

-31%

-4%

$10,530

$7.25

10.1%

88%

Modesto, Calif.

53

-10%

-5%

$9,680

$10.50

21.6%

139%

Nashville, Tenn.

60

-14%

-5%

$9,790

$7.25

8.1%

95%

New Orleans, La.

47

-9%

-5%

$9,300

$7.25

14.4%

100%

New York, N.Y.

34

48%

7%

$7,940

$11.00

14.1%

177%

North Port, Fla.

54

5%

-4%

$6,360

$8.10

12.4%

163%

Oklahoma City, Okla.

60

-22%

-4%

$8,460

$7.25

11.7%

110%

Omaha, Neb.

65

-16%

-4%

$8,270

$9.00

9.1%

139%

Orlando, Fla.

67

-1%

-5%

$6,360

$8.10

11.9%

163%

Palm Bay, Fla.

67

-8%

-4%

$6,360

$8.10

10.3%

163%

Philadelphia, Pa.

10

7%

0%

$14,440

$7.25

15.2%

64%

Phoenix, Ariz.

43

-5%

-4%

$11,220

$10.00

11.7%

114%

Pittsburgh, Pa.

38

-24%

-4%

$14,440

$7.25

12.3%

64%

Portland, Maine

50

3%

-3%

$9,970

$10.68

8.5%

137%

Portland, Ore.

42

6%

-3%

$10,360

$10.25

11.2%

127%

Raleigh, N.C.

55

-7%

-4%

$7,380

$7.25

11.3%

126%

Reno, Nev.

55

-3%

-5%

$7,270

$8.25

13.7%

145%

Richmond, Va.

27

-4%

-4%

$12,820

$7.25

15.1%

72%

Rochester, N.Y.

57

-7%

-4%

$7,940

$9.70

10.6%

156%

Sacramento, Calif.

55

14%

-5%

$9,680

$10.50

13.3%

139%

Salt Lake City, Utah

71

-6%

-5%

$6,790

$7.25

7.6%

137%

San Antonio, Texas

54

-11%

-5%

$9,840

$7.25

10.9%

94%

San Diego, Calif.

34

63%

0%

$9,680

$11.50

12.8%

152%

San Francisco, Calif.

44

74%

6%

$9,680

$12.00

10.3%

159%

Savannah, Ga.

50

-14%

-5%

$8,570

$7.25

19.4%

108%

Seattle, Wash.

40

26%

5%

$9,480

$15.00

12.5%

203%

South Bend, Ind.

54

-30%

-4%

$9,360

$7.25

12.6%

99%

Spokane, Wash.

66

-17%

-5%

$9,480

$11.00

12.2%

149%

Springfield, Mo.

76

-34%

-4%

$8,870

$7.70

7.2%

111%

Springfield, Mass.

35

-8%

-4%

$12,730

$11.00

14.7%

111%

St. Louis, Mo.

74

-18%

-7%

$8,870

$7.70

11.0%

111%

Syracuse, N.Y.

56

-14%

-4%

$7,940

$9.70

11.9%

156%

Tampa, Fla.

45

1%

-4%

$6,360

$8.10

13.8%

163%

Toledo, Ohio

46

-34%

-4%

$10,510

$8.15

14.7%

99%

Tucson, Ariz.

52

-12%

-5%

$11,220

$10.00

17.6%

114%

Tulsa, Okla.

54

-26%

-4%

$8,460

$7.25

14.5%

110%

Virginia Beach, Va.

29

4%

-4%

$12,820

$7.25

13.3%

72%

Visalia, Calif.

56

-18%

-5%

$9,680

$10.50

17.1%

139%

Washington, D.C.

38

46%

2%

$9,580

$12.50

12.7%

167%

Wichita, Kan.

60

-28%

-4%

$9,230

$7.25

10.5%

101%

Youngstown, Ohio

51

-40%

-4%

$10,510

$8.15

13.3%

99%

Average of 100 Examined CSAs

51

-10%

-4%

$9,644

$8.46

12.7%

117%

Working your way through school scores (Living at home)

Metro

Score

Avg. In-State Tuition

Minimum Wage

Unemployment Rate (Age 16-24)

% of Tuition Covered by Work

Albany, N.Y.

62

$7,940

$9.70

13.5%

156%

Albuquerque, N.M.

66

$6,920

$8.50

13.0%

157%

Atlanta, Ga.

58

$8,570

$7.25

11.5%

108%

Augusta, Ga.

29

$8,570

$7.25

17.2%

108%

Austin, Texas

51

$9,840

$7.25

10.8%

94%

Bakersfield, Calif.

40

$9,680

$10.50

19.0%

139%

Baton Rouge, La.

29

$9,300

$7.25

15.1%

100%

Birmingham, Ala.

15

$10,530

$7.25

15.3%

88%

Boise City, Idaho

54

$7,250

$7.25

13.4%

128%

Boston, Mass.

65

$12,730

$11.00

11.0%

111%

Buffalo, N.Y.

84

$7,940

$9.70

10.3%

156%

Cape Coral, Fla.

94

$6,360

$8.10

9.3%

163%

Charleston, W.Va.

50

$7,890

$8.75

14.7%

142%

Charleston, S.C.

22

$12,610

$7.25

13.8%

74%

Charlotte, N.C.

