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What You Need to Know About Financial Aid
If you or your children are considering college, you may be wondering how you will pay the challenging costs of education. For many families, tuition may be covered by a financial aid package. This often includes grants, scholarships, loans, or work-study placements. Aid is primarily based on the family’s need.   If it is determined that you are able to afford the cost of college, your quest for assistance is going to be difficult, but not impossible. Forms must be filled out in order to ascertain if you qualify for aid. If you want to get an idea of your eligibility before applying for aid, try using the following formula: 

The Five Percent Test 
Take 5% of the value of your total family assets (including home equity and savings), and add this figure to your adjusted gross income (AGI) from last year’s tax return. Divide that result by the anticipated annual college expense. If the result is six or less, you may qualify for financial 
aid. If the final number is higher, you may have a difficult time convincing financial aid officers of your need. 

No matter what you prejudge your chances to be, you should still go through the application process. 
Many different factors enter into the final outcome. Public and private institutions alike offer varying amounts of aid, and you may be pleasantly surprised. If you do not receive aid from your chosen institution, there are some other alternatives. The federal government, state government, banks, insurance companies, and religious, ethnic, civic, and fraternal organizations are a few of the alternative sources for funds. The number of federal aid programs alone should be encouraging. Here are some of the most popular programs: 

Pell Grants—These grants are generally awarded to undergraduates based on need and family income qualifications. The size of the grant depends on program funding. The maximum award for the 2006–2007 award year was $4,050. 

Supplemental Educational Opportunity Grants 
(SEOGs)—These grants are earmarked for un- dergraduates who are in greater need than Pell Grant applicants. The federal government supplies this money, but individual colleges carry out the distribution of the funds. The availability of these grants may be limited depending on how much funding is allocated to a particular school. Annual grants range from $100 to $4,000. 

Federal Perkins Loans— These loans are generally available for students with exceptional financial needs. Factors that determine qualification for a Perkins Loan include (1) when the application is submitted, (2) a student’s financial need, and (3) the funding level for the particular school. An eligible undergraduate student can borrow up to $4,000 per undergradu- ate year of study, not to exceed a total of $20,000. An eligible graduate student can borrow up to $6,000 per graduate year of study, not to exceed a total of $40,000. If the borrower is more than a half time student, repayment begins nine months after the recipient graduates or leaves school. (These nine months are called the “grace period.” Students who are attending school less than half time may have a shorter grace period.) Payments can be spaced over a maximum of ten years after the grace period expires. 
Federal Work-Study Programs—These programs essentially provide an award in exchange for work. The jobs may be on or off campus, but they are generally with a government agency or non-profit organization if off campus (under some circumstances, a school may have arrangements with a private for-profit company). When possible, the jobs are related to the student’s major. The pay is generally modest, but it is at least minimum wage. However, hours and compensation cannot exceed the Federal Work-Study award. 
Direct Stafford Loans— This is a federally insured, subsidized loan program that permits eligible students to borrow at favorable interest rates. These loans are typically arranged through private lenders, and the program offers four flexible loan repayment options. PLUS (formerly “Parents’ Loans for Undergraduate Students”)—Parents are eligible for this loan if they pass a credit check. The amount of the loan is generally limited to the actual “cost of attendance” minus any financial aid already received. Parents taking this loan must begin repayment 60 days after the final loan disbursement for the academic year. Interest on PLUS loans will depend on the disbursement date. Some states base their programs not only on need, but also on academic performance. The recipients of state loans generally must be legal residents of the state and enrolled in a college or university within their state. 
In addition, some states have “reciprocity agreements”with other states. No matter how slight you believe your chances of receiving aid are, apply. You may qualify for more aid than you think.

Claiming Your Parent as a Dependent
If you have a parent with health or mobility problems, you may find yourself helping out with living 
expenses and the cost of care. Recognizing that eldercare can represent a substantial financial burden for families, the federal government allows taxpayers who provide support to a parent or other adult relative to deduct some of these expenses and claim certain tax credits. To take advantage of many 
of these tax breaks, you must claim your parent as a dependent when filing your income taxes. 

