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529 College Savings Plan (Qualified Tuition Program)

Post date: January 25, 2010

College is getting more expensive every year. Four years in a public school costs roughly $ 70,000 and in a private school $139,000. The best way to prepare is to start saving now. The earlier you start making regular contributions, the better prepared you’ll be when those college expenses start rolling in. A great way to start this process is by opening a 529 College Savings Plan. You can design an individualized savings plan that meets your needs. Factors that need to be considered are:   1) Estimated college cost  2) time frame  3) contributions needed  4) how many children  5) inflation and other  economic factors.

Here are the general rules

Contributions

  1. You can open a 529 plan for anyone-your child, grandchild, spouse or even yourself
  2. The contributor is usually the owner and the beneficiary is the future student
  3. Earnings in the account can grow tax free
  4. There are no income limits. You can contribute no matter how much you earn
  5. Contributions are not deductable on your tax return. It is considered a gift
  6. You can contribute up to $65,000 per year without gift tax issues. There is a $350,000 maximum value in which  no more contributions are allowed
  7. You maintain control of the assets. There’s no predetermined investment mix. As your investment advisor I will allocate your funds that best reflects your needs. We are allowed to move assets only once a year or when you change beneficiaries.
  8. You can use a 529 plan to pay higher education expenses at any eligible educational institution in US
  9. You  can change the beneficiary from one family member to another once a year
  10. Anyone can contribute to the account. However, only the account owner can make decisions regarding the account, including taking withdrawals from the Account, changing the Account’s investments and changing the Beneficiary.
  11. You are permitted to roll over funds without federal income tax consequences from one 529 plan to another 529 plan for the same Beneficiary once every 12 months.

Distributions

  1. You decide when to make withdrawals
  2. If you withdraw money for something other than qualified higher education expenses, you will owe federal income tax and in addition may face a 10% federal tax penalty on earnings.  If distributions are more than the beneficiary’s qualified expenses, the earnings portion of the excess is included in the beneficiary’s income

Qualified higher education expenses include:

  1. Tuition, fees, books ,supplies and equipment required for attending an eligible school
  2. Reasonable costs of room and board for those who are at least half-time students in a degree program
  3. Certain expenses of a special-needs beneficiary needed to complete their education

Other Considerations

  1. You should receive Form 1099-Q, payments from Qualified Education Programs from the plan sponsor showing information related to QTP distributions
  2. The account owner is strongly encouraged to designate a successor account owner. If the original account owner dies or is declared legally incompetent, the designated successor becomes the account owner. If   there is no successor owner, the estate of the deceased account owner becomes the new account owner.
  3. Your 529 plan holdings could impact your beneficiary’s ability to qualify for grants and student loans.  The 529 plans may also affect a Beneficiary’s ability to qualify for federal need-based financial aid. Effective July 1, 2009, a 529 account, will be regarded as an asset of the student if the student is an independent student and an asset of the parent if the student is a dependent student. An independent student generally includes an individual who:
    • is age 24 by December 31 of the award year
    • is an orphan, in foster care or a ward of the court (other rules may apply)
    • is an emancipated minor
    • is a war veteran
    • is a graduate or professional student
    • is married
    • has legal dependents other than a spouse
    • is homeless (other rules may apply), or
    • has special and unusual circumstances which can be documented to his or her financial aid administrator
Posted by admin in the following Categories: College, Planning, Saving | Comments (0)

The Smart Financial Planning Process

Post date: January 8, 2010

The most common question a new client will ask when we begin the financial planning process is, “What kind of returns can I expect from your portfolio management?” The answer depends on your risk tolerance, age, financial planning needs and investment objectives.

In general, those that are under the age of fifty with medium risk tolerance will achieve between 9% to 11% per year.  For those over fifty-five or in retirement this can range from 7% to 9% depending on your specific financial planning needs and risk tolerance. The recommended minimum investment planning time frame is 8 years.
Financial Planning Process Diagram

Step 1: Determine your risk profile and financial planning objectives.

The amount of risk or variability of return you are willing to accept is a major determinant of your portfolio composition.  Every investor is an individual with different needs and different financial planning objectives. Whether your objective is wealth preservation, asset growth or current income, it is critical to discuss them in detail with a knowledgeable financial planner. I will help you determine whether you need investments that produce income, growth or a combination of both.  It is also important to understand your attitude towards financial planning and investment planning.

Another critical aspect of your risk profile is your investment planning time horizon—which focuses on retirement financial planning. This is determined by when you will need to access your investments. It will seriously affect your financial planning portfolio strategy. An investor with a longer time horizon can afford to assume greater short-term financial planning risk in exchange for potentially greater long-term returns.

Stocks historically have experienced greater short-term volatility, but over the longer term, they have outperformed bonds and other fixed income financial planning investments. If you have a longer time horizon, you may want to take advantage of the opportunities provided by investing in stocks, In addition, regardless of the type of assets held in your portfolio, time is on your side. The longer you hold any particular asset class, the less the variation in your financial planning return.

Step 2: Set your asset allocation policy.

Research has shown that the asset allocation decision – how your investments are spread among asset classes such as Stocks, Bonds, Reits, Commodities and Cash – has by far the most significant impact on overall performance.  This is why determining the right asset allocation is critical to your investment planning and success. The world economy is ever changing, so your investment allocation cannot be stagnate.  This is one of the common downfalls I see with other investment managers and individuals who manage their own investments.
Step 3: Diversify across asset classes and financial planning investment styles.

As a knowledgeable portfolio manager, I diversify your investments across several asset classes by using multiple mutual funds, etf’s, stocks and bonds. I use the best performing mutual funds out of the 5,000 funds available to you. I chose the best managed funds in their asset class. The funds are evaluated among their respective peers in their asset class based on a variety of qualitative and quantitative factors including: management, experience, adherence to their stated class, long term performance, low management fees, tax efficiency and other relevant factors.

Step 4: Rebalance your portfolio.

As your investment manager, I monitor your portfolio as well as the underlying securities and the financial markets on a continuous basis to assure your desired financial planning goals are being met. I rebalance your portfolio periodically instead of being static with the same funds or stocks over the years. Keeping in mind your asset allocation and risk tolerance, your portfolio will be flexible in order to take advantage of which asset class might outperform over the next six to twelve months.

Step 5: Report the results.

As your financial planner I will provide you with a brokerage statement on a monthly basis detailing the market value of securities and transactions affecting your portfolio. You will receive an annual summary report on the performance and investment outlook for the following year. Your performance and asset allocation will be summarized. Tracking your financial planning results allows you to measure the progress against your stated investment planning objectives.

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