Blog Archives - Page 24 of 33 - Confidence Wealth & Insurance Solutions

Confidence Wealth & Insurance Solutions April 30, 2015 No Comments

Three College Savings Strategies with Tax Advantages

To limit borrowing at college time, it’s smart to start saving as soon as possible. But where should you put your money? In the college savings game, you should generally opt for tax-advantaged strategies whenever possible because any money you save on taxes is more money available for your savings fund.

529 plans

A 529 plan is a savings vehicle designed specifically for college that offers federal and state tax benefits if certain conditions are met. Anyone can contribute to a 529 plan, and lifetime contribution limits, which vary by state, are high–typically $300,000 and up.

Contributions to a 529 plan accumulate tax deferred at the federal level, and earnings are tax free if they’re used to pay the beneficiary’s qualified education expenses. Many states also offer their own 529 plan tax benefits, such as an income tax deduction for contributions and tax-free earnings. However, if a withdrawal is used for a non-educational expense, the earnings portion is subject to federal income tax and a 10% federal penalty (and possibly state tax).

529 plans offer a unique savings feature: accelerated gifting. Specifically, a lump-sum gift of up to five times the annual gift tax exclusion ($14,000 in 2015) is allowed in a single year per beneficiary, which means that individuals can make a lump-sum gift of up to $70,000 and married couples can gift up to $140,000. No gift tax will be owed if the gift is treated as having been made in equal installments over a five-year period and no other gifts are made to that beneficiary during the five years. This can be a favorable way for grandparents to contribute to their grandchildren’s education.

Also, starting in 2015, account owners can change the investment option on their existing 529 account funds twice per year (prior to 2015, the rule was once per year).

¹ Survey of grandchildren and their grandparents performed by KRC Research on behalf of TIAA-CREF, April 2014.
² CollegeBoard Trends in College Pricing 2013 http://trends.collegeboard.org
³ U.S. Department of Education, National Center for Education Statistics (2013). Digest of Education Statistics, 2012 http://nces.ed.gov/fastfacts/display.asp?id=76
Image source: https://www.aarpcollegesavings.com/help-your-grandchildren-save-college

Note: Investors should consider the investment objectives, risks, fees, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. Finally, there is the risk that investments may lose money or not perform well enough to cover college costs as anticipated.

Coverdell education savings accounts

A Coverdell education savings account (ESA) lets you contribute up to $2,000 per year for a child’s college expenses if the child (beneficiary) is under age 18 and your modified adjusted gross income in 2015 is less than $220,000 if married filing jointly and less than $110,000 if a single filer.

Image source: http://lajollamom.com/scholarshare-529-california-college-savings-plans/

The federal tax treatment of a Coverdell account is exactly the same as a 529 plan; contributions accumulate tax deferred and earnings are tax free when used to pay the beneficiary’s qualified education expenses. And if a withdrawal is used for a non-educational expense, the earnings portion of the withdrawal is subject to income tax and a 10% penalty.

The $2,000 annual limit makes Coverdell ESAs less suitable as a way to accumulate significant sums for college, though a Coverdell account might be useful as a supplement to another college savings strategy.

Image source: http://lajollamom.com/scholarshare-529-california-college-savings-plans/

Roth IRAs

Though traditionally used for retirement savings, Roth IRAs are an increasingly favored way for parents to save for college. Contributions can be withdrawn at any time and are always tax free (because contributions to a Roth IRA are made with after-tax dollars). For parents age 59½ and older, a withdrawal of earnings is also tax free if the account has been open for at least five years. For parents younger than 59½, a withdrawal of earnings–typically subject to income tax and a 10% premature distribution penalty tax–is spared the 10% penalty if the withdrawal is used to pay a child’s college expenses.

