Your 529 Has Company: Other ways to fund a child’s education

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Saving for college is important if you want to assist your children in furthering their education. 529 plans are well known and commonly discussed but we rarely hear about other ways to save for a child's education. This is where the Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) become relevant. This draft legislation has been around for decades and most states have enacted it, thereby creating what are often nicknamed UGMA and UTMA accounts. What are the basic rules of UGMA and UTMA accounts? UGMA/UTMA accounts allow you to save for a child’s expenses. These accounts can be used for college tuition, or they can cover a wide array of other expenses. This is a benefit UTMA/UGMA accounts have over 529 plans. For instance, UTMA/UGMA account assets can be used to buy a child a car while a 529 plan cannot.  These accounts can be set...

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Social Security benefits rise by most in three years

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Social Security recipients have a rare surprise to look forward to in 2018: a 2% increase in benefits, the Social Security Administration announced this month. It will be the biggest increase in benefits since 2011, when those collecting Social Security benefits saw a 3.6% increase. Benefit hikes are tied to changes in a measure of prices for food, housing, clothing, transportation, energy, medical care, recreation, and education. The increase of about $27 a month will boost the average retired worker’s benefit to $1,404, Social Security said. That will be a welcome change compared to the last two years: benefits were unchanged in 2016 and went up by just 0.3% this year. Increases in Social Security benefits have been relatively modest since U.S. consumer inflation was tamed in the mid-1980s. Before that there were several double-digit increases, with the biggest being a 14.3% jump in benefits in 1980. Social Security said another change will affect...

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Most stocks don’t even beat Treasury Bills

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Stocks outperform bonds over the long-term, right? Isn’t that the message every investing article has been drilling into us for many years? The answer is, yes, it’s true, but only in the aggregate: most individual stocks have not beaten the low, short-term interest rates offered on U.S. Treasury Bills. The stock market has done better than T-Bills over the years, but that’s only because a handful of stocks have had disproportionately spectacular returns, found a study by a professor at Arizona State University. “The entire net gain in the U.S. stock market since 1926 is attributable to the best-performing 4 percent of stocks, as the other 96 percent collectively matched one-month Treasury Bills,” wrote Hendrik Bessembinder, a finance professor in the W. P. Carey School of Business. Unfortunately, some investors draw the wrong conclusion from this research. They argue Bessembinder’s findings suggest that investors should actively search for the few stocks that will...

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What’s the “skinny” on tax reform?

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On Wednesday, the GOP announced details of their tax reform proposal.  The proposal provides insight into changes that are being discussed but still leaves many questions unanswered.  Let’s go over some of the big points.   1. Reduction in tax brackets and tax rates This is a big change as it reduces the number of brackets from seven down to three and lowers the top bracket to 35%.  Congressional committees working on the reforms left room to add a fourth bracket at a higher rate, but that remains to be seen. The skinny: It depends on how wide each bracket extends, but this will likely lower taxes for many people.   2. Doubling the standard deduction to $12,000 for single filers and $24,000 for married couples There will absolutely be winners and losers created from this change.  The itemized deductions calculation would simply be mortgage interest and charitable contributions, which for many people will not result in...

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Home Equity Loan or 401k Loan? Both Have Risks

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HELOC: A home equity line of credit (HELOC) is generally used to fund home improvements or for home-related emergencies. You can open a home equity line of credit and use it for as long as the draw period lasts, this is typically 5 to 10 years. The draw period is the time during which you can borrow from the HELOC. After the draw period, the repayment period begins, this typically lasts 20 years. The credit limit is based on the amount of equity that you have in the home, typically up to 85% of the value minus the amount you owe. This line of credit will often have a more favorable interest rate because it is backed with your home as collateral. HELOC’s usually have adjustable interest rates which fluctuate with the prime rate. Interest on your HELOC may be tax deductible, just like your mortgage interest. Some HELOC’s will have associated...

