529 plans

Timing the Market + 529 Plans and College Savings

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Buying a home can seem like a daunting task, especially when you're doing it in a city like New York, where prices always seem to go up and never down. That's how we kicked off the show this week with Chris, a recent transplant from Chicago looking to find a new home in the Big Apple. 

Next up was Jeff from Georgia who has the bright idea of timing the market. You know, buying low and selling high, and knowing exactly when it's going to happen! 

Hour two was a deep dive into 529 plans and college savings in general with one of the foremost authorities on 529 plans, Andrea Feirstein, founder and Managing Director at AKF Consulting Group, a leading strategic advisor to public administrators of state investment programs.

Andrea was extremely knowledgeable and we touched on several topics, including:

What is a 529? A tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

What’s the tax benefit of a 529 plan? Withdrawals for qualified higher education expenses and earnings in the account are not subject to federal income tax and, in most cases, state income tax. Additionally, some states offer residents of the state specific incentives, like the ability to deduct contributions from state income tax or a matching grant.

What does a 529 plan cost? Fees and expenses vary widely from plan to plan and can include start-up fees, maintenance fees, or sales charges. In general, advisor-sold plans cost more than direct-sold plans. The Financial Industry Regulatory Authority (FINRA) has developed a tool to help you compare how these fees and expenses can reduce returns.

What happens if my kid doesn’t go to college? Most states allow you to tap the accounts for other children in the family or even for the parents. Those withdrawals that are not used for qualified higher education expenses will be subject to state and federal income taxes and an additional 10 percent federal tax penalty on earnings.

What has changed with the 2018 tax law? Americans can now withdraw funds tax-free from 529 plans to pay for K-12 tuition and other eligible expenses at private and religious schools, up to $10,000 per year. But there’s a caveat: Not all states will conform to the new federal rules. That means before you pull money, be sure to double check with your state.

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529 Plans and College Savings

Happy belated #529Day, a day when states try to boost interest and participation in 529 education savings programs with various incentives.

To mark the occasion, we have one of the foremost authorities on 529 plans, Andrea Feirstein, founder and Managing Director at AKF Consulting Group, a leading strategic advisor to public administrators of state investment programs.

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Andrea was extremely knowledgeable and we touched on several topics, including:

What is a 529? A tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

What’s the tax benefit of a 529 plan? Withdrawals for qualified higher education expenses and earnings in the account are not subject to federal income tax and, in most cases, state income tax. Additionally, some states offer residents of the state specific incentives, like the ability to deduct contributions from state income tax or a matching grant.

What does a 529 plan cost? Fees and expenses vary widely from plan to plan and can include start-up fees, maintenance fees, or sales charges. In general, advisor-sold plans cost more than direct-sold plans. The Financial Industry Regulatory Authority (FINRA) has developed a tool to help you compare how these fees and expenses can reduce returns.

What happens if my kid doesn’t go to college? Most states allow you to tap the accounts for other children in the family or even for the parents. Those withdrawals that are not used for qualified higher education expenses will be subject to state and federal income taxes and an additional 10 percent federal tax penalty on earnings.

What has changed with the 2018 tax law? Americans can now withdraw funds tax-free from 529 plans to pay for K-12 tuition and other eligible expenses at private and religious schools, up to $10,000 per year. But there’s a caveat: Not all states will conform to the new federal rules. That means before you pull money, be sure to double check with your state.

“Better Off” is sponsored by Betterment.

Have a money question? Email us here or call 855-411-JILL.

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Connect with me at these places for all my content:

https://twitter.com/jillonmoney

https://www.facebook.com/JillonMoney

https://www.instagram.com/jillonmoney/

https://www.linkedin.com/in/jillonmoney/ 

http://www.stitcher.com/podcast/jill-... 

https://apple.co/2pmVi50

"Better Off" theme music is by Joel Goodman, www.joelgoodman.com.

How to Pay for College

How to Pay for College

As the college acceptance letters arrive, students are thrilled. However, while parents and grandparents are proud, they may also feel a little anxious about footing the bill for what they know is an important credential in today’s labor force. Before you sign on a dotted line, or heaven-forbid, raid your retirement account or borrow against your house, it’s time for a financial reality check. Here are the basic sources available to fund higher education, according to the Common Application, a not-for-profit member organization of more than 700 colleges and universities in the United States and around the world.

FAFSA Freak Out

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While dorm move-in day is months away, now is the time for college applicants hoping to receive financial aid to complete the much-maligned Free Application for Federal Student Aid (FAFSA). While each school sets its own financial aid due date, some of the money is available on a first-come, first-serve basis, so it’s time to get busy! Before you start moaning, you should know that you have lots of company: the National Center for Education Statistics (NCES) found that over 70 percent of all undergraduate students received some type of financial aid in recent years, of which one-third was provided by the federal government. Over 20 million people completed FAFSA forms last year.