50

$7,380

$7.25

13.9%

126%

Chattanooga, Tenn.

31

$9,790

$7.25

13.9%

95%

Chicago, Ill.

36

$13,620

$11.00

14.2%

103%

Cincinnati, Ohio

52

$10,510

$8.15

11.3%

99%

Cleveland, Ohio

47

$10,510

$8.15

12.3%

99%

Colorado Springs, Colo.

33

$10,800

$9.30

15.4%

110%

Columbia, S.C.

11

$12,610

$7.25

15.4%

74%

Columbus, Ohio

48

$10,510

$8.15

12.0%

99%

Corpus Christi, Texas

27

$9,840

$7.25

14.3%

94%

Dallas, Texas

51

$9,840

$7.25

10.6%

94%

Dayton, Ohio

38

$10,510

$8.15

13.3%

99%

Denver, Colo.

72

$10,800

$9.30

9.3%

110%

Des Moines, Iowa

71

$8,760

$7.25

8.1%

106%

Detroit, Mich.

16

$12,930

$8.90

14.9%

88%

El Paso, Texas

24

$9,840

$7.25

14.6%

94%

Fayetteville, N.C.

34

$7,380

$7.25

19.5%

126%

Fort Wayne, Ind.

62

$9,360

$7.25

9.0%

99%

Fresno, Calif.

41

$9,680

$10.50

17.7%

139%

Grand Rapids, Mich.

41

$12,930

$8.90

11.1%

88%

Greensboro,N.C.

57

$7,380

$7.25

12.7%

126%

Greenville, S.C.

40

$12,610

$7.25

11.0%

74%

Harrisburg, Pa.

31

$14,440

$7.25

11.9%

64%

Hartford, Conn.

44

$12,390

$10.10

13.2%

104%

Houston, Texas

26

$9,840

$7.25

14.3%

94%

Huntsville, Ala.

34

$10,530

$7.25

12.4%

88%

Indianapolis, Ind.

51

$9,360

$7.25

11.1%

99%

Jackson, Miss.

34

$7,990

$7.25

17.6%

116%

Jacksonville, Fla.

73

$6,360

$8.10

12.6%

163%

Kalamazoo, Mich.

50

$12,930

$8.90

10.0%

88%

Kansas City, Mo.

74

$8,870

$7.70

9.5%

111%

Knoxville, Tenn.

52

$9,790

$7.25

11.0%

95%

Lafayette, La.

26

$9,300

$7.25

16.2%

100%

Lakeland, Fla.

91

$6,360

$8.10

10.2%

163%

Lansing, Mich.

15

$12,930

$8.90

15.0%

88%

Las Vegas, Nev.

66

$7,270

$8.25

12.5%

145%

Lexington, Ky.

41

$10,300

$7.25

11.5%

90%

Little Rock, Ark.

78

$8,550

$8.50

9.8%

127%

Los Angeles, Calif.

57

$9,680

$12.00

14.5%

159%

Louisville, Ky.

41

$10,300

$7.25

11.6%

90%

Madison, Wis.

71

$8,960

$7.25

8.1%

104%

McAllen, Texas

17

$9,840

$7.25

16.3%

94%

Memphis, Tenn.

27

$9,790

$7.25

14.5%

95%

Miami, Fla.

73

$6,360

$8.10

12.6%

163%

Milwaukee, Wis.

65

$8,960

$7.25

10.1%

104%

Minneapolis, Minn.

73

$11,300

$9.50

7.6%

108%

Mobile, Ala.

51

$10,530

$7.25

10.1%

88%

Modesto, Calif.

39

$9,680

$10.50

21.6%

139%

Nashville, Tenn.

62

$9,790

$7.25

8.1%

95%

New Orleans, La.

34

$9,300

$7.25

14.4%

100%

New York, N.Y.

65

$7,940

$11.00

14.1%

177%

North Port, Fla.

76

$6,360

$8.10

12.4%

163%

Oklahoma City, Okla.

57

$8,460

$7.25

11.7%

110%

Omaha, Neb.

85

$8,270

$9.00

9.1%

139%

Orlando, Fla.

79

$6,360

$8.10

11.9%

163%

Palm Bay, Fla.

90

$6,360

$8.10

10.3%

163%

Philadelphia, Pa.

9

$14,440

$7.25

15.2%

64%

Phoenix, Ariz.

62

$11,220

$10.00

11.7%

114%

Pittsburgh, Pa.

29

$14,440

$7.25

12.3%

64%

Portland, Maine

83

$9,970

$10.68

8.5%

137%

Portland, Ore.

68

$10,360

$10.25

11.2%

127%

Raleigh, N.C.

67

$7,380

$7.25

11.3%

126%

Reno, Nev.

58

$7,270

$8.25

13.7%

145%

Richmond, Va.

11

$12,820

$7.25

15.1%

72%

Rochester, N.Y.

83

$7,940

$9.70

10.6%

156%

Sacramento, Calif.

59

$9,680

$10.50

13.3%

139%

Salt Lake City, Utah

84

$6,790

$7.25

7.6%

137%

San Antonio, Texas

50

$9,840

$7.25

10.9%

94%

San Diego, Calif.

64

$9,680

$11.50

12.8%

152%

San Francisco, Calif.

86

$9,680

$12.00

10.3%

159%

Savannah, Ga.