Roth IRAs offer some flexibility over 529 plans and Coverdell ESAs. First, Roth savers won’t be penalized for using the money for something other than college. Second, federal and college financial aid formulas do not consider the value of Roth IRAs, or any retirement accounts, when determining financial need. On the flip side, using Roth funds for college means you’ll have less available for retirement. To be eligible to contribute up to the annual limit to a Roth IRA, your modified adjusted gross income in 2015 must be less than $183,000 if married filing jointly and less than $116,000 if a single filer (a reduced contribution amount is allowed at incomes slightly above these levels).

And here’s another way to use a Roth IRA: If a student is working and has earned income, he or she can open a Roth IRA. Contributions will be available for college costs if needed, yet the funds won’t be counted against the student for financial aid purposes.

Source:
http://cgi.money.cnn.com/tools/collegeplanner/collegeplanner.jsp
http://blog.classesandcareers.com/education/2014/01/08/infographic-saving-for-college-tuition-expenses/

Scenario #1: If you start saving at your child’s birth, you must put away $2,121 per year into a 529 plan, and then other plans once that’s maxed out, in order to have enough for your child to begin college at 18 and finish in four years.

Scenario #2: If you start saving at your child’s sixth birthday, you must put away $3,059 per year into a 529 plan, and then other plans once that’s maxed out, in order to have enough for your child to begin college at 18 and finish in four years.

Scenario #3: If you start saving at your child’s 12th birthday, you must put away $5,101 per year into a 529 plan, and then other plans once that’s maxed out, in order to have enough for your child to begin college at 18 and finish in four years.

Confidence Wealth & Insurance Solutions April 23, 2015 No Comments

Millennials vs. Boomers: How Wide Is the Gap?

Texting versus email (or even snail mail). Angry Birds versus Monopoly. “The Theory of Everything” versus “The Sound of Music.” “Dancing with the Stars” versus “American Bandstand.”

It’s no secret that there are a lot of differences between baby boomers, born between 1946-1964, and millennials, who were generally born after 1980 (though there is disagreement over the precise time frame for millennials). But when it comes to finances, there may not be as much difference in some areas as you might expect. See if you can guess which generation is more likely to have made the following statements.

Boomer or millennial?

1) I have enough money to lead the life I want, or believe I will in the future.

2) My high school degree has increased my potential earning power.

3) I rely on my checking account to pay for my day-to-day purchases.

4) I consider myself a conservative investor.

5) Generally speaking, most people can be trusted.

6) I’m worried that I won’t be able to pay off the debts that I owe.

The answers

1) Millennials. According to a 2014 survey by the Pew Research Center, millennials were more optimistic about their finances than any other generational cohort, including baby boomers. Roughly 85% of millennials said they either currently had enough to meet their financial needs or expected to be able to live the lives they want in the future; that’s substantially higher than the 60% of boomers who said the same thing. Although a higher percentage of boomers–45%–said they currently have enough to meet their needs, only 32% of millennials felt they had enough money right now, though another 53% were hopeful about their financial futures.
Source: “Millennials in Adulthood,” Pew Research Center, 2014

2) Boomers. The ability of a high school education to provide an income has dropped since the boomers’ last senior prom, while a college education has never been more valuable. In 1979, the typical high school graduate’s earnings were 77% of a college graduate’s; in 2013, millennials with a high school diploma earned only 62% of what a college graduate did. And 22% of millennials with only a high school degree were living in poverty in 2013; back in 1979, the figure for boomers at that age was 7%.
Source: “The Rising Cost of Not Going to College,” Pew Research Center, 2014

3) Boomers. Not surprisingly, millennials are far more likely than boomers to use alternative payment methods for day-to-day expenses. A study by the FINRA Investor Education Foundation found that millennials are almost twice as likely as boomers to use prepaid debit cards (31% compared to 16% of boomers). They’re also more than six times as likely to use mobile payment methods such as Apple Pay or Google Wallet; 13% of milliennials reported using mobile methods, while only 2% of boomers had done so.
Source: “The Financial Capability of Young Adults–A Generational View,” FINRA Foundation Financial Capability Insights, FINRA Investor Education Foundation, 2014