Many parents tell me that they won’t qualify for financial aid, “so why bother going through the drudgery of doing it?” According to the U.S. Department of Education, “the FAFSA takes most people 23 minutes to complete…and contrary to popular belief, there is no income cut-off when it comes to federal student aid.”

Maybe the procrastinators are already coming up with an excuse: “I’ll wait until after April 15th, so I’ll have my tax returns in hand." Contrary to conventional wisdom, you don’t have to wait until you file to start the FAFSA. Use your 2013 return as a guide to estimate your 2014 numbers so that the government can process the application immediately - you can submit your actual 2014 return later.

In fact, there is now a partnership between the FAFSA site and the IRS, allowing students and parents to automatically transfer the necessary tax info into the FAFSA using the IRS Data Retrieval Tool. In most cases, your information will be available from the IRS two weeks after you file. You can also change your mind about which schools you’re applying to, by logging in to the FAFSA site and updating school information – the same goes for when family income drops.

Those who don’t complete the FAFSA could be leaving a lot of money on the table and frankly, it is a pretty good trade: your time for a potential reduction in college costs. According to the College Board, the average cost of tuition and fees for the 2013–2014 academic year totaled $8,893 for state residents at public colleges; $22,203 for out-of-state residents attending public universities; and $30,094 at private colleges.

It should be noted that the same report also found that the actual amount that most students pay is lower, because of increased discounts, grants and tax benefits. Still, families need to tap whatever resources are available to finance higher education, which is why outstanding student loan balances stand at $1.13 trillion, as of September 30, 2014. There could be some relief from that mountain of debt: analysis from the New York Times shows that legislative changes to the Income-Based Repayment program (IBR) "may make it much easier for students to get out from under their debts."

Before you go into shock with all of these numbers, it might be helpful to utilize the FAFSA4caster, a free financial aid calculator that gives you an early estimate of your eligibility for federal student aid and helps families plan ahead for college.

And while not every student should attend a four-year private college, some higher education gives the average worker an advantage in the current labor market. Through the end of 2014, the national unemployment rate stood at 5.6 percent, but those who held an associate’s degree or had some college under their belts, were in much better shape, with just a 4.9 percent unemployment rate. Graduates with a bachelor’s degree or higher had a rate of just 2.9 percent. On the other end of the spectrum, those who did not finish high school have a still-high 8.6 percent rate.

And college degrees really do pay great dividends: a 2014 New York Federal Reserve study found that the return on a college education remains at about 14-15 percent, "easily surpassing the threshold for a sound investment." Separately, a San Francisco Federal Reserve study showed that the average college graduate could expect to earn at least $800,000 more than the average high school graduate over a lifetime.

Meanwhile, if you have younger kids or grandchildren and you are considering the various ways to save for college, the 529 plan is still my favorite vehicle. Under current law, 529 plans allow for tax-advantaged investing for college. Contributions within the account grow tax-free and are not taxed upon withdrawal, provided they are used for qualified higher education costs.

There was some concern after 529 plan changes ended up in President Obama's tax reform plan. Under the proposal, you would no longer be able to withdraw 529 funds on a tax-free basis. (The changes in would apply only to new contributions.) After harsh criticism, the Administration dropped the plan so 529 plans remain safe!

8 Year-End Tax Planning Tips 2014

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Before you shutdown for the holidays, remember that just a few hours spent reviewing your financial life, may help boost your bottom line – and put a dent in your holiday shopping bills! Here are eight ideas to consider, which could minimize taxes before we ring in 2015. 1. Sell winners in taxable accounts. In 2014 married tax filers with taxable income up to $73,800 (singles up to $36,900) still have a zero percent tax rate on long-term capital gains and qualified dividends. If you are at the zero percent capital gains rate now, but expect your income to be higher later, you may want to realize capital gains today at the lower rate. Your taxable income includes the gain, so make sure that you factor that in when you make your decision.

2. Sell losers. If you have investment losses in a taxable account, now is the time to use those losers to your advantage. You can sell losing positions to offset gains that you have taken previously in the year, to minimize your tax hit. If you have more losses than gains, you can deduct up to $3,000 of losses against ordinary income. This is particularly useful, since your ordinary income tax rate is higher than your capital gains tax rate. If you have more than $3,000 of losses, you can carry over that amount to future years.

3. Avoid getting soaked by a wash sale. If you are starting to clean up your non-retirement accounts to take losses, don't get soaked by the "Wash Sale" rule. The IRS won't let you deduct a loss if you buy a "substantially identical" investment within 30 days, what's known as a wash sale. To avoid the wash sale, wait 31 days and repurchase the stock or fund you sold, or replace the security with something that is close, but not the same as the one you sold...hopefully something cheaper, like an index fund.