27

$8,570

$7.25

19.4%

108%

Seattle, Wash.

76

$9,480

$15.00

12.5%

203%

South Bend, Ind.

41

$9,360

$7.25

12.6%

99%

Spokane, Wash.

69

$9,480

$11.00

12.2%

149%

Springfield, Mo.

80

$8,870

$7.70

7.2%

111%

Springfield, Mass.

38

$12,730

$11.00

14.7%

111%

St. Louis, Mo.

66

$8,870

$7.70

11.0%

111%

Syracuse, N.Y.

73

$7,940

$9.70

11.9%

156%

Tampa, Fla.

66

$6,360

$8.10

13.8%

163%

Toledo, Ohio

29

$10,510

$8.15

14.7%

99%

Tucson, Ariz.

34

$11,220

$10.00

17.6%

114%

Tulsa, Okla.

39

$8,460

$7.25

14.5%

110%

Virginia Beach, Va.

23

$12,820

$7.25

13.3%

72%

Visalia, Calif.

43

$9,680

$10.50

17.1%

139%

Washington, D.C.

72

$9,580

$12.50

12.7%

167%

Wichita, Kan.

61

$9,230

$7.25

10.5%

101%

Youngstown, Ohio

40

$10,510

$8.15

13.3%

99%

Average of 100 Examined CSAs

51

$9,644

$8.46

12.7%

117%

Methodology:

For “On Your Own”, the top 100 Combined Statistical Areas by population were ranked against all examined CSAs according to the following characteristics:

  • Percentage of average in-state tuition a student could expect to pay working 1,280 hours a year at minimum wage. ((1,280 x [local minimum wage]) / [average in-state tuition])
  • Unemployment rate for the population aged 16 – 24
  • Average rent price parity
  • Average goods price parity

The score is sum of all ranked parts (equally weighted) divided by four, for a total possible score of 100 and a lowest possible score of four, and then rounded to the nearest integer. Final rankings are determined by the sum of all ranked parts, prior to division by four.

For “Living at Home”, the top 100 Combined Statistical Areas by population were ranked against all examined CSAs according to the following characteristics:

  • Percentage of average in-state tuition a student could expect to pay working 1,280 hours a year at minimum wage. ((1,280 x [local minimum wage]) / [average in-state tuition])
  • Unemployment rate for the population aged 16 – 24

The score is sum of all ranked parts (equally weighted) divided by two, for a total possible score of 100 and a lowest possible score of two, and then rounded to the nearest integer. Final rankings are determined by the sum of all ranked parts, prior to division by two.

Notes: Average rent and average cost of goods are the weighted (by youth population, ages 16-24) averages of those averages within component MSAs. Where there were multiple tuitions or/and minimum wages within a CSA, the lead city or state was used, except for the San Jose-San Francisco-Oakland, CA CSA, where the minimum wage for San Francisco was used. The youth unemployment rate was calculated on the CSA level as the total unemployed population aged 16-24 divided by the total civilian population aged 16-24 in the labor force.

We assume that our hypothetical students would have at least 100 percent of their federal taxes refunded, but recognize that personal and family circumstances differ, and there may be substantial changes to tax policy.

References:

  1. “Figure 6: 2017-18 Tuition and Fees at Public Four-Year Institutions by State and Five-Year Percentage Change in In-State Tuition and Fees,” CollegeBoard, October 2017. Available at: https://trends.collegeboard.org/college-pricing/figures-tables/2017-18-state-tuition-and-fees-public-four-year-institutions-state-and-five-year-percentage (retrieved November 27, 2017).
  2. American FactFinder Community Survey, US Department of Census, 2016.
  3. “State Minimum Wages / 2017 Minimum Wage by State,” National Conference of State Legislatures, January 5, 2017. Available at: http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx (retrieved November 27, 2017).
  4. “Inventory of US City and County Minimum Wage Ordinances”, UC Berkeley Labor Center, November 16, 2017. Available at: http://laborcenter.berkeley.edu/minimum-wage-living-wage-resources/inventory-of-us-city-and-county-minimum-wage-ordinances/ (retrieved November 27, 2017).
  5. Table 6. Regional Price Parities by Metropolitan Area, 2015, “Real Personal Income for States and Metropolitan Areas, 2015”, Bureau of Economic Analysis, June 22, 2017. Available at: https://www.bea.gov/newsreleases/regional/rpp/2017/pdf/rpp0617.pdf (retrieved November 27, 2017).
  6. “Tuition costs of colleges and universities”, National Center for Education Statistics Fast Facts. Available at: https://nces.ed.gov/fastfacts/display.asp?id=76 (retrieved November 27, 2017).
  7. Philip Trostel, “Beyond the College Earnings Premium. Way Beyond.”, The Chronicle of Higher Education, January 29, 2017. Available at: https://www.chronicle.com/article/Beyond-the-College-Earnings/239013 (retrieved November 27, 2017).
  8. “Upcoming Minimum Wage Increases”, New York State Department of Labor. Available at: https://labor.ny.gov/workerprotection/laborstandards/workprot/minwage.shtm (retrieved November 27, 2017).
  9. “Best Colleges” rankings, US News & World Report. Available at https://www.usnews.com/best-colleges (retrieved December 5, 2017).