Before your parent can qualify as a dependent for tax purposes, you and your parent must pass several Internal Revenue Service (IRS) tests. An adult dependent must either live with you as a member of your household or be related to you. The IRS definition of relative is broad; it includes not only children, parents, and siblings; but also nieces, nephews, aunts, uncles, in-laws, and stepparents. Relatives do not have to live with you to be considered dependents. To qualify as an adult dependent in a given tax year, your parent’s gross income must not exceed the personal exemption amount, set at $3,400 for 2007. Generally, any taxable income from business activities, investments, pensions, retirement accounts such as IRAs or 401(k)s, and receipts from rental property count toward the gross income limit. Social Security income and other tax-exempt income may, however, be excluded. 
Another important criterion the IRS uses to determine whether a parent may be claimed as a dependent is known as the support test. 

Support includes expenditures for food, lodging, clothing, medical and dental care, recreation, and 
transportation. To pass this test, you must demonstrate that you provided more than half of your parent’s total support during the year. This can be determined by comparing the entire amount of support your parent received from all sources, including Social Security and your parent’s own funds, 
with the amount of financial support you contributed. Your parent’s own funds are not considered support unless he or she actually spent the money to cover support-related expenses. If you and your siblings together contribute more than half the cost of caring for your parent, you can file a multiple support agreement. Under this arrangement, you or one of your siblings agrees to take the personal exemption for your dependent parent, while the others sign a statement agreeing not to claim the 
exemption for that tax year. The adult child who takes the exemption must provide at least 10% of 
the dependent’s support. Once you have estab- lished that your parent qualifies as a dependent 
for tax purposes, consider what tax breaks are available to you. To claim the full personal exemption for your parent of $3,400 in 2007, your income must be below $156,400 for single filers or $234,600 for married couples filing jointly. This exemption phases out at higher income levels and is completely eliminated for taxpayers whose annual in- come exceeds $278,900 for singles and $357,100 for 
married couples. You may also be eligible for a dependent care tax credit if your parent lives with you and requires care while you are at work. Up to $3,000 in care expenses per dependent may be used 
to calculate the value of the credit. The actual credit you receive, however, is a percentage of this amount ranging from 35% to 20%, depending upon income. If you are in a higher tax bracket and spend a large amount of money on dependent care, you may find that using a flexible spending account (FSA) offered by your employer to pay for dependent care expenses on a pre-tax basis will save you more money than claiming the dependent care tax credit. If your parent does not qualify as your dependent for exemption purposes, because his or her gross income is too high, but meets the other dependency tests, the IRS may allow you to deduct medical expenses you paid for your parent. To take 
an itemized deduction for medical costs, the total amount you spend on medical expenses in a given year must exceed 7.5% of your adjusted gross income. By adding your parent’s expenses to your own, you may be able to meet this threshold and claim the deduction. Be sure to consult your attorney or CPA for specific advice on legal and tax matters. 

Retirement Planning for Entrepreneurs
You’re an entrepreneur and you’re not looking back. You’ve opened your own business, whether alone
or with other partners, and you’ve found some success. Now you’re thinking aboutretirement, not just for you, but also for any employees you may have. Offering a retirement plan can help your business
attract and retain employees, while making it easier for you to save for your own retirement. Here are some of the options available to business owners:  

SEP IRA: The Simplified Employee Pension (SEP) is an IRA-based plan that is funded solely by the employer. Employees are fully vested in the plan from the time they join. Business owners do, however, have the flexibility to vary contributions to a SEP from year to year or make none at all. The SEP is often a good choice for sole proprietors or businesses in a less stable financial position. Contributions can be set at a maximum of 25% of the employee’s compensation or up to $45,000 in 2007. The limit for self-employed tax payers is 20% of compensation.

SIMPLE IRA: Savings Incentive Match Plan for Employees (SIMPLE) IRAs, which are restricted to businesses with 100 or fewer employees, are usually funded by both the employer and the employee. The employer must make matching contributions on behalf of eligible participants, generally the lesser of the amount deferred by the employee or 3% of the employee’s compensation. Because employers 
are required to contribute a set amount each year, this plan is best suited to businesses with consistent earnings. Employees may defer as much as $10,500 in 2007 to a SIMPLE plan, and those who are age 50 or older may contribute an additional $2,500. 