4) Millennials. You might think that with thousands of baby boomers retiring every day, the boomers might be the cautious ones. But in one survey of U.S. investors, only 31% of boomers identified themselves as conservative investors. By contrast, 43% of millennials described themselves as conservative when it came to investing. The survey also found that millennials outscored boomers on whether they wanted to leave money to their children (40% vs. 25%) and in wanting to improve their understanding of investing (44% vs. 38%).
Source: Accenture, “Generation D: An Emerging and Important Investor Segment,” 2013

5) Boomers. Millennials may have been around the track fewer times than boomers have, but their experiences seem to have given them a more jaundiced view of human nature. In the Pew Research “Millennials in Adulthood” survey, only 19% of millennials said most people can be trusted; with boomers, that percentage was 31%. However, millennials were slightly more upbeat about the future of the country; 49% of millennials said the country’s best years lie ahead, while only 44% of boomers agreed.

6) Millennials. However, the difference between the generations might not be as significant as you might think. In the FINRA Foundation financial capability study, 55% of millennials with student loans said they were concerned about being able to pay off their debt. That’s not much higher than the 50% of boomers who were worried about debt repayment.

Important Disclosure

Confidence Wealth & Insurance Solutions April 5, 2015 No Comments

Have an EggCiting day!

I have good news and bad news.

The good news is that today we can eat all the chocolate we want :)

The bad news is that our waistlines may suffer :( Wishing you good luck with the egg hunt this year!

Here’s hoping that you find the bunny’s secret stash!

Have yourself a hoppy and happy Sunday!

Confidence Wealth & Insurance Solutions March 31, 2015 No Comments

The Cost of Waiting to Save

Starting to save early means your money has more time to go to work for you. Even if you can only afford to set aside small amounts, compounding earnings can make them really add up. It’s never too late to begin, but as this illustration shows, the sooner you start, the less you may need to rely solely on your own savings to build your total nest egg.

This illustration assumes annual investments made at the end of each year through age 65 and a 6% fixed annual rate of return. The rate of return on your actual investment portfolio will be different, and will vary over time, according to actual market performance. This is particularly true for long-term investments. It is important to note that investments offering the potential for higher rates of return also involve a higher degree of risk to principal.

The examples do not take into account the impact of taxes or inflation; if they did, the amounts would have been lower. They are intended as hypothetical illustrations of mathematical principles and should not be considered financial advice.

All investing involves risks, including the possible loss of principal, and there can be no guarantee that any strategy will be successful. Past performance is no guarantee of future results.

Confidence Wealth & Insurance Solutions March 21, 2015 No Comments

The Impact of Losses and Gains

If you know anything about the market, you should know that the market has both losses and gains. What you might not know is that losses can have more of an impact than gains on the value of your portfolio. Consider this purely hypothetical example. Let’s imagine that you have a portfolio of $100,000, but then you have a 25 percent gain. That’s $25,000. So, the value of your portfolio after one year is $125,000. [

Now let’s say, the next year the market’s down. Let’s say it’s only down 20 percent. Well, what’s 20 percent of $125,000.00? It’s $25,000.

So, now you’re back to $100,000. You were up 25 percent and then your portfolio experienced a 20 percent loss. You weren’t down 25 percent, just 20 percent, but mathematically, it turns out that even though your down year was not as big as your up year, you ended up back to even.

In fact, you could say that your average; a 25 percent gain, minus a 20 percent loss equals 5 percent divided by the 2 years. You’ve averaged plus 2 1/2 percent return, right? You actually averaged a positive rate of return. But, how much did you earn? Nothing. You had a zero actual rate of return. That’s because when it comes to investments, losses can have a more significant impact on the ending result than gains.

If you experience a loss, in this case 20 percent, you need 25 percent just to get back to even. It doesn’t matter in what order the gains and losses occur. A bigger gain is needed to offset a smaller loss.

This is provided for informational purposes only and should not be used as the basis for any financial decisions.

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