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Why That Stroller Strains So Many Parents’ Budgets

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Miami mom Stephanie Viney, 28, says she chose a pricey UPPAbaby stroller for its many features and sturdiness. Baby strollers come in a variety of styles and price points, from $20 to more than $1,000. (Photo courtesy of Viney.)

No one needs to tell a new parent that raising a child in America is a pricey endeavor.

New parents can expect to spend about $233,610 on a child’s basic needs through age 17, excluding savings for higher education, according to the U.S. Department of Agriculture.

One of the first purchases you’re likely to make as a new parent is a stroller. When it came time for Brooklyn resident JiaYao Liu, 23, and her baby’s father to buy a stroller for their baby boy, now 3, they walked into Babies R Us expecting to spend about $80-$100. They were sorely mistaken.

“I didn’t expect it to be that expensive until I went and I looked,” Liu says.“You just want to carry your child from Point A to Point B, and there are some strollers with a whole bunch of toys on them, and I don’t think it’s necessary.”

The couple ultimately purchased the most-affordable stroller they could find. Liu says it was a store brand and the practical choice, based on her needs. Still, at around $130, it was a little outside their price range.

New Orleans resident Demetra Pinckney, 29, had a similar experience when she and her husband picked out a stroller for their baby registry.

“They have some strollers that are $500, $600,” Pinckney says. “I’m thinking: ‘Oh my goodness. No, I have to live. They have good strollers that don’t have to cost you a whole paycheck.’”

The stroller she picked out and ultimately received as a gift cost about $400.

Over the past few decades the baby stroller has gone from a practical parenting necessity to a luxury item for some, says Paul Hope, senior home editor at Consumer Reports. While you can still find a budget-friendly stroller, an increasing number of new premium models are priced north of $1,000.

“What I think has happened is that we have really seen the emergence of a lot of premium brands and they have become sort of a status symbol,” says Hope.

Why are baby strollers so expensive?

Marketers and manufacturers have capitalized on a ripe market, says David Katzner, president of The National Parenting Center, a parent advocacy organization, explaining why more high-priced strollers have entered the market. The organization has reviewed parenting products since 1990 and this year reviewed its first $1,300 stroller.

“For parents, our testers, the sticker shock is remarkable,” Katzner tells MagnifyMoney. He says the high prices prompt some parents to jokingly ask if the stroller is magical — for the money, can it educate the children, or even change a diaper?

Some parents are willing to spend top dollar even for products that will only be used until their little ones are able to walk on their own.

Miami mom Stephanie Viney, 28, says an expensive stroller is worth it if you have the money to spend.

When she and her husband were getting ready to have their first child, Finn, now 23 months old, they picked out an upscale traditional stroller: the UPPAbaby Cruz stroller, car seat and accessories totalling $1,100 for their baby registry.

“It is definitely expensive once you get everything you need; what sold me on it was the big, easy-access basket underneath,” says Viney. The stay-at-home mother and hairdresser says the stroller has held up well and is practical for her on-the-go lifestyle. “The UPPAs are sturdy strong strollers. You get what you pay for.”

A year after they received their first stroller, the couple shelled out $1,200 to upgrade to an UPPAbaby Vista stroller, large enough to hold both Finn and his four-month-old baby brother.

What you’re getting for the money

The most expensive strollers may be made with premium materials like leather upholstery, have some extra padding in the seat area, larger wheels that absorb shock, cupholders or extra basket space underneath. Viney’s UPPAbaby Vista even incorporates a “piggyback” attachment, which will allow one child to stand and ride along when they’re big enough. She and her husband are both tall, so she says it helps they can adjust the handlebar up and down, too.

“With very premium priced strollers, you might get premium materials and construction [or] the brand name, but there are very few categories of anything we test where paying more gets you more in the way of reliability or performance or even longevity,” says Hope.

How to make an informed stroller purchase

Even for Katzner, who has been reviewing parenting products for over a decade, navigating the stroller industry is at times “very, very confusing.”

“Worst of all is walking a trade show floor when they are all just filled with all the same product,” says Katzner, whose position requires he often attend trade shows where manufacturers display new strollers, car seats, feeding and nursing systems and other baby products.

“In many cases the person in the booth is struggling to show how their stroller is different from the guy next to them,” he says. “You might find as a parent you are in the exact same place. You might say, ‘what’s the difference?’”

Compare and test drive

A stroller is not an insignificant purchase. You’ll need to purchase one just like you would need to purchase a car seat or any other baby items and you will likely use it for a number of years. With many options to consider, your decision may depend on myriad factors.

Whatever you do, don’t let peer pressure be one of them, says Katzner. He advises parents not to simply choose what’s popular or has the best ratings online.

He recommends parents to some online research, take notes, then go test out strollers in person before they settle on a pick.

If you feel pressured to keep up with your peers, keep in mind, Consumer Reports has not found any reason to buy a stroller that costs more than $1,000, says Hope.

While you’re at the store, try any of these shopping tips to help make your decision.

Consider your lifestyle

Stroller options can be categorized into three main families: traditional, jogger, and umbrella. (Though you can find strollers with mixed features.)

What you ultimately choose will depend on how you plan you use the stroller.

If you are very active and plan to exercise with the stroller or take it along with you on tough terrains, you may want to consider a jogger. On the other hand, if you will need to lift the stroller often, you may choose, instead, an umbrella stroller.

“Umbrella strollers are really fabulous for collapsing on the subway or in transit going to the airport,” Hope says.

