Archive for June, 2009
Monday, June 8th, 2009
Today’s post comes from Jeff Rose, who I asked to shed some light on the different ways to save for college. Jeff is an Illinois Certified Financial Planner and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website Jeff Rose Financial.
Choices. Choices. Choices. It’s always nice to have choices when it comes to making important decisions in your life. Sometimes though, having a multitude of choices can be overwhelming. Working with clients when it comes to planning for their kids college education is a perfect example. The are many ways that you can save for your kids’ college education. For somebody that feels overwhelmed, here’s a quick look at the five basic ways that you can save to pay that looming tuition bill down the road.
529 College Savings Plan
The 529 College Savings Plan is one of the more popular ways to save for college. For me, it’s the way that I save for my son’s college. If you happen to be a resident of my state, you can read a post I wrote on the Illinois 529 College Savings Plan Options. (Yes, the “S” is silent). If not, double check your own state to see what the options are.
With a 529 plan you can save for anyone – your child or grandchild, a niece or nephew, a friend or even yourself.
- You can contribute up to $13,000 ($26,000 for married couples) annually without gift-tax consequences. Under a special election, you can invest up to $65,000 ($130,000 for married couples) at one time by accelerating five years’ worth of investments.
- You can contribute until your account value reaches $350,000. (I don’t think I’ll have a problem with this)
- Earnings can grow tax-free. (Just like the Roth IRA)
- Withdrawals for qualified higher education expenses are free from federal tax. Withdrawals for non-qualified expenses are subject to ordinary federal income tax plus a 10% penalty on the earnings.
- There are no income limits. You can contribute no matter how much you earn.
- You maintain control of the assets.
Coverdell Education Savings Account
Coverdell Education savings accounts can be used to pay for your child’s qualified expenses from kindergarten through high school, as well as for higher education. I see less and less people using Coverdell ESA’s as college savings options, but one does turn up every now and then.
- You can contribute up to $2,000 a year.
- Earnings can grow tax-free.
- Withdrawals for qualified expenses are free from federal tax.
- There are income restrictions. If your income exceeds certain limits, you will not be eligible to contribute.
- You can change investment options as often as you wish.
UGMA/UTMA Custodial Accounts
UGMA/UTMA custodial accounts let you take advantage of your child’s lower tax rate while saving for your child’s education. Personally, I’m not the biggest fan of these because of the control issue. I know how I was at 18, and don’t expect my kids to be any more mature than I and being able to manage a large sum money. I’ll be happy if they prove me wrong.
- There are no contribution limits.
- Beware of the Kiddie Tax. For children under age 19 and full-time students under age 24 whose earned income is less than one-half of their support, the first $950 of earnings is tax-free. Earnings between $950 and $1,900 are taxed at the child’s rate; earnings above $1,900 are taxed at the parents’ rate.
- There are no income limits. You can contribute no matter how much you earn.
- The beneficiary gains control of the assets at age of majority, which is age 18 or 21 in most states.
Your Own Investment Account
Saving for your child’s education through your own investment account allows you maximum control of the assets.
- There are no contribution limits.
- Earnings are taxed to the owner.
- There are no income limits. You can contribute no matter how much you earn.
- You maintain control of the assets and decide when withdrawals will be made.
Your Roth IRA
I know what you are thinking. “A Roth IRA is for retirement not college savings”. Yes, that’s true. I’ve encountered a few times where people are extremely gun-ho about saving for the kids’ college, and put their own retirement on the back burner. By utilizing the Roth IRA, you ensure that you are saving for retirement and if your kid does goes to school you can pull out your contributions with no problem and just pay the tax on any gains.
- Can only contribute $5000 per year ($6000 if over the age of 50).
- There are income limits over better known as Roth IRA phaseout limits.
- You are in control of the assets and decide when to withdraw the money.
I hope that gets you in the right direction in saving for college.
If you enjoyed Jeff’s post, read more of his stuff at Good Financial Cents, and subscribe to his RSS feed.
Posted in Kids and Money | 1 Comment »
Sunday, June 7th, 2009
We had a great first week in Ireland. We’ve been told by just about everyone we’ve met that the weather has been exceptionally nice for Ireland. They all thank us for our luck and ask us to stick around a bit. We think we will.
Things are a bit expensive here, but we’ve managed to have fun and not totally blow the budget. A big favorite of ours in each city we visit are the double decker bus tours. As cheesy as they are, we’ve found them to be an affordable way to quickly get to know a city and plan the rest of our stay.