Profit-Sharing: Profit sharing plans are relatively easy to administer and tend to be popular with small businesses. The plans are funded solely by the employer on a pre-tax basis, and contributions are discretionary. Many employers also require workers to remain with the company for a certain number of years before they become fully vested in the plan. With profit-sharing plans, the employer and employees can take out loans against the value of the funds in the account.

 401(k): The 401(k) is an employer-sponsored plan that allows employees to make salary deferral contributions on a pre-tax basis. Earnings in 401(k) accounts accrue on a tax-deferred basis but are subject to income tax upon withdrawal. While employers have the option of matching a percentage of their employees’ contributions to 401(k) accounts, they are not required to do so. The employer can set a vesting schedule for the portion of the funds contributed by the employer. The employee is responsible for managing the investments within the account.

Employers may permit 401 (k) plan participants to take out loans against their accounts, but this adds to the complexity of a plan. Employee contribution limits for 2007 are $15,500 for most workers or $20,500 for those aged 50  or older. The employer's and employee's combined contribution in2007 may not exceed $45,000 or 100% of the employee's pay. Adding a Roth option to a traditional 401 (k) allows employees the flexibility to make after-tax contributions to a Roth account that offers tax free distributions at retirement.

Safe Harbor 401 (k)
The Safe Harbor 401(k) offers the same benefits as the traditional 401 (k), but may allow employers to maximize contributions and still satisfy nondiscrimination rule. With a Safe Harbor 401 (k), employers must make matching contributions for employees, but they have two options. Companies can make contributions for each eligible employee (even if the employee does not contribute) of 3% of annual compensation, or the company can match 100% of the first 3% of employees' deferred contributions, plus 50% of the next 2% of employees' contributions.  While the mandatory employee match is larger with a Safe Harbor 401 (k) than with most other plan types, the Safe Harbor may permit employers to make more pre-tax contributions on their own behalf.

Defined Benefit Plans:
With the rise in popularity of 401 (k) plans, defined benefit plans faded from the spotlight. However, they can still be an attractive option, particularly for business owners with few employees who are looking to accelerate their personal savings. Using a defined benefit plan, business owners may be able to set aside significantly more than they could with a defined contribution plan. In 2007, the maximum annual benefit is $180,00, and the amount of yearly compensation that may be considered for benefit purposes is$225,00. On the other hand, defined benefits plans can be more complex and costly to adminster than other options, and they are usually more expensive to fund than defined contribution plans.

Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. The information contained in this newsletter is not intended as tax, legal, or financial advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek such advice from your professional advisors. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Written and published by Liberty Publishing, Inc. Copyright © 2009 Liberty Publishing, Inc.
From the Desk of:

John D. Pivirotto
Calif. Insurance License #0699308

Financial Concepts

Burlingame, CA 
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Helping Build & Protect Your Future

Investment Advisor Representative
Securities and Advisory Services
offered through
Lincoln Financial Securities Corporation
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Copyright 2009 Liberty Publish- ing, Inc., Beverly, MA. The opinions and recommendations expressed herein are solely those of Liberty Publishing, Inc., and in no way represent advice, opin ions, or recommendations of the Financial Planning Association, its affiliates or members. CFPTM and CERTIFIED FINANCIAL PLANNERTMare federally registered service marks of the Cer- tified Financial PlannerBoard of Standards (CFP Board). This summary does not constitute legal and/or tax advice and should only be relied upon when coordinated with a qualified legal and/or tax advisor. Febuary, 2009.
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*Disclosure – Securities and Advisory services offered through representatives of Lincoln Financial Securities Corporation, member FINRA & SIPC. This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in California, Oregon and Colorado only. Advisory Services are offered to residents of the state of California only. Lincoln Financial Securities Corporation is not affiliated with Financial Concepts. Financial Concepts offer insurance & financial services to residents in California and Oregon. Variable & Group insurance products offered through LFS Marketing and Insurance Sales Corporation; fixed insurance products offered through Financial Concepts Insurance & Financial Services.
John Pivirotto’s California Insurance License #: 0699308
Financial Concepts’ California Insurance License #: 0786047