How to Prioritize Your Money: Listener Q&A (SB1792)

What It Covers

CFP Anna Allom answers listener questions on calculating life insurance needs, gifting money to grandchildren, optimizing FAFSA financial aid, managing variable income with emergency funds, and choosing between Roth versus traditional retirement contributions.

Key Questions Answered

• •Life Insurance Calculation: Use needs-based analysis examining actual expenses rather than income multipliers like 10-12x salary. Calculate assuming surviving spouse stops working indefinitely since grief responses vary dramatically. Use lifehappens.org calculators for both needs-based and human life value approaches to establish your coverage range.
• •Life Insurance Shopping Strategy: Always shop multiple carriers when updating coverage because companies change premium structures annually and age brackets shift risk calculations. Never cancel existing policies until new coverage is approved and active. Consider laddering policies by stacking a new policy with existing coverage if health changes make rates less favorable.
• •Grandparent Gifting Accounts: For flexible grandchild gifts avoiding 18-year-old automatic distribution, maintain separate brokerage accounts in grandparent's name with each grandchild as beneficiary. This preserves control indefinitely and allows gifts under $19,000 annual limit without gift tax filing. Alternative: single account for all grandchildren if managing multiple accounts becomes burdensome administratively.
• •FAFSA Financial Aid Optimization: Switching from Roth to traditional 401k contributions reduces adjusted gross income two years before college attendance, potentially improving Student Aid Index scores. However, avoid creating retirement tax traps for short-term aid that may not materialize due to competitive applicant pools. Complete FAFSA annually regardless of freshman year rejection.
• •Variable Income Emergency Planning: Entrepreneurs with seasonal income should create separate business account paying consistent monthly salary rather than taking irregular distributions. Calculate annual income divided by twelve months for stable budgeting. Reduce HSA contributions before 401k match to preserve employer contributions while building three-month emergency fund before addressing vehicle replacement savings.