Category: Smart Money Tips

Case Studies: How We’ve Helped Clients

Posted on December 17, 2015 by - Smart Money Tips

handshake

At Archer Investment Management, I’ve spent nearly two decades specializing in serving successful professionals and couples, providing comprehensive investment guidance and personalized care and attention. Whether they’ve built or inherited their wealth, they want to ensure they are maximizing its potential and as well building a secure financial future for themselves.

From personalized investment management to executive compensation planning, my comprehensive services are designed to address all of my clients’ complex needs and guide them along their financial journey. My ultimate goal is to offer people financial peace of mind and confidence in our abilities and advice.

Proactive financial planning and customized investment strategies can make a significant impact on your financial future. Here are three recent examples of clients I have helped.

CASE STUDY #1: TACKLING COMPLEX EXECUTIVE COMPENSATION

I work with many LGBT couples who want to ensure their partner or spouse is taken care of should one of them prematurely pass. One such individual is a successful corporate executive who is receiving ongoing and extensive stock options and restricted stock awards through his company. With so many opportunities, he wasn’t sure how to best handle them. He was also concerned with minimizing income taxes due to his high income, and ensuring his new spouse would be taken care of after he passed.

Working together, we started with their estate. Collaborating with a knowledgeable estate attorney, I ensured they developed an estate plan that ensured his husband had all the proper legal rights and protections and was named the beneficiary on their investment accounts. This would ensure the client’s wishes were carried out.

Next, we tackled his investments. After collecting and reporting the missing cost basis on years of company stock positions, we developed a plan with his CPA and company benefits administrator. Ultimately, we set up a multi-year, systematic exercise schedule of incentive stock options and restricted stock awards to smooth his income, minimize ongoing taxes, and to mitigate his single stock risk to his employer as new options are granted in the future.

Along with consolidating his company stock positions with the rest of his portfolio to simplify his finances, I helped him plan for his cash flow needs to cover his ongoing taxes from his investment plan and diversified the sales proceeds into a global portfolio to lower his high investment risk. By the end, the client had an up-to-date estate plan, an understanding of his cash flow and financial goals, and a great CPA who could assist with sophisticated executive compensation tax issues. On an ongoing basis, we monitor his company stock and adjust our strategy as stock prices increase. He continues to minimize his taxes and maximize his corporate retirement plan contributions to make the most of his savings.

CASE STUDY #2: BUILDING FINANCIAL CONFIDENCE

I work with many successful working professionals, including attorneys. One very intelligent lawyer I work with had an overwhelming and confusing financial picture. He had accounts with multiple advisors, various insurance policies, complex legal partnership deferred compensation and ownership benefits, children from previous marriages who required financial support, an upcoming wedding, and a desire to purchase a second home. Needless to say, he had trouble keeping things organized and knowing what steps to make.

To help, we embarked on establishing an in-depth financial plan. To assist with the purchase of the new high-end residence he wanted, I helped him determine how much money he could afford to spend, and I provided a letter of reference to his Homeowners Association board. Explaining that he had a professionally-developed financial plan in place was valuable knowledge for the board. Along with projecting second home expenses, we also reviewed college savings projections for all of his children to ensure 529 college savings plans were fully funded and invested in low-cost, age-based portfolios.

Next, we tackled his business needs. This included establishing a baseline valuation of his firm partnership share, discussing partnership buy-in loan payoff options, maximizing employer retirement plan contributions to take advantage of the tax deferrals, and exploring the benefits and risks of using his firm’s deferred compensation plan. We also analyzed his insurance needs and rolled over multiple IRAs, consolidating them at one custodian to simplify his portfolio. The result is a portfolio with lower costs and more predictable long-term investment returns.

Through this process, we integrated all of his financial assets, files, and financial plan into a secure client portal so he can keep track of his entire financial life in one location. As a result, the client has a stronger grasp on his financial picture and feels more confident in his future. We continue educating him on his complex finances, how his portfolio is invested, and how to manage his wealth.

