Big Changes to Washington’s GET Program

Earlier this month, changes were made to the Guaranteed Education Tuition (GET) program. The changes were in response to the recent reduction in tuition for Washington’s public colleges and universities. Tuition will be reduced at UW & WSU by 15% over the next two academic years.

In addition, beginning in 2017-18, resident undergraduate tuition will not be allowed to grow by more than the state’s average annual growth rate in the median hourly wage as determined by the Federal Bureau of Labor Statistics.

These changes are important because GET’s payouts are based on tuition at UW & WSU. The drop in tuition has reduced the payout value for GET units to $117.82, meaning those who remain in the program may not recover all of their initial purchase price. Should a student decide to attend school at a private or out-of-state school when they reach college age, GET units may not provide the purchasing power once anticipated.

What does this mean for you?

In response, the GET program has provided the following three options for your existing units:

  1. The current payout value of the GET program will now be $117.82 per unit. If you choose to remain in the program, you will receive this payout value.
  2. If you wish to move your GET funds into a different 529 plans, including a 529 savings plan, the GET program will waive all state program refund fees and the two-year hold requirement.
  3. If you wish to cash out your GET funds, you will receive a refund of your contributions or the payout value, whichever is greater. Be aware that this option may have tax consequences. In addition to the changes above, customers who purchased units between 5/1/2011 and 6/30/2015 will be due a refund of the amortization fee originally paid when units were purchased. Moving forward, this amortization fee will not be charged to new units purchased. You will not need to take any action to redeem your refund. Customers should expect to receive these refunds by December.

The deadline to exercise options 2 or 3 is December 1, 2016, however the Washington State Institute for Public Policy is currently conducting a study to look at growth factors moving forward. This report will be available by December 1st, 2015 so you may wish to wait until this deadline in case there are more favorable options presented.

The table below gives the refund amount per unit you should expect:

Year Unit Purchased

Refund Amount Per Unit
5/1/11 – 6/30/12

$18.70

7/1/12 – 6/30/13 $19.73
7/1/13 – 6/30/14 $20.82
7/1/14 – 6/30/15

$20.82

We recommend waiting to take any action until after the December 1st, 2015 meeting, in the event more favorable options are presented. We encourage you to review your individual situation and meet with your financial advisor if you’d like to discuss your options.

Here are the links to the  GET Refund Cancellation Policy and Refund Form.

http://www.get.wa.gov/sites/default/files/documents/GET-Refund-Cancellation-Policy-09-02-2015.pdf

http://www.get.wa.gov/sites/default/files/documents/GET-Refund-Form-09-02-2015.pdf

 

Please note: prior to investing in a 529 plan investors should consider whether the investor’s or designated beneficiaries home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

 

Income in Retirement – Can it affect your Social Security Benefits?

These days, returning to work after retiring is a common trend. Whether you’re looking for an additional income stream to ease your finances into full retirement, or maybe you’re wanting to purse that dream career. Whatever your reason for re-entering the workforce, your Social Security, health insurance, and tax situation may be affected. Here’s some guidance on frequently asked questions:

Will my Social Security benefits be reduced if I return to work?

It depends on your age. For benefit purposes, the Social Security Administration (SSA) defines your full retirement age (FRA) between 66 and 67 for people born in 1943 or later. If you haven’t reached this FRA milestone yet, your benefits could be reduced. Consider this example:

*If you go back to work before reaching your FRA, every $2 you earn above the annual limit (currently $15,720 in 2015) will reduce your social security benefit by $1.

EXAMPLE: You are 63 and currently receive $14,000 per year in social security benefits. You return to work and earn $30,000 in salary. Because you are $14,280 over the annual limit, your benefit will be reduced by $7,140.

*If you go back to work the year you reach your FRA, benefits will be reduced by $1 for every $3 you earn above a higher annual limit (currently $41,880 in 2015) but only counting earnings before the month you reach your FRA.

EXAMPLE: You work all year and reach FRA in June. From January to May 31st you earn $30,000. Because your earnings are under the limit, your benefits for the year are unaffected

EXAMPLE: You work all year and reach FRA in June. From January to May 31st you earn $60,000. This places you $18,120 over the limit, which will reduce your benefit by $6,040.

*Starting the month you hit FRA, your benefits will not be reduced no matter how much you earn

Can I pay back Social Security benefits I’ve already received and restart them later at a higher amount?

If you’re returning to work after a period of retirement, you may have already started receiving benefits at an early rate. The option to pay back the benefits you’ve received in order to get a higher benefit down the road is only available in the first year.

For example, if you elected to receive early benefits at age 62 and are now 63, you could stop receiving your benefits, pay back the one year’s worth of benefits you received, and then wait until you are older to restart your benefits at a higher level. There are no fees to do this and you do not have pay any interest on the benefits you already received.

Whether it makes sense to take advantage of this strategy will depend on a number of factors including your age and tax situation so you may want to enlist the help of a CPA or other professional to help you crunch the numbers.

Will I still need to take required minimum distributions from my IRA or 401(K) if I go back to work?

Returning to work does not change the rules for taking your required minimum distributions (RMDs) on Traditional IRAs starting at age 70 ½.

Rules for 401(k)s and other qualified employer plans, however, are different. If you work past age 70 ½ and do not own more than 5% of the business you work for, you may be able to postpone RMDs from your current employer’s plan until no later than April 1st of the year after you retire. You should check with your plan administrator for specifics.

Will my Social Security benefits be taxable if I return to work?

Returning to work may make your Social Security benefits taxable depending on your modified adjusted gross income (MAGI). As this amount increases, a greater percentage of your benefits become subject to income tax, up to a maximum of 85%. Currently, your benefits will begin to be taxable if your MAGI is above $32,000 for married filing jointly individuals and $25,000 for single filers.

What financial issues should I consider if I return to work?

Ultimately, returning to work is a very personal decision. Going back to work may bring more income, but it may also involve new expenses such as work attire, childcare, transportation, etc. Before you dive in, it’s wise to crunch the numbers and do some “what-if” planning. Don’t hesitate to reach out to us to help deal with any questions you may have.

 

The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investments may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.   Investment Advice offered through Leonard Rickey Investment Advisors, PLLC (LRIA), a Registered Investment Advisor. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LRIA is not an affiliate of and makes no representation with respect to such entity. Past performance is no guarantee of future results.