In the case of SINKs and DINKs the financial planning process can be … distinct.
What exactly are DINKs and SINKs are you asking? SINK stands for “single income, no kids.” If you were able to guess that DINK is a reference to “dual income, no kids,” you’re correct! But there’s more thinking about financial planning for people who are in that “no kids” camp than the reality that they don’t have kids.
I’m sure that you can see that some people don’t want to have children due to as many reasons as they decide to include kids in their families. I’ll describe”no children” in a variety of ways “no kids” piece of the SINK and DINK descriptions in several ways:
- Individuals who don’t have children and don’t plan to expand their family but it might be an option in the future.
- The people who have taken the decision to not have children
- Foks who have never had children, are past their teen years, and who do not have any plans to adopt.
I was recently reading an article on children and the kidfree society and an episode on the podcast about the childfree movement which stuck for me. It got me thinking about the uniqueness of financial planning for people who don’t have children, and I thought I would give you a glimpse of them here.
PLANNING TODAY
While I was working on Budget Worksheets for clients just as you are this month, I was thinking about the different cash flow in SINKs as well as DINKs. Simply put, daily plans for them don’t contain children. The most important ones? There are no costs to raise children and childcare or educational costs.
This can lead to opportunities. Do you realize that expense to raise a kid up to the age of 18 averages more than $270,000? That’s for only one child! A large portion of that cost is childcare which averages at least $10,000 annually. In addition, there is a big target for a lot of clients who have kids: College. The average tuition at a public institution that is not in the state is $27,560 per annum. Add that number to four, with inflation every yearDon’t forget to include accommodation and food and other living expenses!
While certain SINKs and DINKs could help family members and friends in their cost of living however, not having to pay these costs in any way or at all can make a significant difference when the planning of annual and life-long expenses. That means that those who don’t have children might be able accomplish various goals early in life, or have more flexibility in their cash flow in the future.
To ensure cash flow and the flexibility of it’s essential for DINKs and SINKs, but it’s vital to SINKs. This is because single people don’t have a partner or partner to earn a living if they’re capable of working. Disability insurance provides a part of the earnings in case of you know what the word “disability. As a disability may last for years, SINKs can especially benefit from securing against loss of income.
Do you not have disability insurance in your benefits package for employees? Let’s make an individual quote! Simply safely upload your most recent pay stub and fill out this questionnaire. I’ll utilize your pay stub to calculate the amount of your annual earnings your disability insurance policy will need to be able to cover. The questionnaire will also help us obtain accurate quote estimates.
If you’re not insured, and don’t have children to support in the event of a premature loss of life, SINKs and DINKs might not require life insurance. However, if you’re within that “no kids” camp and your employer offers life insurance for you free of charge, make use of the benefit! (Insurance consulting sessions for planning are scheduled for October, however you are able to make a reservation on my calendar at any time to discuss your situation.)
The “insurance” piece brings me to a different point.
PLANNING FOR TOMORROW
In the case of insurance, I’ve heard parents of children say they aren’t looking to “burden” their kids if they need care in the future, such as assisted living. For a lot of children, “returning the favor” isn’t an issue for parents who require aid. However, in the case of SINKs and DINKs and DINKs, a long-term care plan — be it through an insurance policy that is traditional or self-insuring with funds saved in case the need arise is a crucial factor to take into.
It could be to preserve the independence that is possible or to lead an ideal lifestyle, even if not totally independent. Maybe it’s to ensure they’ll have access to quality healthcare or to stay out of or relying on the Medicaid system. No matter the motivation, people who won’t have a system of support for their younger generations later in life might find an arrangement crucial. (If you’re wondering, “This sounds like me!” Tell me! I’m more than happy to assist you to obtain quotes and demonstrate the effects of a long-term health insurance policy on your budget.)
As long-term care requirements are likely to decrease towards the end of the budget, what will happen to SINKs and DINKs when they’re gone?
PLANNING FOR THE FUTURE
This is where philanthropy as the legacy and estate planning comes into. The philanthropy component can be described as giving now or in the future and also offers choices for the future as well as lifetime gifts.
GIVING NOW
With no cost of having kids of their own, a few SINKs and DINKs have accumulated an amount of money that they’d like give to family and friends. If you’re looking to give gifts in cash for gifts, the tax exemption for gifts in 2022 amounts to $16,000 per individual gift recipient. If married couples decide to divide gifts on their tax returns the exclusion increases to $32,000 for each gift recipient. If you decide to give more than the exclusion amount anyone in a single person, you should plan to add the gift tax return on your tax returns in the spring of next year. Same goes when couples decide to divide gifts.