CASE STUDY #3: MANAGING AN UNEXPECTED INHERITANCE

While an influx of wealth is usually a good surprise, it’s a surprise nonetheless. One of my clients is a couple with a parent who suddenly passed away and they became first-time executors of a large estate.

The thoughtful and judicious couple had always been very cautious with money, saved well, and had long followed my financial planning advice as they built their wealth. In a sense, they were doing everything right. Upon receiving the large inheritance, they didn’t know how best to manage it and wanted to make sure they didn’t squander it. As investors with a long-term focus, they turned to me to help them efficiently manage and grow the wealth.

We began by working through some complex family issues that arose as the estate was being administered. From there, we focused on developing a detailed financial plan that reflected their goals for their new, significantly larger investment portfolio.

One important goal was for the wife to be able to leave her stressful job and stay home while their two children were still in school. We put these new lifestyle needs at the forefront of their financial strategies. This involved budgeting, implementing an accelerated debt repayment plan, updating their estate plan, fully funding their two children’s 529 college savings plan, and taking proper inherited IRA distributions.

With their new plan in place, the family feels much more confident in their financial future. They still prefer to live frugally, but they know they can live comfortably and enjoy some of their wealth through more family vacations.

HELPING YOU

I work with a broad range of clients facing unique needs and circumstances. Whatever the situation, I strive to address them through a proactive process that focuses on understanding your personal situation, addressing your concerns, and creating strategies that help you work toward your goals.

If you’re experiencing a situation similar to one of these case studies or face an entirely different need, I encourage you to reach out to me. I can evaluate your situation and share how I can help. There are no obligations, and your consultation is on us.

You can easily book an appointment with me online here. 

I look forward to speaking with you.

My Upcoming Cycling Trip and Your Retirement: How Are They Alike?

Posted on December 17, 2015 by - Smart Money Tips

mountain

You may think I’m crazy, but I’m about to embark on the hardest physical challenge of my life: The Gran Canaria & Tenerife Ride Camp. Some of you may remember that I rode in the climbing camp at the Tour de France two years ago, so this is right up my alley. Here’s what the trip will look like: 7 days, 426 miles, and 60,000 feet of climbing. That’s like riding from Chicago to Pittsburgh while climbing Mt. Everest twice…all in one week!

This camp is the annual spring mecca for top Tour de France contenders, and it will not be a leisurely ride through the park. I’ll face immense climbs, such as the Valley of Tears (the name says it all) and Pico de las Nieves. The most difficult, though, will be the famous inactive volcano, El Teide. It’s the longest continuous climb in Europe, with an incline of 5-7% as it rises to over 12,200 feet.

How am I preparing myself for this enormous challenge? How does a physical race compare to your finances?

SET SHORT-TERM GOALS

I’m approaching my training the same way I work through financial planning with my clients: breaking big, long-term goals down into smaller, achievable pieces.  We all know that saving for retirement is a long-term goal, but having short-term goals along the way can help you stay focused to make your dreams seem attainable. Planning for retirement requires mental fortitude!

As a real-life example of this concept, last weekend I completed a 112 mile, eight-hour climbing ride that, taken as a whole, seemed absurd and unachievable.  However, I had already ridden each of the hills on the course and completed a relatively flat century ride, so I knew I could complete both the distance and the hills. Mentally, I broke the route up into three 35 mile segments and focused on one loop at a time as I rode.

I kept energy in reserve, knowing that I would need it for the hardest climbs at the end of the ride. When it comes to saving for your future, you will also require more focus, energy, and resources as you get closer to your retirement date. Do everything you can to ensure that you stay strong after decades of working hard.

As I train for the Gran Canaria camp, I’m tackling increasingly difficult goals each week, taking baby steps to prevent injury and strengthen myself physically and mentally. I’m planning to build my mileage and climbing each week while staying just within my physical abilities.