After her son turned 2, Liu supplemented her first stroller purchase with a $20 umbrella stroller from Target.

“It was difficult because of the subway stations,” she says of her first stroller. “Every time I had to fold the stroller and carry my bags, my son and his bags up the stairs.”

However, many jogging and umbrella strollers can’t be used with children less than 6 months old, because they don’t always accept car seats. That’s why Liu bought the big, chunky stroller, first. Hope says most people opt for the traditional stroller, as it suits most needs.

“Traditional strollers that accept an infant car seat or are compatible are typically the best value,” says Hope. “You’re guaranteed that the stroller will be safe to use with a baby that is under six months.”

Test for ease of use

Put the stroller through a comprehensive test when you’re shopping to test how easy it is for you to use. After all, you’re the one who will be spending the most time with the stroller. Katzner recommends you choose something that makes your life easier.

Everyone will have different determining factors. In general, Hope suggests shoppers check for how it feels to do things like lift the stroller, strap in the child, adjust the backrest or lock the wheel brakes.

In addition, he advises shoppers to take the stroller for a ride to test how easy it is to navigate. Hope suggests going with a small child if you already have one — or ask a friend or family member if you can take their youngster for a test drive — to simulate real-life situations like making tight turns and encountering curbs.

Liu says her first stroller weighed about 10 to 15 pounds, and she could fold and carry it with one hand when traveling in the city. She says a basket underneath also came in handy when she went out grocery shopping or had her son with her and had to bring along a bunch of his things.

On the other hand, the Pinckneys have a pickup truck, which makes it easy to load and unload a bulkier stroller. They also live in a suburban area, where they are less likely to need to lift or fold the stroller.

Look for the JPMA logo

“There is not a whole lot you can look for as a consumer in the way of safety,” says Hope. But, organizations like the Juvenile Product Manufacturers Association (JPMA) regulate strollers and they test for a whole host of safety factors, so you don’t have to. Look for the JPMA logo on the stroller box to feel confident the stroller you put your baby in meets today’s safety standards.

Some strollers and online retailers like Amazon.com may display the National Parenting Center’s seal of approval, too. The organization has real parents test and review children’s products on many features, so you can get a sense of what it’s like to actually use the stroller. Although the strollers the NPC reviews are generally already JCMA-approved, the organization notes that its seal of approval does not imply or guarantee product safety.

Question the salesperson

The salesperson’s job is to make sales, but your job is to be a responsible consumer. If you get to the store with one stroller in mind, but the salesperson pushes you toward a different pick, ask why, says Katzner.

“Of course the salesman is going to try to sell you the $600 stroller,” says Katzner. “Put them to the test and ask why. What does it do? What’s the difference?”

In the end, you’ll walk out more confident in your choice having asked all your questions, instead of feeling as if you were coerced into choosing a stroller with features you weren’t interested in, or may not ever use.

Think ahead

Hope says most traditional strollers that carry an infant car seat can be used from when the baby is born until they are about four or five years old; traditional strollers commonly adjust to accept a child that weighs up to about 50 to 60 pounds.

If you plan to have more children, you’ll need to do some forward thinking when choosing your first baby stroller. A durable stroller can go a long way. And, as long as safety standards don’t drastically change, it could serve you for more than one child.

When they had their second child, Viney ran into an issue. She now needed a double stroller, but her UPPAbaby Cruz couldn’t be converted into one.

“Once I realized I got the wrong UPPAbaby I was very upset,” Viney says. Because they already had $500 worth of seats and accessories, they decided to stay with the same brand and get a UPPAbaby Vista — the new stroller and a second seat cost about $1,200.

“The sales guy should have definitely asked if we were going to plan for more kids because when spending this kind of money you want to have it for long,” says Viney.

The bottom line: Don’t follow the crowd

Asked if she would have chosen a more expensive stroller, were money no object, Liu says no.

“If at the time I had more money or wasn’t strapped for cash I would have gone with the same thing. It was practical. It was fine. I have no complaints about it,” says Liu.

Pinckney, on the other hand, says she would choose a more expensive stroller if it had features her current stroller is missing like a tray up top, for parents, or cupholders.

It all comes down to personal preference. Choose the stroller that best fits your lifestyle at the best price point for your budget. Most importantly, pick a stroller that will make your life as a parent that much easier.

“Do not go beyond your means,” says Katzner. “Do not get something that is going to be unwieldy and make your life more difficult.”

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Senate Tax Reform vs. House Tax Reform

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Update: The Senate passed a revised, 479-page version of the Tax Cuts and Jobs Act in an early morning vote Dec. 2. Senators voted 51-49, to pass the $1.5 trillion Senate GOP tax bill at 1:51am, according to The Hill. The vote was mostly along party lines. Only one Republican senator, Bob Corker (Tenn.), voted against the bill, citing concerns about adding to the federal deficit. No Democrats backed the bill.

Analysis of the Senate tax bill as it was passed is still pending. However, the Joint Committee on Taxation posted its most-recent analysis of the Tax Cuts and Jobs Act to its Twitter account just after the bill’s passing Saturday.

The House version of the tax bill passed by a 227-205 vote chamber vote, just before the chamber’s Thanksgiving holiday. No Democrats backed the House tax bill, either.

