PT Money » How To Save Money

Sallie Mae Bank Savings Account: Includes a Upromise 10% Bonus

PT — Thu, 11 Mar 2010 20:32:06 +0000

Why is Sallie Mae a Bank Now?

Sallie Mae is getting into the online savings business. It makes sense I guess. They offer college loans and are finding, just like any lender, that they can do more loans by possibly taking on customers via online savings. Perfect marketing strategy actually. Get a bunch of guys like me with a kid to save money in their savings account and then by the time my kid needs to go to college, I use my savings, 529 plan, and add on a Sallie Mae loan to cover the rest. Genius.

Also, it probably doesn’t hurt them to get a nice influx of cash right now. That, plus, I think online banking is just becoming more acceptable these days, and since Sallie Mae doesn’t have to build bank buildings to make this happen, it works out for them.

About the Sallie Mae Savings Account

Their savings account it pretty straight forward. The rate is good compared to other online savings accounts. There is no minimum balance requirements like EverBank has. Although there are some minimum requirements if you want to take advantage of the 10% Upromise earnings match. See more below.

Fees? The only fees that I see on the account are a $5 statement fee (which you incur only if you have a statement mailed to you) and a excessive transaction fee (which is standard for online savings accounts) of $10 for each monthly withdrawal over 6. These fees are online savings industry standard and should never affect you if you just use the account as a normal savings account.

Certificates of Deposit

There are three different CD options at Sallie Mae: 12 months, 36 months, and 60 months. The rates are pretty straight forward and there are no minimums. The early withdrawal fees are standard. See how they compare with other CD rates and consider a CD laddering strategy.

Upromise 10% Annual Match on Earnings

This is where the Sallie Mae savings account shines. If you are Upromise user and earn a decent amount from Upromise each year, you will want to take advantage of this account. Here’s how the match works. Sallie Mae will look at your Upromise earnings at the end of the year (Dec 31) and multiply your total earnings for the year by 10%. They will then fund your Sallie Mae savings account with those bonus funds. That means if you earn $500 in Upromise earnings during the year, Sallie Mae will pay you $50 in bonus money. Nice.

Requirements to get the match:

To be eligible for the match you have to link your savings account to your Upromise account, and do one of the following: set up a automatic savings deposit of at least $25 OR fund the account with $5,000. Earnings from the annual match will be deposited in your savings account each February.

How To Open Either the Savings Account or the CDs

You will need to visit Sallie Mae Bank. Select which account you want (savings or CD). Then, provide the following information: SSN, drivers license or other ID, and checkbook to get your account and routing number for the initial deposit. You will also need joint account member info if you plan on making it a joint account.

The set up process is really quick. And once you’ve made your initial deposit you’re off and running. Remember to get the 10% Upromise earnings bonus you will need to create the $25 automated savings deposit, or fund at least $5k.

Best Online Checking Accounts

PT — Tue, 09 Mar 2010 00:25:17 +0000

Scroll down for an updated list of the best online checking accounts.

New Opportunities in the Online Checking Account World

We’ve seen a lot of recent activity in the online checking world as more and more people are getting comfortable with having a checking account without any physical branches. I personally still use two checking accounts, one online and one with Bank of America. However, my BOA account has long been just a place to make my deposits and write checks. Everything gets transferred over and our daily spending comes out of our ING DIRECT Electric Orange account.

In the past I simply referred readers to the Electric Orange account as the place to go for online checking. Well, there are some new online checking accounts you should be aware of. Here’s the current list that I’m aware of (old and new included).

Ally Interest Checking – This account just rolled out. It’s the newest available. Has some nice features: free bill pay, free ATM use on all ATMs, free checks, unlimited check writing, no fees or minimums.

PerkStreet Financial – They have a unique thing going on: cash back checking. So you are essentially earning your rewards on your daily spending versus your running balance. There’s an opportunity to rack up good rewards here. The initial cash back bonus rate is nice too. A large network of free ATMs. Free checks and bill pay.

EverBank FreeNet Checking – A solid rate, especially for the first 3 months. You must maintain a minimum account balance of $50,000 to to get their top rate though, and at least $5,000 to avoid fees. They have award-winning online banking, live customer service 24/7, and unlimited check writing.

ING DIRECT Electric Orange Account – This is the account I currently use. It’s attached to a great savings account. Has an excellent website and online bill pay features. Similar to PerkStreet in terms of number of ATMs.

FNBO Direct Online BillPay Account – I’ve used this account in the past and had positive results. They are currently offering the highest rate besides EverBank, who only serves higher balance accounts. Great web interface and comes with a Visa Checkcard (Debit Card) for your purchasing beyond paying the bills. Free ATM use is limited.