HAVE THE RIGHT SUPPORT

One thing that is crucial to my success is having the best equipment and professional support. I will ride a light, carbon fiber Bianchi climbing bike with an excellent seat. I will also have access to an experienced support team to assist me when I need food, water, guidance, and encouragement.

In the same way, you will be most successful with your financial plan if you have the proper support and tools. You may be okay doing it on your own, but if you have professionals who can guide and encourage you as well as educate you, the chance of reaching your goals is higher.

Just like I did at the Tour de France a few years ago, I look forward to riding and living with cyclists from all over the world. I’ve met athletes from Australia, England, France, Spain, and Italy on previous trips and these encounters always remind me how small the world is and how similar people are, no matter where they come from. Cycling trips like these make me feel small and big at the same time as I experience the elation of successfully summiting a massive climb in a foreign land while simultaneously hearing jubilation in four different languages. Surrounding yourself with people who are on a similar journey as yourself can create a community that will strengthen you when things get rough.

PREPARE FOR THE DESCENT

Most people don’t know this, but the descent is more difficult than the climb. This is when my equipment, preparation, and support team are essential. The absolute focus and preparation it takes to descend safely requires me to clear my mind of everything else and stick to my riding plan no matter what. Descending at speed for long distances on unfamiliar, foreign roads is scary. Knowing my own riding ability and tolerance for risk is of absolute importance to complete my ride in one piece. 

As you are saving for retirement, you can expect to experience market volatility and multiple downturns. When these situations arise, stay calm, rely on your support team, and focus on the solid strategy that you have created with your advisor. This is how you keep your portfolio safe when the markets go haywire.

BE PROUD OF YOURSELF

As you get closer to your goals and see growth in your portfolio, be proud of yourself for your determination and hard work. Find ways to reward yourself for reaching your goals!

My reward for all of this training is a week on an exotic Spanish island that I would probably never visit if it weren’t for this cycling trip.

When was the last time you pushed yourself to do something that scared you? Have you ever taken the time to evaluate your goals, your support team, and your “equipment”? If you think your retirement “trek” is missing something, I’d love to chat with you! Click here to schedule a phone call.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

VIDEO: My Thrilling Birthday Plane Ride

Posted on December 17, 2015 by - Smart Money Tips

plane

VIDEO: My Thrilling Birthday Plane Ride

VIDEO: My Thrilling Birthday Plane Ride — Archer Investment Management

Remember that not all of your financial planning goals have to be about saving for college or retirement. In fact, remembering to live (and even scare yourself a little!) along the way is highly recommended. To celebrate my birthday this year, I took a ride with a Navy fighter pilot to pull some intense g-forces in a fantastic old aerobatic biplane over the water outside San Diego. We finished with a tour of the city and a low, fast buzz up the coastline. Check out the video below!

What Do the Elections Results Mean for LGBT Financial Planning?

Posted on December 17, 2015 by - Smart Money Tips

lgbt financial planning

This year’s presidential election results were full of mixed emotions, but those within the LGBT community were particularly stressed and concerned. Pundits have claimed President-elect Donald Trump will be an anti-LGBT president, and several times, he himself has stated he would “strongly consider” overturning the Supreme Court’s 2015 decision that allowed same-sex couples the right to marry. Vice President-elect Mike Pence is also known to be strongly opposed to same-sex marriage.

Now that Trump is officially our President-elect, same-sex couples worry their rights are about to change. If the Supreme Court’s decision were repealed, would a same-sex couple’s marriage become unlawful and no longer be recognized as legal? Could couples marry in states that do still recognize the union? Will it now be too late for same-sex couples to marry in the coming years?

Unfortunately, we just don’t know until President-elect Trump announces his next move. However, we can look ahead and see what could potentially happen.

UNDERSTANDING THE WORST OUTCOME

While we don’t want to be doomsayers and assume the worst, it’s important to understand the financial implications same-sex couples face should their marriage no longer be recognized by the government.