The two chambers will now need to hash out many differences between the proposed tax plans before sending legislation to the president’s desk by year’s end.

From the looks of it, the Senate isn’t exactly on the same page with their colleagues in the House of Representatives. The plan bears the same name as the House’s bill, but the Senate’s version of the Tax Cut and Jobs Act diverges from the House’s plan on a number of individual and business tax reforms.

Most notably, the proposed Senate Republican plan would delay cutting the corporate tax rate by one year, include more tax brackets than the House plan and retain the mortgage interest deduction, among a few other popular tax breaks.

The bills do share some things in common. For example, neither version calls for any changes in workers’ 401(k) tax contribution limits. And both tax plans would repeal the alternative minimum tax and maintain the charitable contribution deduction. Both plans also repeal personal exemptions, but double the standard income tax deduction for individuals, married couples and single parents.

Complying with a Senate rule known as the Byrd rule is an issue. Under that rule, during the legislative reconciliation process, senators can move to block legislation if, among other reasons, it would possibly mean a significant increase in the federal deficit beyond a 10-year term.

If the Senate is able to pass its tax bill, the differences between the two plans may lead to clashes over tax policy as a pressured Congress tries to get a single tax reform bill to President Donald Trump’s desk by Christmas.

Here is a quick breakdown of the major differences between the two plans. Read beyond the table for further detail.

Income tax brackets

The Senate’s plan maintains the tax system’s seven tax brackets—10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5% — as opposed to the House’s four. The senate plan notably maintains the lowest tax rate at 10 percent and modifies all but one other. The proposal also adjusts qualifying income levels.

The Senate plan would reduce the income tax on the nation’s highest earners to 38.5% from the current 39.6%. Individuals and heads of households earning more than $500,000, and married couples earning more than $1 million would pay the highest rate. The proposed income thresholds for the Senate’s plan are pictured below.

Alternatively, the House bill proposes four income brackets of 12%, 25%, 35%, and 39.6%.

The state and local tax deduction

The Senate plan fully eliminates the State and Local Tax, or SALT, deduction. Nearly one third of Americans took the deduction in 2015, according to the Tax Policy Center, so the repeal is likely to ruffle some feathers. While the House tax plan reduced deductions for state and local taxes, it still allowed Americans to deduct up to $10,000 in property taxes. The senate plan would completely get rid of the SALT deduction, including the deduction for property taxes.

Some critics fear eliminating the SALT deduction would disproportionately affect earners in states with high taxes, like New York and California. Across the nation, just six states— California, New York, New Jersey, Illinois, Texas, and Pennsylvania— comprised more than half of the value of all state and local tax deduction claims in 2014.

The mortgage interest deduction

Nothing would change under the Senate’s plan. Americans would still be able to deduct the amount of interest paid on up to the first $1 million of mortgage debt under the Senate tax plan. The House tax plan, on the other hand, had proposed to lower the threshold for the mortgage interest deduction to $500,000.

Only about six percent of new homes are valued at more than $500,000, according to an August 2017 report by the United for Homes campaign. The group argues lowering the cap would have “virtually no effect on homeownership rates.”

Corporate tax rate

The Senate plan still reduces the corporate tax rate from 35% to 20%, but corporations won’t get a break until 2019, when the Senate plan phases in the reduction. On the other hand, the House Plan would have initiated the reduced rate in 2018.

The decision to phase in the cut was likely made because a delayed corporate tax cut would make it easier for the Senate to reach its goal of passing a tax bill that does not increase the deficit by more than $1.5 trillion over the next decade.

The estate tax

The estate tax exemption is doubled from $5.49 million in assets ($10.98 million for married couples) onto heirs under both the Senate and House bills.

The House plan doesn’t get rid of the estate tax immediately. The House’s proposal also doubles the exclusion amount to $10 million, but eliminates the estate tax after 2023. The estate tax affects only the estates of the wealthiest 0.2 percent of Americans, according to the Center of Budget and Policy Priorities.

Adoption and child tax credits

Unlike the initial House tax plan, the Senate plan proposes keep some popular tax breaks. The plan proposes to retain the Adoption Tax Credit, which allows families to receive a tax credit for all qualifying adoption expenses up to $13,570. The Senate plan also slightly bumps up a proposed child tax credit compared to the House plan. While the House plan increased the credit from $1000 to $1600, the Senate plan proposes raising the credit slightly more, to $1650.

Student loan interest and medical expenses deduction

Under Senate plan, students will still be able to deduct interest paid on student loans up to $2500. Furthermore, taxpayers would still be able to claim medical expenses as a deduction if they account for over 7.5 or 10% of their income. This is a departure from the House plan, which would have eliminated both.

Pass through business

The Senate tax plan establishes a 17.4 percent deduction for pass through businesses like sole proprietorships, S corporations, and partnerships.The HIll reports the deduction would lower the effective tax rate on the highest earning small businesses to just over 30 percent, according to a Senate Finance aide. The deduction would only apply to service businesses based in the U.S

The House plan establishes a 25 percent tax rate for pass-through companies. But only 30 percent of the business’s revenue is subject to that rate. The remaining 70 percent would be taxed at the individual tax rate. The House amended the bill Thursday to create a new 9 percent tax rate for the first $75,000 of income of a married active owner with less than $150,000 of pass-through income.

What’s next for GOP tax reform?