What to Look for in an Online Checking Account

I thought I’d jot down some things to keep you eye on if you’re considering an online checking account.

Debit Card and ATMs – It’s important to have access to your money with an online checking account. There needs to be a solid debit card attached to the account, along with plenty of free ATMs to utilize.
A Great Website Interface – It’s all online, so it better be good. A good online interface will respond quickly and be easy to understand and navigate. And it needs to be up 24/7.
Free Bill Pay and Checks - Most of these banks have free bill pay and checks. This is pretty standard now. Look out for limits on the number of checks you can write though if that’s a big thing for you.
Access to an Attached Savings Account – How easy will it be for you to move your spending account money to your savings and vice versa. Online bank transfers can take a long time. If there’s a connected account, you can take some of this headache away.
FDIC Insured – As with any cash account, the main goal is usually security. So ensure your online checking account is FDIC insured to the full $250,000. All that I list here are.

Comparison of the Top Online Checking Accounts

Bank	Rate	Review	ATMs	Rewards
FNBO Direct Online BillPay Account	1.25%	FNBO Direct Review	840,000 PLUS locations - 4 Free Withdrawals Per Month	None
PerkStreet Financial	0%	PerkStreet Review	37,000+ free ATMs through STARsf®	2% Cash Back
ING DIRECT Electric Orange	0.24%	Electric Orange Review	35,000+ free ATMs through Allpoint™	None
Ally Interest Checking	View	Ally Bank Review	All Fees Refunded	None
EverBank FreeNet Checking	2.25%	EverBank Review	All Fees Refunded if Balance >$5,000	None
E*Trade Checking	0.15%	Pending	All Fees Refunded	None

Which online checking account are you using and why?

Strike When the Iron is Hot: Advantages of an Automated World

PT — Wed, 24 Feb 2010 17:13:37 +0000

Money. We think about it when we buy things, when we go to work, in our business dealings, in our conversations at home with family. Money plays a big role in our lives.

Yet, even though we think about money a great deal every day, we spend very little time actually doing something productive regarding our personal finances. That’s because we don’t always have the motivation to do something.

Every once in a while though, we get inspired. We read something or have a conversation or simply find time in our schedule. We get all fired up to get our finances in order: to save more, get rid of debt, or start investing.

It’s crucial that we use this moment to really make some big changes in our finances. Who knows when the time or inspiration will return. We need to strike when the iron is hot.

In the past, it was easy for this flash moment to come, us make some changes and then move on to the next thing, with those changes not having any lasting impact on our success with money.

Now more than ever, it’s so easy to take advantage automated tools that once set in motion, can have a permanent impact on our finances. Let’s look at a few things you can do to act next time the motivation to do so is there:

Aggregate your accounts at Mint.com. Set this up once, and then return periodically just to check your progress.
Enter all your bill due dates into PocketSmith and get reminders when a bill is coming due.
Log into your Electric Orange checking account and set up as many automatic bill pays as you can. Consider setting up auto-withdrawal on the remaining bills.
Set up a direct deposit to a savings account. Start small, but make sure this is a separate savings account and not where you do your spending.
Increase your 401K contribution percentage. At least get the company match.
Create an automatic withdrawal to a Roth IRA. This is easier than it sounds and can help you achieve tax diversification in retirement.
Transfer your high-interest credit card debt to a zero percent credit card.
Set up an automated debt reduction plan using a tool like Debt Goal.

The good thing about today’s financial world is that you can find the motivation once, set it all up, and then forget about it for a while. You don’t have to rely on discipline or trying harder next time.

Now there are still some things that will prevent you from taking action. Along with automatic savings tools you’ve got information overload and what can seem like too many choices to make. My best advice here is to keep things simple, use trusted tools, and start small with all your efforts.

Photo by Andrei!

Unconventional Money Saving Tips from a Brit

Guest — Tue, 23 Feb 2010 22:14:48 +0000

My friend Nick, who helps runs VoucherCodes.co.uk, a British money saving website, offered up these tips on how to save money. You’ll get a kick out of his vocabulary and his take on saving money.

The recent events of the financial economy have underlined to us all how important it is to always have back up finances where possible. However, with retailers feeling the pinch too more and more attractive deals and discounts are being offered to retain customers. With this in mind there is no reason 2010 can’t be the year of saving and living well at the same time.

Tips on How to Save Money on Meals

Firstly, there is splashing out on fancy meals for less. Forget about Fridays and Saturdays – midweek is where it’s at! Restaurants regularly run special offers during the week to tempt in customers, so head out Monday to Thursday to grab the best deals.

If you can’t do without dinner, have a light lunch and eat early. You could save up to 50% on your bill by going for pre-theatre menus and early bird deals. Early diner promotions are usually available up until 7pm, although some do go on longer.