Social Security

If your marriage isn’t recognized, your Social Security benefits will be more limited. Same-sex couples who aren’t or can’t be married will not be eligible for the spousal benefit, which can help couples when both are living but one spouse earns more than the other. Couples could lose an average of $780 per month. Additionally, couples won’t be eligible for the survivor benefit, which is provided to the surviving individual when their spouse dies.

Health Benefits & Medical Decisions

Same-sex couples may no longer be eligible to receive health benefits from their partner’s company as a married couple can. This will depend on the individual company. On a positive note, 66% of Fortune 500 companies offer health and retirement benefits to same-sex partners — even in states that don’t recognize the marriage.

Additionally, if a partner in a same-sex relationship fell ill, the other partner may not be legally allowed to make important health decisions on their behalf.

Estate Planning

If you were to die, your closest living relative, such as your spouse, has legal rights to your inheritance. But if your marriage isn’t recognized, that may not be the case. This may also be true for the survivor benefit protection within defined benefit plans. Same-sex couples would need to make sure they include their partner in their will for them to receive an inheritance.

Income Taxes

Filing taxes is already tricky for same-sex couples who are married but live in a state that doesn’t recognize same-sex marriage. However, if same-sex marriage is no longer legal, couples may no longer be able to file jointly and won’t be eligible for several tax benefits.

PLANNING FOR THE FUTURE

While this could potentially happen, it’s important not to panic or make emotionally-driven financial decisions. It’s more important to ensure you have your ducks in a row and a plan in place should things change. Here are a few steps you and your partner can take:

  1. Review your beneficiary designations. On all life insurance and retirement plan policies, make sure you have the correct beneficiary listed and, if not, update immediately.
  2. Compile your estate planning documents. Beyond creating or updating a will, make sure you acknowledge your partner in other essential documents, including durable power of attorney, healthcare power of attorney, letter of intent, living will, and advanced medical directive. This can help provide your partner more power when it comes to decision-making should you be unable to make decisions yourself.
  3. Get your financial documents in order. Review to see which accounts include both of your names. If one partner isn’t listed, you may want to add them to the account. Make sure both of you know where all-important financial and legal documents are stored, including account passwords.

NEXT STEPS

Whatever you do, don’t make any extreme changes. Ultimately nothing has changed yet and nothing may ever change regarding same-sex marriage. If you have your financial strategies and paperwork in order, you’re on the right track.

However, it’s also understandable if you’re feeling nervous or uncertain. You may not know if you have everything in order, or you may wonder if there are steps you need to take. This is when it can be helpful to speak with a financial advisor. As an advisor who frequently works with same-sex couples, I understand the common questions and concerns you face. I’d be happy to meet with you to discuss your situation and how I may be able to help. You can easily book an appointment with me online here. I look forward to speaking with you.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

What Happens If I Don’t Use All of My 529 Plan Savings?

Posted on December 17, 2015 by - Smart Money Tips

books

If you missed the earlier posts in this series, find them here: Getting Started Simply: How the College Financial Aid Process Works, Long-Term Strategies for Paying for College & 529 College Savings Plans.

I speak to many clients who are worried about saving into 529 college savings plans. They fear their child may not use the money because of earned scholarships, attending school overseas, or not going to college. Below is a brief Q&A and synopsis of your options, if you’re afraid of finding yourself with the problem of excess 529 savings and having to take non-qualified distributions.

As a quick review, contributions to your 529 plan grow tax deferred and earnings are tax free, if the money is used to pay the beneficiary’s qualified education expenses. The earnings portion of any withdrawal not used for qualified college costs is taxed at the recipient’s income tax rate and subject to a 10% penalty.

Qualified 529 plan withdrawals include:

  • Tuition and fees
  • Books
  • Equipment required for course enrollment (including special needs equipment)
  • Some room and board expenses

Some easily mistaken non-qualified withdrawals include:

  • Transportation costs
  • Computers (unless the school requires them)
  • Student loan repayments

Q: What is the penalty for using leftover 529 plan funds for non-qualified expenses?