The future is unclear for either proposed tax plan. The two chambers will likely need to compromise over differences in the coming weeks to get a bill passed and to the President’s desk by year’s end.

Thursday’s news came just as the House Ways and Means Committee finalized its own bill after announcing two amendments, with a vote expected next week.

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4 Ways the House Tax Bill Could Affect College Affordability

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Congress is working around the clock to get a new tax bill to President Trump’s desk before the year is out. In addition to a host of tax cuts, both the Senate and House GOP tax plans include several proposals that could make saving and paying for higher education more costly for families. Considering Americans hold a collective $1.36 trillion in student loan debt and 11.2 percent of that balance is either delinquent or in default that’s not-so-good news for millions of Americans.

Both plans  include proposed ideas that could impact how students and families finance higher education. The House plan, for instance, includes proposed provisions that would affect the benefits parents, students and school employees like graduate students receive, which could ultimately impact the price students pay.

In a Nov. 6 letter to the House Ways and Means Committee opposing the provisions, the American Council on Education and 50 other higher education associations states that  “the committee’s summary of the bill showed that its provisions would increase the cost to students attending college by more than $65 billion between 2018 and 2027.” They reaffirmed their opposition in a Nov. 15 letter.

The council and other higher education associations weren’t satisfied with the Senate’s version of the Tax Cuts and Jobs Act, either. In a Nov. 14 letter, the council says it’s pleased the Senate bill retains some student benefits eliminated in the House version, but remains concerned about other positions that it says would ultimately make attaining a college education more expensive and “erode the financial stability of public and private, two-year and four-year colleges and universities.”

Where are the bills now?

Updated: U.S. senators voted 51-49, to pass a revised, 479-page version of the Tax Cuts and Jobs Act in an early morning vote Dec. 2. The vote was almost entirely along party lines. Only one Republican senator, Bob Corker (Tenn.), voted against the tax bill, citing concerns about adding to the federal deficit. No Democrats backed the bill. Analysis of the bill as-passed is ongoing. However, the Joint Committee on Taxation posted its most-recent analysis of the Tax Cuts and Jobs Act to its Twitter account just after the bill’s passing Saturday.

The House version of the Tax Cuts and Jobs Act passed by a 227-205 vote on Nov. 16, just before the chamber’s Thanksgiving holiday. No Democrats backed the bill. The two chambers will now need to hash out many differences between the proposed tax plans before sending legislation to the president’s desk by year’s end.

In its plan, the Senate committee says the goal of tax reform in relation to education is to simplify education tax benefits. MagnifyMoney took a look at a few of the major proposed changes to the tax code that would impact college affordability most.

Streamline tax credits

The House tax bill proposes to repeal the Hope Scholarship Credit and Lifetime Learning Credit while slightly expanding the American Opportunity Tax Credit. The new American Opportunity Tax Credit (AOTC) would credit the first $2,000 of higher education expenses (like tuition, fees and course materials) and offer a 25 percent tax credit for the next $2,000 of higher education expenses. That’s the same as it is now, with one addition: The new AOTC also offers a maximum $500 credit for fifth-year students.

The bigger change is the elimination of the other credits. Currently, if students don’t elect the American Opportunity Tax Credit, they can instead claim the Hope Scholarship Credit for expenses up to $1,500 credit applied to tuition and fees during the first two years of education; or, they may choose the Lifetime Learning Credit that awards up to 20 percent of the first $10,000 of qualified education expenses for an unlimited number of years.

Basically, in creating the new American Opportunity Tax Credit, the House bill eliminates the tax benefit for nontraditional, part-time, or graduate students who may spend longer than five years in the pursuit of a higher-ed degree. According to the Joint Committee on Taxation, consolidating the AOTC would increase tax revenue by $17.5 billion from 2018 to 2027, and increase spending by $0.2 billion over the same period.

The Senate bill does not change any of these credits.

Make tuition reductions taxable

The House bill proposes eliminating a tax exclusion for qualified tuition reductions, which allows college and university employees who receive discounted tuition to omit the reduction from their taxable income.

A repeal would generally increase the taxable income for many campus employees. Most notably, eliminating the exclusion would negatively impact graduate students students who, under the House’s proposed tax bill, would have any waived tuition added to their taxable income.

Many graduate students receive a stipend in exchange for work done for the university, like teaching courses or working on research projects. The stipend offsets student’s overall cost of attendance and may be worth tens of thousands of dollars. As part of the package, many students see all or part of their tuition waived.

Students already pay taxes on the stipend. Under the House tax plan, students would have to report the waived tuition as income, too, although they never actually see the funds. Since a year’s worth of a graduate education can cost tens of thousands of dollars, the addition could move the student up into higher tax brackets and significantly increase the amount of income tax they have to pay.

The Senate bill doesn’t alter the exclusion.

Eliminate the student loan interest deduction

Under the House tax bill, students who made payments on their federal or private student loans during the tax year would no longer be able to deduct interest they paid on the loans.

Current tax code allows those repaying student loans to deduct up to $2,500 of student loan interest paid each year. To claim the deduction, a taxpayer cannot earn more than $80,000 ($160,00 for married couples filing jointly). The deduction is reduced based on income for earners above $65,000, up to an $80,000 limit. (The phaseout is between $130,000 and $160,000 who are married and filing joint returns.)