The benefits of giving a lifetime gift are the possibility of watching loved ones appreciate your present and celebrate the travels they’ll be taking along with them. Don’t forget that, as a donor, you are able to make unlimited donations directly to certain institutions such as hospitals and universities to help those in need of healthcare and education-related costs.
GIVING LATER
If you are planning to make a gift the gift in the future, planning for that future is crucial. Choosing where your belongings will be placed in your final will and testament, as and the beneficiary designations are one aspect. This is especially crucial for unmarried DINKs who do not have a spouse to leave assets to in a timely manner.
Are you unsure what to start but you know that you’d like to? The Donor-advised funds (DAF) can help. The DAF is an “give today, gift tomorrow” vehicle. That is, you contribute funds to the account now and later decide to what 501(c)(3) charitable organizations the gifts will be donated to. Furthermore the donations made to DAF DAF can be tax-deductible, so it’s an all-win situation! If the funds are stored in the DAF in the event of your death and your will is drafted, it can be a guideline to which charities they should go.
ESTATE PLANNING CONSIDERATIONS
Future gift recipients must prepare not just for the gifts they’d like to present but as well for their own. The future planning process also includes making decisions for the future in the event that you aren’t in a position to make them later on the future. It’s important if you don’t wish someone else to make decisions for you blindly.
This is why the inclusion of a power of attorney (POA) as well as an living will, or health power of attorney (HPOA) in your estate planning documents may aid. A POA permits the person or persons you designate the power to take financial decision on behalf of you. Likewise, an HPOA can be used in the case of health insurance. Both allow you to give specific instructions as well as general rules in a written document, so that the person you choose to authorize will perform their duties in accordance with your preferences.
No matter if you’re SINK or DINK or both We’re here assist! Remember that we’re also able to help in planning your gifts to others, regardless of whether you’d like to make them during your lifetime, via an DAF or as a an element an estate planning.
We are elated with the latest news. Biden’s announcement from last month applies to tax filers singles that earn under $125,000. This is also the case for married couples who file their taxes separately. The amount rises up to $250,000 for head of household and married taxpayers who are filing jointly.
The borrowers of Stafford and Parent Loans for Students in Undergraduate (PLUS) Grad, Perkins or Grad PLUS Loans can qualify to receive up to $10,000 in relief. Because the forgiveness is based upon what is owed to the borrower PLUS Loan parents borrowers are restricted to the amount of $10,000 relief per all instead of for each student on behalf of whom they took out the loan. For those who have received Pell Grants — which is a type of need-based loan designed for students with lower incomes that can provide up to $20,000 of relief could be offered.
People who have personal student loans, as well as Federal Family Education Loans (FFELs) are not in the position of being eligible to receive relief.
A MINI CASE STUDY
A borrower who has undergraduate loans that were granted Pell Grants. They benefited from the forbearance granted to pandemics and ended their loan payments when they reverted to zero percent interest. They have a principal balance of $8,477.14 split across two loans, and are eligible for relief from debt. With the forgiveness, they will be eligible to receive …
$8,477.14 as relief.
Why isn’t the entire $20,000? They began with more than $20,000 of loan principal, and Pell Grants at the very least! However, the forgiveness is only for remaining balances to be paid. The borrower paid more than their balance for the month and has no recourse with this $11,522.86 which could be paid off.
That’s a great thing.
The debt relief program is designed to provide that help to those who need it most. It’s geared towards borrowers with low or middle incomes and those who have borrowed but did not graduate, and people of color, in particular Black borrowers.
The burden of student debt has left a lot of these groups struggling with getting homes, starting families, or making savings for the future. The relief offered is intended to help them reduce their debt.
INCOME-DRIVEN REPAYMENT PLANS
Other aspects of reducing the debt burden are three major modifications to the income-driven repayment (IDR) plans.
1. Prior to this, those who were on IDR plans had to pay their monthly loans based on 10percent to 15 percent of their discretionary earnings. The Biden student loan relief program reduces this amount to 5 percent of discretionary income, which allows those who borrow to have more of their discretionary earnings in a monthly manner.