A: The first rule to know is that only the earnings portion of a non-qualified withdrawal is subject to a 10% withdrawal penalty. Distributions are allocated between principal and earnings on a pro-rata basis. That means that your withdrawal is divided into contribution and earnings based on the following formula: Account Contributions / Account Value x Distribution = Contribution Portion. Your contributions (the amount you originally deposited) will never incur a penalty.

Q: Are there exceptions to the 10% penalty rule for scholarships and other circumstances?

A: Yes! If the 529 account beneficiary receives a scholarship or is admitted to a U.S. Military Academy, the amount of the scholarship or value of the military education may be withdrawn from the 529 account without incurring the 10% penalty. Additionally, if the beneficiary dies or becomes disabled, no 10% penalty applies to your withdrawals.

Note: In all of these cases, all earnings on non-qualified distributions will still be subject to tax as ordinary income at your tax rate. However, some 529 plans allow you to direct the withdrawal to the beneficiary, which would presumably keep it in a lower tax bracket. In addition, if you were able to deduct your original contributions on your state income tax return, you will generally have to report additional state “recapture” income.

Q: What are the alternatives to incurring penalties for taking non-qualified distributions from 529 funds?

A: Consider changing the beneficiary to another qualifying family member who may attend college, or continue to grow the funds in the account in case the original beneficiary wants to pursue graduate school later. You also might make yourself the beneficiary and further your own education.

Source: SavingForCollege.com

Make the Most of Your 401(k)

Posted on December 17, 2015 by - Smart Money Tips

make the most of your 401k

As Americans increasingly rely on their 401(k) retirement plans to secure their financial future, understanding the nuances and benefits of these plans is crucial, especially for Microsoft employees and others planning their retirement savings.

What is a 401(k) plan?

A 401(k) plan is a retirement savings account funded by employees. For 2024, employees can contribute up to $19,500 (or $26,000 for those aged 50 and older) to their 401(k) accounts. These contributions can be made on a pretax basis, reducing taxable income, or through a Roth 401(k), where contributions are after-tax but withdrawals are tax-free.

Employer Contributions and Matching

One of the significant advantages of a 401(k) plan is employer matching. Employers often match a portion of employee contributions, such as 50% of the first 6% of salary contributed. This employer match enhances retirement savings significantly, subject to vesting periods that ensure employees receive full entitlement to these contributions over time.

401(k) Contribution Limits and Tax Implications

Total contributions, including employer matches, cannot exceed $61,000 in 2024. Contributions to traditional 401(k) plans grow tax-deferred until withdrawal, where they are taxed as ordinary income. In contrast, Roth 401(k) contributions are taxed upfront, but withdrawals are tax-free during retirement.

Distributions and Withdrawal Options

Withdrawals from 401(k) plans are typically penalty-free after age 59½, though early withdrawals may incur a 10% penalty. Employees leaving their jobs can roll over their 401(k) balances into an IRA or their new employer’s plan, avoiding immediate tax consequences.

Borrowing from Your 401(k)

Many plans allow borrowing against vested balances, up to $50,000 or 50% of the account balance, whichever is less. Loans must typically be repaid within five years to avoid penalties, with unpaid amounts treated as taxable distributions.

Investment Options and Flexibility

401(k) plans offer diverse investment options, including stocks, bonds, and cash equivalents. This flexibility allows employees to tailor their investments based on risk tolerance and retirement goals, ensuring a well-rounded portfolio.

Key Takeaways for Microsoft Employees

For Microsoft employees, maximizing employer matches and understanding Roth 401(k) benefits can optimize retirement savings. Consulting with a financial advisor or plan administrator can provide personalized guidance on leveraging 401(k) plans for long-term financial security.

A 401(k) plan remains a cornerstone of retirement planning, offering tax advantages, investment flexibility, and employer contributions that bolster financial futures. Whether choosing between traditional or Roth IRA options, prudent management of 401(k) plans is essential for achieving retirement goals.

