Personal Finance

2025-26 FAFSA will open on Dec. 1 — Here’s how to prepare

Published

2 months ago

November 13, 2024

We are overly reliant on student loans to fund higher education, says NACAC CEO Angel Perez

The Free Application for Federal Student Aid for 2025-26 will be available for all students and contributors on or before Dec. 1, the Education Department says.

Typically, students have access to the coming academic year’s form in October, but this year’s delayed release follows a “phased rollout” meant to address reported issues from the 2024-25 FAFSA cycle. Last year’s new, simplified form was plagued with problems at the outset, some of which are still outstanding.

Although the extended testing period for the 2025-26 FAFSA is important, another delayed start “creates a compressed timeline for students and families to submit their financial information, which can lead to missed opportunities for aid,” Beth Maglione, interim president and CEO of the National Association of Student Financial Aid Administrators, said in a statement.

How to prepare for the 2025-26 FAFSA

“I would encourage families to start gathering their financial documents and information now, so they’re ready to apply as soon as the application becomes available,” Maglione said. “Taking these steps early will help ensure they don’t miss out on vital financial support for college.”

According to Maglione, there are five key moves that students and parents can make now to prepare for their application as soon as it becomes available. Here is her best advice:

Set up a studentaid.gov account: Before the new form opens, students and their parents (if the student is a dependent) can set up a username and password, commonly called the FSA ID, to access and complete the FAFSA electronically.
Gather personal information: Students should have their Social Security number on hand (as should parents, if the student is a dependent, or student spouses, if applicable). However, if a student spouse, parent or stepparent does not have an SSN, they can still register for an FSA ID. The form may also ask for your driver’s license or state identification number. Non-citizens should have their Alien Registration number handy.
Federal tax information: Applicants will need tax information from the prior-prior tax year. In this case, that means students should have 2023 tax returns for the 2025-26 FAFSA.
Financial records: The FAFSA requires records of the student’s (and the parents’, if applicable) bank accounts, stocks, bonds, real estate (not including the family home) and other investments. Any records of untaxed income, such as child support or government benefits, should be documented as well.
List of schools: Finally, FAFSA applicants should have a list of schools the student is applying to or attending, which will need to be listed on the FAFSA application.

Why the FAFSA is so important

For many students, financial aid is crucial when it comes to covering the cost of college.

Higher education already costs more than most families can afford, and college costs are still rising. Tuition and fees plus room and board for a four-year private college averaged $58,600 in the 2024-25 school year, up from $56,390 a year earlier. At four-year, in-state public colleges, it was $24,920, up from $24,080, the College Board found.

The FAFSA serves as the gateway to all federal aid money, including federal student loans, work-study and especially grants — which have become the most crucial kind of assistance because they typically do not need to be repaid.

Submitting a FAFSA is also one of the best predictors of whether a high school senior will go on to college, according to the National College Attainment Network. Seniors who complete the FAFSA are 84% more likely to enroll in college directly after high school, according to an NCAN study of 2013 data.

How FAFSA failures have impacted students

After last year’s FAFSA complications, it became clear how much financial aid weighed heavily on decisions about college.

In part because of issues with the new form, the number of new first-year college students sank 5% this fall compared with last year, according to an analysis of early data by the National Student Clearinghouse Research Center.

The declines in first-year student enrollment were most significant at four-year colleges that serve low-income students, the report also found.

At four-year colleges where large shares of students receive Pell Grants, first-year student enrollment dropped more than 10%.

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Personal Finance

Now is an ‘ideal time’ to reassess your retirement savings, expert says

Published

8 hours ago

January 22, 2025

Business Finance News

Hispanolistic | E+ | Getty Images

When it comes to retirement savings, surveys often point to a big magic number you will need to have set aside to live well.

Yet retirement experts say to focus on another number — your personal savings rate — to make sure you achieve your retirement savings goals.

“Early in the year is an ideal time to reassess your retirement contributions and overall savings strategy because you can take advantage of any employer matches, adjust your monthly budget accordingly and stay ahead of potential market shifts,” said Douglas Boneparth, a certified financial planner and president and founder of Bone Fide Wealth, a wealth management firm based in New York City.