Nearly 12 million Americans were spared paying an average $1,068 when they were credited with the deduction in 2014, according to the Center for American Progress, an independent nonpartisan policy institute. If a student turns to student loans or other expensive borrowing options to make up for the deduction, he or she could  experience more financial strain after graduation.

The Senate tax bill retains the student loan interest deduction.

Repeal the tax exclusion for employer-provided educational assistance

Some employers provide workers educational assistance to help deflect the cost of earning a degree or completing continuing education courses at the undergraduate or graduate level. Currently, Americans receiving such assistance are able to exclude up to $5,250 of it from their taxable income.

Under the House tax plan, the education-related funds employees receive would be taxed as income, increasing the amount some would pay in taxes if they enroll in such a program.

A spokesperson for American Student Assistance says if the final tax bill includes the repeal, it may point to a bleak future for the spread of student loan repayment assistance benefits, currently offered by only 4 percent of American companies.

Take care not to confuse education assistance with another, growing employer benefit: student loan repayment assistance. The student loan repayment benefit is new and structured differently from company to company, but generally, it grants some employees money to help repay their student loans.

The Senate plan does not repeal the employer-provided educational assistance exclusion.

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Brittney Laryea
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Tiny Home Retirement: How Downsizing Helped Me Retire Early

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tiny home living
When Rhonda Jourdonnais, 64, decided to retire early, she knew she needed to downsize her monthly housing costs. So she bought a tiny home on Whidbey Island in Washington State.

When Rhonda Jourdonnais turned 62, she began feeling she was ready for retirement. She had worked as a veterinary technician and assistant for 25 years, and wanted to try living off Social Security. But on a fixed income, there was no way she could afford her monthly mortgage and homeowners association fees at the townhouse she owned in Grass Valley, California.

She thought of different ways she could make her vision a reality, and then a drastic idea sprung to mind: She’d live in a tiny home.

Jourdonnais, 64, had followed the tiny-home movement since it began gaining popularity in the early 2000s. “Tiny House, Big Living” premiered on HGTV several years ago, and the TV show rekindled her interest in the movement. She was living in California at the time — where she’d been for five years — but says she wasn’t happy. She envisioned moving back here she used to live, on Whidbey Island in Washington State.

“In California, the housing is too expensive,” Jourdonnais tells MagnifyMoney. “I wouldn’t have been able to retire and still keep up my townhouse without working.”

The monthly HOA fee for her townhouse was close to $400, which would not have been sustainable.

She decided to take the leap in  2015. She sold her townhouse at a profit and put that money into her IRA. In October 2015, she flew to Colorado Springs, Colo., to order her tiny home. She found a company there that had been in business since 1999, and she considered them the most reputable. In December of that year, she retired from her job and in February 2016, she moved into her 8-by-24-foot home on a friend’s six-acre property on Whidbey Island. She pays her friend $200 per month to stay on her property.

“The tiny home made retirement possible,” she says.

Toward early retirement

Jourdonnais says that since moving into her tiny home, she lives on roughly half of the money she did before retirement. Before, she would have had to work until she was 70 to save enough for retirement, and she didn’t feel physically or emotionally prepared for that.

Jourdonnais and many others are turning to tiny-home living as a way to make early retirement possible.

According to Senior Planet, 40 percent of tiny-home owners are over age 50. And there are other advantages that seem tailor-made for older Americans. According to figures cited in a CBS Moneywatch report from 2016, 89 percent of tiny house owners have less credit card debt than the average American, and 65 percent have none at all. Additionally, tiny home owners have about 55 percent more savings in the bank.

Long thought to be a lifestyle primarily for those interested in achieving more peace of mind through fewer objects, it has also become a way for many people to retire earlier with fewer utility costs, lower property taxes and little or no mortgage. (The average home in the U.S. costs $272,000, compared with $23,000 for a tiny home, according to The Tiny Life.)

Though pop culture has made the concept of tiny-home living popular, it’s still quite rare. Only 1 percent of homes purchased in the U.S. are below 1,000 square feet, and the average tiny home clocks in at somewhere between 100 and 400 square feet, according to data compiled by the blog Restoring Simple.

Weathering the challenges

Tiny-home living is rife with challenges, including complicated permit and zoning codes. But Jourdonnais says the biggest ongoing hurdle for her is simply adjusting to the space, especially on cold, rainy days.

“If I get up to go into my kitchen it’s like two steps,” she says. “If I go into my bathroom, it’s two steps. If somebody was claustrophobic, they probably wouldn’t like the lifestyle.”

Her advice to people interested in retiring early by moving into a tiny home is to try it out before buying a property. The U.S. has numerous tiny-home rental communities, which Jourdonnais recommends. “The thing I miss the most is the space,” she says. “It is a really big adjustment. It’s definitely worth it for people to try it out in some of the rental communities.”

But overall, Jourdonnais has loved her new lifestyle. She regularly takes a small pop-up travel trailer to campsites with her dog. (Some people actually travel with their tiny houses, but she does not — she says she doesn’t have a truck big enough to pull it.) And she has already traveled much more in retirement than she ever anticipated.

Jourdonnais has planned her finances so that she can sustain tiny-home living for many years to come, assuming her Social Security remains the same. “I imagine it could be the way I live the rest of my life,” she says, “as long as I stay healthy.”

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Jamie Friedlander
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Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here

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