Source/Disclaimer: Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund may seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Diversification and asset allocation do not ensure a profit or protect against a loss. Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

© 2016 Wealth Management Systems Inc. All rights reserved.

529 College Savings Plans

Posted on December 17, 2015 by - Smart Money Tips

529 college savings plan

If you missed the first posts in this series, find them here: “Getting Started Simply: How the College Financial Aid Process Works” & “Long-Term Strategies for Paying for College“

Section 529 plans are tax-advantaged college savings vehicles and one of the most popular ways to save for college today. I recommend them to clients often because they offer a unique combination of features that no other college savings vehicle can match.

What are the advantages of 529 plans?

  • Federal tax advantages: Contributions to your account grow tax deferred and earnings are tax free if the money is used to pay the beneficiary’s qualified education expenses. The earnings portion of any withdrawal not used for college expenses is taxed at the recipient’s rate and subject to a 10% penalty.
  • State tax advantages: Many states offer income tax incentives for state residents, such as a tax deduction for contributions or a tax exemption for qualified withdrawals.
  • High contribution limits: Many plans let you contribute more than $300,000 over the life of the plan.
  • Unlimited participation: Anyone can open a 529 plan account.
  • Professional money management: College savings plans are offered by states, but they are managed by designated financial companies who are responsible for managing the plan’s underlying investment portfolios.
  • Flexibility: Under federal rules, you are entitled to change the beneficiary of your account to a qualified family member at any time, as well as roll over money from your 529 plan account to a different 529 plan once per year without income tax or penalty implications.
  • Wide use of funds: Money in a 529 college savings plan can be used at any undergraduate college in the United States or abroad that’s accredited by the U.S. Department of Education and, depending on the individual plan, for graduate school.
  • Accelerated gifting: 529 plans offer an estate planning advantage in the form of accelerated gifting. This can be a favorable way for grandparents to contribute to their grandchildren’s education. Specifically, a lump-sum gift of up to five times the annual gift tax exclusion ($14,000 in 2016) is allowed in a single year, 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, provided 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.

How do I choose the right 529 plan?

You can join any state’s 529 college savings plan. To make the process easier, it helps to consider a few key features:

  • Your state’s tax benefits: A majority of states offer some type of income tax break for 529 college savings plan participants, such as a deduction for contributions or tax-free earnings on qualified withdrawals. However, some states limit their tax deduction to contributions made to in-state 529 plans only.
  • Investment options: Ideally, you’ll want to find a plan with a wide variety of investment options that range from conservative to more growth-oriented to match your risk tolerance. To take the guesswork out of picking investments appropriate for your child’s age, most plans offer aged-based portfolios that automatically adjust to more conservative holdings as the beneficiary approaches college age.
  • Fees and expenses: Fees and expenses can vary widely among plans, and high fees can take a bigger bite out of your savings. Typical fees include annual maintenance fees, administration and management fees (usually called the “expense ratio”), and underlying fund expenses. Compare the costs among plans using Savingforcollege.com.
  • Reputation of financial institution: Make sure that the financial institution managing the plan is reputable and that you can reach customer service with any questions.

How do I open a new plan account?

Once you’ve selected a plan, you’ll need to fill out an application, where you’ll name a beneficiary and select one or more of the plan’s investment portfolios to which your contributions will be allocated. Also, you’ll typically be required to make an initial minimum contribution, which must be made in cash or a cash alternative. Thereafter, most plans will allow you to contribute as often as you like. This gives you the flexibility to tailor the frequency of your contributions to your own needs and budget, as well as to systematically invest your contributions.

What is a 529 prepaid tuition plan?