What’s more, increasing your retirement savings now gives your money more time to compound — earning interest on both your contributions and previously earned interest. That can “significantly impact your nest egg over the long term,” said Boneparth, who is also a member of the CNBC FA Council.

Boost your 401(k) deferral rate

If you have a 401(k) plan through your employer, now is a great time to look at your contribution rate, according to Mike Shamrell, vice president of thought leadership at Fidelity.

Most importantly, see how your savings rate corresponds to what your employer offers in terms of a company match, he said.

“It’s the closest thing a lot of people get to free money,” Shamrell said.

Oftentimes, companies have a match formula. If you’re not clear on how much you need to contribute to get the full match, contact your human resources department or 401(k) provider, Shamrell said.

Fidelity recommends saving at least 15% of your pre-tax income annually, including your contributions and money from your employer.

If you’re not quite there — or you want to save even more — even just a 1% increase in your deferral rate can make a big difference to your retirement savings over time, Shamrell said.

“It may not have the significant impact on your take-home pay that you that you may be envisioning,” Shamrell said.

Fund your IRA for 2025 — and 2024

Retirement savers also have a window of opportunity to fund individual retirement accounts for both this year and last year.

To count for 2024, contributions can be made up to April 15. (You must designate the deposit for tax year 2024.) For that year, individuals can contribute $7,000, or $8,000 if they are age 50 and over.

The same contribution limits apply for 2025, though savers have additional time — up to April 15, 2026 — to make those contributions.

Savers may be able to deduct those IRA contributions, depending on their income.

Revisit your investment allocations

In 2024, the average 401(k) balance grew about 11%, thanks to soaring stock markets, according to Shamrell.

Heading into the rest of 2025, now is a great time to revisit your personal asset allocations.

“Make sure your allocation didn’t drift too far into equities and that you don’t have more exposure to equities than you might realize,” Shamrell said.

If you’re worried about picking the wrong investment, you can instead opt for target date, asset allocation or balanced funds, which help decide how your funds are allotted for you, according to Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

Also be sure to consider to your risk capacity — the amount of risk you can afford — as well as risk tolerance — the amount of risk you’re willing to take, said Cheng, who is also a member of the CNBC FA Council.

Identifying those personal limits ahead of time can help you stay the course during market turbulence, she said. Investors who bail during the market’s worst days may miss the best days, which often closely follow, research finds.

If you’ve had any major recent life events — gotten married, bought a house or had a baby, for example — you may also want to check that your allocations still correspond to your long-term plans, Shamrell said.

Personal Finance

There’s a big inherited IRA change in 2025. How to avoid a penalty

Published

9 hours ago

January 22, 2025

Business Finance News

Greg Hinsdale | The Image Bank | Getty Images

Inheriting an individual retirement account is a windfall for many investors.

However, a lesser-known change for 2025 could trigger a costly surprise penalty, financial experts say.

Starting in 2025, certain heirs with inherited IRAs must take yearly required withdrawals while emptying accounts over 10 years, known as the “10-year rule.”

“The big change [for 2025] is the IRS is enforcing penalties for missed required distributions,” said certified financial planner Judson Meinhart, director of financial planning at Modera Wealth Management in Winston-Salem, North Carolina.

There’s a 25% penalty for missing a required minimum distribution, or RMD, from an inherited IRA. But it’s possible to reduce the fee if your RMD is “timely corrected” within two years, according to the IRS.

Here are the key things to know about the inherited IRA change.

Which heirs could face a penalty

Before the Secure Act of 2019, heirs could withdraw funds from inherited IRAs over their lifetime, which helped reduce yearly income taxes.

Since 2020, certain inherited accounts have been subject to the “10-year rule,” meaning heirs must deplete inherited IRAs by the 10th year after the original account owner’s death.

After years of waived penalties for missed RMDs from inherited IRAs, the IRS in July finalized guidance. Starting in 2025, certain beneficiaries must take yearly withdrawals during the 10-year window or they’ll face a penalty for missed RMDs.

