By Ara Oghoorian
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: Student loans can be a heavy burden on many taxpayers. Luckily, the Internal Revenue Service allows you to deduct a portion of student loan interest, taken as an adjustment to your income.
This means you can claim the deduction even if you do not itemize deductions –– that is, file a Schedule A on your IRS Form 1040 tax return. Unfortunately, the IRS also imposes many limitations on the deductibility of student loan interest. The maximum interest deduction is $2,500 for 2014.
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. If you’re like most taxpayers, your MAGI is your adjusted gross income as figured on your federal income tax return before you subtract any deduction for student loan interest.
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.