4. Bunch itemized deductions. Many expenses can be deducted only if they exceed a certain percentage of your adjusted gross income (AGI). Bunching itemized deductible expenses into one year can help you exceed these the 2 percent AGI floor for miscellaneous expenses. To exceed bunch professional fees like legal advice and tax planning, and unreimbursed business expenses such as travel and vehicle costs.

5. Mail your checks for deductible purchases. Procrastinator alert! If you're the type of person who waits until the last minute for everything, take note: To qualify for write-offs of charitable contributions and business expenses, your payments must be postmarked by midnight December 31. The IRS says just writing "December 31" on the check does not automatically qualify you for a deduction; and pledges aren't deductible until paid. Donations made with a credit card are deductible as of the date the account is charged.

6. Fully fund your college savings 529 plan. If you find yourself with a little extra year-end cash, or grandma asks what she can do for your kids, consider a 529 plan. Money saved in these programs grows tax-free and withdrawals used to pay for college sidestep taxes, too. You can invest up to $14,000 in 2014 without incurring a federal gift tax and many states offer state tax deductions for the contributions.

7. Give appreciated stock or fund shares to charity. Get in the holiday spirit, with the help of Uncle Sam. One way to lower your tax bill in April is to donate appreciated securities, like stocks, bonds or mutual funds, to a charity. If you itemize deductions, you'll write off the current market value (not just what you paid for them) and escape taxes on the accumulated gains. The low cost basis does not impact the receiving charity, as long as it is a tax-exempt organization.

8. Use your gift tax exclusion. You can give up to $14,000 to as many people as you wish in 2014, free of gift or estate tax. If you combine gifts with a spouse, you can give up to $28,000 per beneficiary, per year.

#182 Labor Day Show: Kids and Money

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  Labor Day means barbecues, picnics and of course, back to school! That makes it a perfect time to talk to Judith Ward, CFP, senior financial planner and vice president of T. Rowe Price, who joined us to discuss the sixth annual Parents, Kids & Money Survey. The results revealed that parents are freaked out about saving for college and boys and girls are not equally prepared when it comes to learning about money matters.

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In addition to the spirited conversation with Judith, we also discussed life insurance with Jane, and helped Paul and JR get on the right financial path.

Thanks to everyone who participated and to Mark, the BEST producer in the world. Check out Mark's first-producing credit for this CBS Evening News segment that aired recently. If you have a financial question, there are lots of ways to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

#180 Long Term Care, Financial Advisors

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Long term care (LTC) is a vexing issue, as both the cost of care and insurance are expected to rise substantially in the future. Who needs LTC and how can you protect yourself? Tune in to find out!

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According to the 2014 Medicare & You, National Medicare Handbook, at least 70 percent of people over 65 will need long term care services and support at some point in their lifetime.

Unfortunately, many do not realize that Medicare and most health insurance plans, including Medicare Supplement Insurance (Medigap) policies, don’t pay for this type of care, sometimes called “custodial care.” We focused on LTC after caller Leslie asked about self-insurance and then followed up with a number of e-mail questions (thanks to all of the wonderful Newsday readers who wrote in). For more info about the topic, check out "Long Term Care Update: Is 90 the new 70?"

For Regina, Ross and Pete, and everyone else who is thinking about engaging a financial advisor, here are some resources to help:

Thanks to everyone who participated and to Mark, the BEST producer in the world. Check out Mark's first-producing credit for this CBS Evening News segment that aired recently. If you have a financial question, there are lots of ways to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

#179 Relief from the News Cycle

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There's just so much awful news around the world lately...take a break and join us for a few laughs and of course, some great financial advice!

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Thanks to everyone who participated and to Mark, the BEST producer in the world. Check out Mark's first-producing credit for this CBS Evening News segment that aired recently. If you have a financial question, there are lots of ways to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE 

#178 Retirement Planning for 30-Somethings

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"Summer afternoon—summer afternoon; to me those have always been the two most beautiful words in the English language.” - Henry James. It's the first show of August and we're ready to answer your financial questions!

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The first hour of the show was devoted to 30-Somethings Melanie and Tony. As you will hear, the calls start with retirement planning, but we soon expand into other important planning topics.

Later in the show, we discuss annuities for Tim, how to determine your retirement number with Magarito (check out NBER's Choose to Save tool) and how to add bond to your portfolio with Sandra.

Thanks to everyone who participated and to Mark, the BEST producer in the world. Check out Mark's first-producing credit for this CBS Evening News segment that aired recently. If you have a financial question, there are lots of ways to contact us:

  • Call 855-411-JILL and we'll schedule time to get you on the show LIVE