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The Federal Reserve’s inflation dilemma

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The Federal Reserve Board slashed short-term interest rates repeatedly during the 2008 financial crisis, finally reaching an unprecedented low of 0.25% for the post World War II period. The standard theory said that low interest rates would stimulate borrowing and growth, helping the United States to recover from a severe recession. The interest rate cuts and other actions taken by the Fed during that crisis seem to have worked, albeit at a snail’s pace. Ten years after the recession economic output has hit respectable levels, although it remains weak by the standards of previous decades. Unemployment has dropped sharply. The second part of the standard theory of interest rates, economic output, and inflation suggests that the Fed should be raising interest rates steadily at this point in order to keep the economy from overheating and causing out-of-control inflation. But something funny happened along the way: inflation refused to cooperate. It has remained stuck...

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How Much Do I Need In My 401k To Retire?

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Retirement is a relatively new concept and before 1960, it didn’t really exist for most people.  We’re still getting used to the idea of living off our savings during the golden years.  This also begs the question “How much can I safely spend from my savings without running out of money in retirement?’ Unfortunately, we cannot answer this question perfectly because we don’t know three very important things about the future: How long are you going to live? What annualized return will your money earn in retirement? In what sequence will you get these returns? Many people have said they will simply “live off the interest” in retirement.  Well, if you ladder a bunch of five year CDs you’re talking about 2.25% interest or $22,500 on $1 million in savings.  Oh, and don’t forget that the latest inflation rate according to the Bureau of Labor Statistics is 1.7% for the 12 months ending in July...

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Protecting Your Personal Information After the Equifax Breach

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On September 7, Equifax, one of the country’s largest credit monitoring bureaus, announced they suffered a massive data breach, exposing millions of consumers’ personal information to hackers. Potentially, anyone with a credit history could be a victim of this unprecedented cybercrime. According to Equifax, the breach lasted from mid-May through July and approximately 143 million consumers were exposed.  Hackers accessed people’s names, Social Security numbers, birth dates, addresses and in some cases driver’s license numbers, the corporation reported.  Also included in the theft were credit card numbers for 209,000 people and certain dispute documents for another 182,000 U.S. consumers. As financial advisors, we understand the importance of keeping personally identifiable information private and protecting against increasing cyber threats.  In light of the Equifax incident here are the steps we recommend our clients take to protect their identity and accounts: Find out if you were exposed. Click on this link https://www.equifaxsecurity2017.com/potential-impact/ and follow the simple...

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How can you help your grandchildren pay for college?

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Navigating the college landscape for students and parents can be frustrating.  Gone are the days when students could work part time jobs to cover most or all of their tuition.  When students graduate, they often have a hard time paying off their loans. This forces them to delay other purchases, like owning a home. If you are a grandparent who is in a financial position to ease the burden on your grandchildren, here are some ways to help. Pay Tuition Directly In 2017, the annual gift tax exclusion is $14,000 per person. This means you can give up to $14,000 each year to as many people as you want without filing a gift tax return. However, if you would like to help your grandchildren with tuition bills you can pay the school directly. You will not be limited to a particular dollar amount because the Internal Revenue Code allows an unlimited gift...

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Small Business Owner? What’s the right retirement plan?

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In a previous post, we discussed the issues faced by business owners seeking to extract profits from their firms on a tax-advantaged basis through a qualified retirement plan and discussed the Safe Harbor 401-k Plan design.   In this blog post, let’s look at additional plan design opportunities well suited for self-employed business owners with few or no employees. This business could be someone’s primary occupation or a lucrative side business.  In either regard, a number of options exist that allow the business owner to shelter income from taxation and invest for retirement.  In our experience, individuals often do not look past the obvious choices and miss out on some interesting opportunities. A common default choice is the SEP IRA.  A self-employed business owner may contribute 25% of their net profits to a SEP IRA plan up to a maximum dollar amount of $54,000 in 2017.   It is a very simple plan...

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