The rule applies to heirs who are not a spouse, minor child, disabled, chronically ill or certain trusts — and the yearly withdrawals apply if the original IRA owner had reached their RMD age before death.

One group who could be impacted are adult children who inherited IRAs from their parents, according to CFP Edward Jastrem, chief planning officer at Heritage Financial Services in Westwood, Massachusetts.

But the rules have become a “spiderweb mess of decision-making,” he said.

Avoid the ’10-year tax squeeze’

For 2025, there’s a enforced penalty for missed RMDs. But heirs also need to manage withdrawals to avoid the “10-year tax squeeze,” said Jastrem.

Over the past few years, some heirs have skipped yearly withdrawals from inherited IRAs, which could mean larger required withdrawals before the 10-year window closes, he said.

For example, boosting adjusted gross income can impact things like Medicare Part B and Part D premiums, eligibility for the premium tax credit for Marketplace health insurance and more.

Of course, timing inherited IRA withdrawals depends on your complete tax situation, including multi-year projections of your adjusted gross income, Meinhart said.

Personal Finance

‘Era of the billionaire.’ Here’s why wealth accumulation is accelerating

Published

11 hours ago

January 22, 2025

Business Finance News

President-elect Trump's cabinet to have more billionaires than any in history

The rich are getting richer.

The combined wealth of the world’s most wealthy rose to $15 trillion from $13 trillion in just 12 months, according to Oxfam’s latest annual inequality report — notching the second largest annual increase in billionaire wealth since the global charity began tracking this data.

Last year alone, roughly 204 new billionaires were minted, bringing the total number of billionaires to 2,769, up from 2,565 in 2023, the global charity found.

“Not only has the rate of billionaire wealth accumulation accelerated — by three times — but so too has their power,” Oxfam International’s Executive Director Amitabh Behar said in a statement Sunday.

“We’ve reached a new era now, we are in the era of the billionaire,” said Jenny Ricks, general secretary of the human rights group Fight Inequality Alliance. “The challenge now is turning this around and making this the era of the 99%.”

Despite the fact that America ranks first as the richest nation in the world in terms of gross domestic product, 36.8 million Americans live in poverty, accounting for 11.1% of the total population, according to the latest report from the U.S. Census Bureau.

“We need government serving people’s real needs and rights,” Ricks said, with increased funding for education and healthcare, among other social services.

‘Tax us, the super rich’

After Oxfam’s report was released, some of the world’s wealthiest people called on elected representatives of the world’s leading economies to introduce higher taxes on the very richest in society.

In an open letter to political leaders attending the annual World Economic Forum in Davos, Switzerland, more than 370 billionaires and millionaires said that they wanted to “tackle the corrosive impact of extreme wealth.”

To that end, “start with the simplest solution: tax us, the super rich,” the letter said.

36% of billionaire wealth is inherited

Oxfam found that 36% of billionaire wealth is now inherited. Much of that wealth will also get handed down. A separate report by UBS found that baby boomer billionaires’ heirs stand to inherit an estimated $6.3 trillion over the next 15 years.

“As the great wealth transition gains momentum … we expect the proportion of multigenerational billionaires to increase,” the report said.

According to Oxfam’s analysis, half of the world’s billionaires live in countries with no inheritance tax for direct descendants.

In the U.S., there is a federal estate tax up to 40%, depending on the amount of the estate over the current exclusion limit.

In 2025, the basic exclusion amount rose to $13.99 million per person, up from $13.61 million in 2024.

Meanwhile, President Donald Trump has vowed to fully extend the trillions in tax breaks he enacted via the Tax Cuts and Jobs Act in 2017, which also doubled the estate and gift tax exemption.

After 2025, the higher estate and gift tax exemption will sunset without action from Congress. If the provision expires, the exclusion will revert to 2017 levels, adjusted for inflation.

Some Democrats have pushed back on TCJA extensions, noting that they disproportionately benefit the wealthy, rather than middle-class families.

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