Here’s a few pics of our adventures around Cork and Blarney. Yes, I kissed the Blarney Stone.
Shandon Church Tower, Cork
St Patrick’s Bridge, Cork
Blarney Castle
Blarney Castle (see the famous stone at top)
View from Blarney Castle of the Blarney House
Hits with the Quickness (head’s up…many giveaways this week):
If you have time this week, go tell bob from Christian Personal Finance your Best Way to Save Money and he’ll consider you for a $40 Amazon gift card. All you need to do is leave a comment.
I was featured in the latest edition of the Economy and Finances Carnival over at OneMint.com. Check it out for some more great links.
Father’s Day is coming up soon. Frugal Dad is having a Home Depot Father’s Day Giveaway where you can win a $100 gift card from Home Depot. All you have to do is comment.
Studenomics wrote up a post this week I couldn’t help but link to: How to Pick Up Girls in College when You’re Broke.
Congrats to GenXFinance, who just hit the 1 million visitor mark. Visit his site and you could Win an iPod Touch.
Since I’m traveling these next few weeks I thought it was appropriate to include a few articles about money and travel…
Get Rich Slowly shares a post titled, Travel Hacking: Smart Ways to See the World. This is a must read list of resources for anyone wanting to travel the world a bit and not spend a fortune.
Because camping shouldn’t be expensive, check out Free Campsites for information, by state, on where to camp for free.
A new iPhone app from AAA can help you identify discounts at more than 100K locations.
Think technology always wins? Maybe not, when traveling in Moscow. Conde Nast Traveler pits the iPhone and Blackberry Bold against a regular old guidebook. See which performs better as a traveler’s guide. A big thanks to Tom for the travel tips.
Lastly, Moolanomy is Giving Away an iPod Shuffle to help promote Moolanomy Answers. Head over and see what it’s all about. Maybe you can get your questions answered.
Posted in Personal Finance Links | 5 Comments »
Tuesday, June 2nd, 2009
The guest post is by Ann from Buxr.com, an online bargain hunting community. The site invites members to share online deals as well as discuss all kinds of questions related to money and finance.
In an effort to make good on his promises to establish a plan to bring the country out of the current housing slump, President Obama has started the Making Home Affordable program. In essence, the plan will, according to the Los Angeles Times, save the homes of some nine million or so Americans who are facing imminent foreclosure, or have become unduly strapped because of rising interest rates on their mortgages.
Some of those fortunate or responsible enough to have kept their mortgage payments up-to-date are seeing relief from Uncle Sam. The Making Home Affordable Refinancing program’s premise is simple: responsible, paying homeowners who had had a first mortgage with the now-defunct Freddie or Fannie can get a refinanced mortgage for up to 105% of their home’s true value. The 80% threshold of Fannie and Freddie pales by comparison.
The rules for getting the new loans are somewhat stringent. Besides the more obvious rules, such as requiring the borrower to have a job, and live in the home primarily, you have to owe more than your home is worth. You also have to have paid your monthly mortgage payment on time for the last consecutive twelve months. You cannot have a payment due that is more than 105% of the home’s true value.
The program will benefit people who have special circumstances, such as a balloon payment or variable APRs. People who have a fixed rate could actually be harming themselves because they may have locked in a lower rate than the current prime. If such is the case, the owner obviously would not save any money.
There is an alternative loan for those who are facing foreclosure, called Making Home Affordable Modification. This program has less strict standards, and is appropriate for homeowners who are about to be foreclosed upon. In fact, the rules for the loan are such that the borrower must be in pretty dire financial straits to qualify.
To see if you are eligible for either of the programs, go to the site MakingHomeAffordable.gov. Notice this is a government website. While viewing the site, take self-assessment tests to see if you qualify for one of the new refinancing loans. Even if you do you qualify for either of the assistance programs, you may still have to wait. Lenders are not required by law to participate, so only time will tell what kind of support the program will receive from loan institutions.
Post image by kevindoole
Posted in Real Estate | 3 Comments »
Monday, June 1st, 2009
I’m lucky enough to be in Ireland most of June. I’m technically here for work, but will use most of my free time to see all the country has to offer. Needless to say, blogging will be sparse this month. But I already have some quality guests posts lined up for ya. And I may pop in for a bit myself to share some photos and the QuickHits.
Hits that be quick…
Carnivals and such…
Posted in Personal Finance Links | 7 Comments »
