Costs of education and retirement are likely two of your biggest financial concerns. Just in time for tax season, here are answers to a couple of common questions on each important topic.
Q: Are my student loans deductible?
A: The Internal Revenue Service allows you to deduct a portion of student loan interest, taken as an adjustment to your income.
To secure the deduction, you must have used the loan to pay for qualified education expenses, and your modified adjusted gross income (MAGI) for last year cannot exceed $160,000 if you file taxes under the status married filing jointly, or $80,000 if you file using another status.
Q: Can I transfer a Direct PLUS loan to my child after graduation?
A: You usually take out a Direct PLUS loan to pay for your child’s college education; your child still completes the Free Application for Federal Student Aid (FAFSA).
The U.S. Department of Education sets the interest rate on Direct PLUS loans; the rate also depends on the date of disbursement. Some parents assume they can transfer the loan to the child once the latter graduates. Unfortunately, no.
Q: How often can I make changes to my 401(k)?
A: Generally, you can change your 401(k) employer-sponsored retirement plan as often as you want. I say “generally” because employers can impose their own restrictions to prevent employees from trading in 401(k) plans.
Our firm strongly advises against actively trading in your 401(k) or trying to time the markets to boost returns. Rather, rebalance your portfolio periodically to minimize risk.
Review your 401(k) at least quarterly to ensure that the allocations you initially selected don’t deviate from your intended percentages. If they do, rebalance your entire portfolio, including your 401(k), to bring it back in line with your goals.
Q: Is there still time to contribute to my individual retirement account?
A: Despite what the calendar shows, 2014 is not over yet. Whether you have a Roth, traditional or simplified employee pension (SEP) IRA, you can still count a contribution toward your total for last year. You must contribute funds to an existing or new IRA before the April 15 tax-filing deadline this year.
Ara Oghoorian writes for AdviceIQ.