There are actually two types of 529 plans–college savings plans and prepaid tuition plans (prepaid plans are the less popular type). The tax advantages of college savings plans and prepaid tuition plans are the same, but the account features are very different. A prepaid tuition plan lets you prepay tuition at participating colleges at today’s prices for use by the beneficiary in the future. The following table describes the main differences:

College Savings PlansPrepaid Tuition Plans
Offered by statesOffered by states and private colleges
You can join any state’s planState-run plans require you to be a state resident
Contributions are invested in your individual account in the investment portfolios you have selectedContributions are pooled with the contributions of others and invested exclusively by the plan
Returns are not guaranteed; your account may gain or lose value, depending on how the underlying investments performGenerally a certain rate of return is guaranteed
Funds can be used at any accredited college in the U.S. or abroadFunds can only be used at participating colleges, typically state universities

Note:  Investors should consider the investment objectives, risks, charges, 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. As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated.

Source: Broadridge Investor Communication Solutions, 2016.

Long-Term Strategies for Paying for College

Posted on December 17, 2015 by - Smart Money Tips

piggy-bank

If you missed the first post in this series, find it here: “Getting Started Simply: How the College Financial Aid Process Works“

When should you start financially preparing for college? I recommend at least ten years ahead of time. At this point, we don’t know what your total college expenses might be, but we do know they will likely be significant. Additionally, many people are entering their prime earning years when their children start college, so they may have a painfully high expected family contribution (EFC). Starting to save early is paramount to a successful college funding strategy.

One way to help motivate regular savings is this fact: You have the choice of saving now and earning interest, or borrowing later and paying interest. The average annual cost of a private college in 2025 is expected to be $65,509. Public universities are expected to be $31,189! Clearly, benefitting from the power of compound interest in a college savings fund can help. For example, $4,000 invested in the market earning an average return of 7% would be worth $7,869 in 10 years. If you saved $4,000 annually for 10 years at this return, your college fund would have $59,134!

What are the most common choices for college savings accounts?

  • Taxable investment accounts: These accounts have no tax-deferred growth treatment, but have the most investment flexibility.
  • Trusts: If you have no chance of receiving financial aid at all, a trust for the benefit of your child can be an appealing tool since they lower your overall estate, allow some control, and have flexibility of investment choices.
  • Qualified State Tuition Programs (529 Plans): These tax-deferred savings plans come in two different types: prepaid tuition plans and tuition savings accounts. This program is the most common type of college savings plan I set up for my clients, so I will devote my next blog specifically to 529 plans.
  • Coverdell Education Savings Accounts: These accounts only allow annual contributions up to $2,000 per child (subject to income limits), but can also be used to pay for private elementary and high school tuition, among other things.
  • Your home: Some colleges recognize mortgage debt in their financial aid calculations, so aggressively paying down your mortgage and borrowing against your home equity can be an effective strategy.

For those who wish to delve deeper into this, here are two great resources I rely on and recommend to clients:

Getting Started Simply: How the College Financial Aid Process Works

Posted on December 17, 2015 by - Smart Money Tips

college financial aid process

This first post in our series on paying for college provides a brief overview of the basics, including how your “need” is calculated. In future posts, we will examine the financial aid process in more depth and give you pointers on how to try to get the most aid for which you are eligible.

The cost of a four-year private college education has surpassed $150,000 at many schools. Even the public Ivies—state schools with excellent reputations—can run in excess of $200,000. Despite these costs, billions of dollars in financial aid are available for qualified families. Success in securing aid isn’t just about demonstrating need; it’s about understanding the financial aid office’s strategies. Financial aid is essentially a negotiation where their goal is to maximize what you pay, while yours is to ensure a fair deal.

Each year of college, you will need to complete the Free Application for Federal Student Aid (FAFSA) and possibly the PROFILE form for specific colleges. These forms, more detailed than tax returns, determine your Expected Family Contribution (EFC)—how much income and assets they expect your family to contribute to college costs.

College expenses typically include tuition, fees, room and board, personal expenses, books, and travel. Your “need” is the difference between these costs and your EFC.

Regardless of the school you apply to, your EFC remains relatively constant, while your need varies based on each school’s cost. To bridge this gap, each institution assesses how eager they are to enroll your student and offers a financial aid package comprising:

  • Grants and Scholarships: tax-free funds that do not require repayment.
  • Federal Work Study: a federally subsidized student work program.
  • Student Loans: government loans, typically interest-free until after graduation.