2. The formula that calculates discretionary income is also being changed in order to incorporate additional expenses that are not considered discretionary. This means there is a lower percentage of discretionary income to the smaller percentage to base it on, which further reduces the amount of monthly repayments.
3. There is no interest charged to principal debts by those who make qualified IDR payments. That means that IDR balances will not increase when they make their IDR payments.
A little less significant but nevertheless crucial, those who had a loan of less than $12,000 could have their balances repaid within 10 years qualifying payments instead of the original 20 years of repayments. Together, these modifications to IDR for people on these plans permit greater flexible spending. or savings that are discretionary, allowing those on these plans to get closer to achieving those life milestones.
STRATEGIZING YOUR STUDENT LOAN SITUATION
From Director of Estate and Financial Planning, Dan Andrews
The news and policies of the government affect the financial plan. With the first payments scheduled to start on or after Dec. 31st, 2022 it is the perfect moment to review and modify your repayment strategy for student loans.
For more information on the advantages and disadvantages of different strategies for maximizing your financial return, check out the FPFoCo Academy module Education Planning and Student Loans.
To be eligible for the forgiveness recently declared by the government those who have already shared their income details in the U.S. Department of Education in order to establish the purposes of their IDR plans will receive the forgiveness amount applied automatically when they’re you are eligible. In the event that federal authorities does not have your income information they’ll notify you about an application that must be submitted.
The Federal Student Aid website encourages applicants to complete their applications on or before November 15 so that refunds are processed before the 31st of December.
PREPARING TO REPAY BY DECEMBER 31
Each financial plan is unique and student loan repayment strategies will come back at the time. Here are a few strategies that you will find in your budget.
Continue your current repayment strategy.
If you have made payments during the period of forbearance and all or a portion of them were made exempt under Biden’s plan make contact with your servicer for your loan. In the words of the Federal Student Aid website, “You can get a refund for any payment (including auto-debit payments) you make during the payment pause (beginning March 13, 2020).”
Apply for for Public Service Loan Forgiveness (if you’re eligible).
You might consider refinancing to private loans and making a lump sum installment today to lower the amount refinanced.
Also the details could change from now until the close in the calendar year. To be informed of the latest news, sign up for updates by signing up to “Federal Student Loan Borrower Updates” on the U.S. Department of Education website.
TAX IMPACTS
From Director of Investment and Tax Planning, Jason Speciner
Typically, debt forgiveness is tax-deductible income. In reality, there’s an information return that can be used in this type of situation: Form 1099-C. However there was a change in the American Rescue Plan Act passed in 2021 declared all student loan debt forgivenesss between 2021 to 2025 tax free from the federal government. The best part is that the amount you forgive is not reflected on your federal tax return.
The taxation situation in states is a bit more hazy. At first the Tax Foundation published the list of states in which student loan forgiveness under the plan could be tax-deductible. But, following clarifications from various states, it is at present only seven states that could tax the forgiveness.
- Arkansas
- California
- Indiana
- Minnesota
- Mississippi
- North Carolina
- Wisconsin
If you’re from either of those states, be sure to pay attentively to the announcements that are coming up regarding possible tax relief. If you’re located in another state, Colorado among them, it could appear that this debt relief is tax-free.
Additionally, if you are taxed (or lack of) on student forgiven debt, you may determine if you are eligible for forgiveness based on the information you have received that you have on your tax return. Particularly your amount of “income” that determines your eligibility is your adjusted gross income (AGI) from your 2020 or 2021 federal income tax return. On the standard Form 1040, you’ll determine the amount in line 11. If your AGI in any year is less than the applicable threshold of $125,000 or $250,000 You will be eligible to be forgiven.
WRAPPING IT UP
If you’re not in the position to receive this relief because your income is higher than the threshold or you’re scheduled to restart payments for any amount that isn’t already forgiven, make a note on your calendar. We’re currently on this finalpayment suspension. If you did not request the extension of your loan do not worry, it took place automatically. But, the payments will begin in January 2023.
If your loans were transferred to a different provider during the grace period, or if you’ve not registered for a long time (we do not blame you! ) ensure that the account you’re using for your loan is accessible prior to the closing date in the calendar year. You may be able to determine the balance(s) due. Remember that you’re likely to have less debt per month when you’re using the IDR plan. Make sure to incorporate the cost of your monthly payments into your budget and create an effort to keep that money set aside for the coming year.
The last thing to do is do not forget to inform us of what we can do to help.
