Financial Q&A: Readers' money questions answered
Q:
It is expected that I will be sent a check for about $10,000 as settlement for back-due child support. Considering that I have averaged about $1,300 a month in income for several years, this is a large sum of money to me. I would like to reserve or invest it for my child, but I am afraid it will be counted as income and will make her ineligible for financial aid. Is there anywhere I can put this money so that it does not count as income for me or for her?
K.M., via e-mail
A: Child support is not generally taxable to the receiving parent. However, Rob Williams, a certified financial planner in Columbia, Md., says that parents are required to report it on the FAFSA (Free Application for Federal Student Assistance) that they fill out when they ask for higher education aid, and it is considered income available for paying college.
Mr. Williams recommends that you write to the financial aid office of each college where your daughter applies and explain the circumstances surrounding this sudden increase in your wealth. This letter should ask the financial aid office to adjust for this one-time event when calculating her eligibility for aid.
You'll want to tell them that the money represents payments that should have been received over more than the current year. If these payments should have been received over three years, for example, then the colleges should only consider $3,333 as part of the family's annual income.
If your daughter will soon attend college, Williams advises parking the money in a savings account. That will give you immediate access to it, when the need arises.
"I do not recommend putting the money in a 529 Plan," says Williams. With your relatively low level of assets, you need this money in an accessible place in case of an emergency. A 529 Plan – which allows for tax-favored savings for higher education – is for a longer-term investment.
Q:
With the US dollar declining, should I put some cash in Australian and Canadian CDs?
G.W., via e-mail
A: Probably not, says Andrew Tignanelli. While he agrees that the dollar will likely continue to decline, the Lutherville, Md.-based certified financial planner suggests that a better way to cash in, as it were, is by buying good quality stocks from countries with strong currencies.
Right now, Australia and Canada have strong currencies because of the strength of commodities their nations produce. They may not continue to be good options if commodities were to peak.
When picking foreign stocks, look for quality companies that do business in euros, English pounds, or Asian currencies (e.g. Japanese yen, Chinese yuan, and South Korean won).
"This is the approach Warren Buffett is using, and I believe it also works for most ordinary Americans," says Mr. Tignanelli.
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