Your initial aid package may not meet your needs, but understanding the financial aid process empowers you to negotiate with the financial aid office for better terms.

For further exploration, I recommend these two valuable resources to clients:

  • Understanding types of financial aid and how to maximize your eligibility.
  • Navigating the Free Application for Federal Student Aid (FAFSA) and the PROFILE form effectively.

Stay tuned for more detailed insights into navigating the college financial aid process!

Common Estate Planning Mistakes — and How to Avoid Them

Posted on December 17, 2015 by - Smart Money Tips

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Estate planning can be a minefield of potential missteps, some of which could have far-reaching consequences. Many of the poor choices individuals make when planning for their own future or passing assets to their families are caused by “one-size-fits-all” planning strategies or well-intended advice from family or friends. Following are some common and potentially costly mistakes along with suggestions for avoiding them.

Failing to plan. Whether drafting a basic will or crafting an elaborate strategy involving trusts and tax planning, an estate plan can help reduce estate taxes, save on estate administrative costs and specify how your assets are to be distributed. Today, the majority of Americans have no will. If you die without one, your estate will be divided according to the intestacy laws of your state — not according to your wishes. This could create problems if your intended beneficiary is a minor child, a child with special needs, a favorite charity, or a combination of the above. In these cases, you need a will that details each contingency and a trust or multiple trusts to accomplish your goals.

Not maximizing your marital estate exemptions. Perhaps one of the most important pieces of tax legislation passed recently is referred to as the “portability” provision. This means that if one spouse dies without using up his or her federal estate tax exemption — $5.43 million in 2015 — the unused portion may be transferred to the surviving spouse without incurring any federal estate tax.

How might the portability provision work in a real life situation? Consider the following scenario involving the hypothetical $8 million estate of Jim and Helen:

If Jim dies in 2015, the executor of his estate can elect to use the unlimited spousal exemption and can also transfer Jim’s unused $5.43 million federal estate tax exemption to Helen. If Helen dies in 2015 with $8 million in assets, her estate will have a total of $10.86 million in federal estate-tax exemptions: the $5.43 million exclusion transferred from Jim and her own $5.43 million exclusion. As a result, none of Jim and Helen’s $8 million estate would be subject to federal estate tax.

As welcome as the portability provision may be, it still does not account for future appreciation of assets from the first spouse’s estate. Nor does portability offer protection from creditors and others aiming to lay claim on an estate’s assets. Traditional strategies like credit shelter trusts and bypass trusts do provide these benefits and therefore are still essential planning instruments for married couples.

Naming a family member as executor. Your executor is the person who will be responsible for administering your estate after death. The responsibilities of an executor are serious, and you will want someone who will take them seriously. There are many important reasons to choose a paid executor — a bank or trust company, for instance — along with (or instead of) a spouse or family member. A professional executor is familiar with the probate process and may actually save the family money, keeping expenses under control. This will undoubtedly be an emotional time for your loved ones, and a family member may find it difficult to focus on the details involved with settling an estate. In addition, when you name a family member, especially a beneficiary as executor, you introduce the potential for conflict of interest. The larger the estate, the more likely those conflicts become.

Relying on advice from family or friends. Would you go to a friend or relative for surgery or to fix your car if he or she was not a skilled surgeon or auto mechanic? Why would you take their advice about estate planning issues if they are not professional planners? When seeking a professional, look for a specialist — someone who knows trusts, estate tax law, and probate issues. A specialist will have more experience and skill in his/her chosen area — and that will translate into higher quality services provided in the most cost effective manner.

No set of rules or advice can apply in all cases, but a sure way to avoid these and other problems is to rely on a trusted team of tax and legal professionals led by your financial advisor.

This communication is not intended to be tax and/or legal advice and should not be treated as such. Each individual’s situation is different. You should contact your tax/legal professional to discuss your personal situation.

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

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