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Depending on where you live, $250,000 might not stretch that far

From where I sit, $250,000 a year — the amount President Obama and other Democrats say is top-tier household income — is a substantial amount of money. But I don’t sit in Manhattan or San Francisco, where folks say they can easily blow through that much on rent and child care.

Cost of living disparities are in focus now, and not just in the national tax debate. It’s a big deal for families from expensive places when they apply for college financial aid. People who make, say $60,000 a year in Fort Smith, Ark. — one of the least expensive places in the country, according to Kiplinger.com — have significantly more disposable income than people trying to make it on that much in Manhattan.

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And the differences are startling. You can buy a four-bedroom house in Redford, Mich., for $60,000, or pay $1.7 million for a similar home in Los Altos, Calif., in the heart of Silicon Valley, according to Coldwell Banker Real Estate. You need to earn $250,000 in Los Altos to live the life that $60,000 provides in Fort Smith, according to the cost-of-living-comparison calculator at Sperling’s Best Places website (www.bestplaces.net/col/).

New Yorkers and Silicon Valley dwellers can abandon hope that federal tax rates will ever be adjusted to accommodate their higher incomes. “It would be way too complicated to do something like that,” says Eric Toder of the Tax Policy Center. Furthermore, policy makers are reluctant to underwrite lifestyle choice.

Nevertheless, the tax code does offer a little bit of help to folks who live in high cost areas. They get to deduct state and local taxes, and mortgage interest. Even those provisions get criticized for making the tax code regressive — putting a bigger burden on low earners than high earners.

Of course, you can really cash in on cost of living discrepancies if you line up a telecommuting programming gig at Silicon Valley rates and then make your home in the outskirts of Detroit or on the Arkansas-Oklahoma border. There a few other ways to either make the disparities work for you, or at least minimize their impact if you’re on the other side of them. Here are some options.

 Dig into financial aid exceptions. Federal formulas for most financial aid don’t adjust their expected family contribution for cost of living, though they do allow a small adjustment for state taxes. But some 300 schools use the College Board’s method for disbursing aid. That gives them the option of applying a cost of living adjustment to the family’s expected contribution.

For example, a family earning $80,000 in Manhattan would probably be expected to come up with about 10 percent less than the same family if it lived in upstate New York, says Myra Smith, executive director for financial aid services at the College Board.

To figure out whether schools you are interested in offer that adjustment, use the net cost of attendance calculator that schools now put on their websites. Put in different ZIP codes and see if the net costs and typical aid packages differ.

  Appeal aid packages. “Schools can often adjust aid on a case-by-case basis,” says Smith. Present the loan officer with receipts for high commuting costs or health insurance, and you may win a better deal.

  Consider holding on to your home if you move to a cheaper area. People who leave San Francisco for a short stint in New Mexico, for example, have a tough time regaining a place in the San Francisco market. Rent out your costlier place for awhile instead of selling it, just to make sure you don’t want to go back.

  Negotiate hard if you’re asked to move to a pricey place.

  Retire to a cheaper area. In addition to cost of living disparities are income tax disparities; a person who built up a tax-deferred retirement account in a high-tax state can make their money last longer if they move to a less expensive and lower tax state when it’s time to make withdrawals. And that’s why so many end up in Florida.

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