Q. My son is a recent college graduate. He's moving back in with me, and I'm thinking of setting some financial ground rules. Since he doesn't have a job yet, it seems unfair to ask him for much until he gets on his feet. Do you have any advice?
A: Do I! For starters, ground rules are a must, not a maybe. Establishing expectations will help you navigate this tricky juncture in your relationship—and his life—with a minimum amount of stress.
I realize how hard it is for today's graduates to find meaningful work, so I understand your desire to allow your son a few months to search for his ideal job. But in return for staying in your home, he needs to earn his keep by taking on household chores like cooking, cleaning, shopping, or doing laundry—whatever will help you.
Ideally, though, he should work part-time while hunting for a full-time job. When he starts bringing home regular wages, I want you to agree on his monthly contribution to the family operating expenses. It doesn't matter if you need the money or not; these installments will help your son feel like an adult and familiarize him with the routine of bill paying. Maybe he gives you 15 to 20 percent of his take-home pay. If you don't plan to use that money to make up for the additional costs associated with housing him, quietly open a savings account (let's call it his breakout fund) and deposit his payments there. When he moves out, he can use the money to pay off any debt he incurred during college or to start his new life as a fully independent adult.
Q. Two of my three children will enter college in the next few years. Friends have told me that I'd be wise to hide money in a mattress so that it looks like I have fewer assets and the kids will get a better financial aid package. That seems deceitful to me, but the thought of paying two tuitions on a household income of $100,000 gives me chills. We have small 529 accounts set up. Is there anything we can (honestly) do to help our children get the best financial aid packages?
A: Are you kidding me? My first piece of advice is to get new friends who live by my principle: Always do what is right, not what is easy.
Still, I hear you on the stress factor. For starters, keep in mind that financial aid offices do look at the whole family picture; you're likely to get more aid if you are putting two or three kids through school rather than one. If your children end up attending different universities, just make sure that each school is well aware of your overall situation.
In the meantime, the best way to strengthen your financial position is to boost your retirement savings. I've said a gazillion times that retirement savings need to come before college funds, and socking away money in a retirement fund can also actually help your odds of landing a bigger financial aid package. That's because retirement savings aren't counted as parental assets when computing financial aid. (One exception: Money you contribute to a retirement plan such as an IRA or 401(k) in the year that you apply for aid will be counted as "untaxed income" and will be a factor in your aid package.)
In 2012 anyone under age 50 can contribute a maximum of $17,000 to a 401(k) and $5,000 to an IRA. If you're at least 50, those limits rise to $22,500 and $6,000. That's a lot of money that will not only help your retirement security but also reduce the amount of family assets that aid offices will factor into their calculations.
I am adamant that the best use of a Roth IRA is for your retirement. But I also want you to understand that the money you and your husband put into a Roth is 100 percent yours to use at any time, for any reason. So if you fund a Roth IRA and then decide that the financial aid packages offered to your kids aren't enough, you can dip into your contributions to help pay the college bills without any tax or penalty.
Next: Suze's financial aid 101