Say goodbye to soggy sandwiches and limp rolls. Become the envy of your office with tasty salads, wraps, skewers and soups. Don’t be constrained by convention – let your imagination run wild! You’ll find loads of great lunch ideas by checking sites like allrecipes.com (or allrecipes.co.uk for you Brits).

Tips on How to Save Money on Travel

The summer holiday is another great way to save money. There are an increasing number of online coupon codes for hotels and for flights spurred on by the global downturn in travel at the moment. A quick Google search for “Coupons” will bring up a list of sites where such discounts can be found. Make sure to book early while these discounts are still about.

Easily-overlooked extras like car hire and airport parking can bump up the price of holidays, so remember to factor them in to your budget. Always compare prices online to find the best deal before you book and search online for airport parking voucher codes for savings.

If you are feeling more adventurous, why not give couch surfing a go? The global couch surfing community consists of over 1.5 million people willing to give up their sofa to other travelers for free. Adventurous types should check out Couch Surfing to browse member profiles and find out more.

Tips on How to Save Money by Tracking Your Finances

Lastly, as we start 2010, if you are going to maintain a reasonably lavish lifestyle, while still making savings you have to have a sharp eye on the finances at all times. Mint (www.mint.com) offers free software to help you keep on top of your budget. Simply register and enter your details and this neat piece of software will update your bookkeeping automatically when you make purchases online. It’s a tried and tested company and what’s more it is completely free!

The important thing to remember however is that real life doesn’t always go to plan. But don’t lose heart. Go back to your budget regularly to see how you’re doing. Write a note on your calendar to remind you to check your progress and update your figures.

What is a Joint Savings Account and Why Should You Care?

PT — Thu, 04 Feb 2010 07:49:55 +0000

Earlier this week I shared a guest post on the benefits of using joint checking accounts. I thought it might be a good follow up to discuss the joint savings account, one of my favorite financial tools.

What is a Joint Savings Account?

A joint savings account is simply a savings account set up by two individuals in order for those two people to access it and benefit from it. From a legal standpoint, both parties generally have equal rights to those assets and can use those funds how they like at any time. I’m sure laws vary by jurisdiction though. Therefore, it’s good to have a high level of trust involved in this relationship.

Who Would Want One?

Couples - These accounts are great for couples who want to build financial stability and trust. Often times in a relationship there is no need for each partner to have their own savings account. A joint savings account is perfect for couples. Mrs. PT and I have several joint accounts. We’re saving for a house down payment right now. Our emergency fund is also a joint savings account.
Parents and Kids – Parents sometime open a joint savings account for their kids. This past year, I opened one up for little Miss PT. She started saving even before she knows what money is.
Friends – In rare occasions, friends or other good acquaintances might want to open up joint accounts if saving toward a specific, short-term goal.

The Benefits of a Joint Savings Account

There are plenty of benefits to having a joint savings account versus striking out on your own. The first is the ability to build up savings faster and reach higher limits quicker. With two people storing away funds, you’ll reach your goals quicker and will be more likely to meet minimum balance requirements from some of the higher paying online savings accounts, like EverBank (which is currently paying the highest interest rate, but essentially requires a $5,000 minimum balance).

Another benefit is the ability for one partner to access the funds if something happens to the other person. The joint savings account also builds up trust and camaraderie towards your financial life. It helps you work as a team. Even if you have separate checking accounts, a joint savings account will provide some relational benefit.

Where to Get a Joint Savings Account

You can open a joint account at a traditional brick and mortar bank. You can also open one up at one of the best online bank account. Here’s a chart showing some of the better online savings account available:

Bank	Rate (APY)	Minimum	Review	Bonus
Everbank	2.25	$1,500	EverBank Review	$0
Sallie Mae	1.25	$0	Pending	10% Upromise Match
WT\|Direct	1.26	$10K	Pending	$0
FNBO Direct	1.25	$0	FNBO Direct Review	$0
Ally Bank	View	$0	Ally Bank Review	$0
HSBC Advance	1.20	$0	Pending	$0
ING DIRECT	1.10	$0	ING DIRECT Review	$25
SmartyPig	2.01	$25	SmartyPig Review	$0
E*Trade	0.50	$0	Pending	$0

The process to open the account will generally be a same. Both parties will be required to provide personal information. At a local bank you’ll both likely need to be present at the time of opening the account.

What’s your take? Do you think a joint savings account is a good idea?

EverBank: A Big Rate for Big Funds

PT — Sat, 30 Jan 2010 22:33:54 +0000

This is my review of the EverBank money market account.

EverBank Review

Have a decent sized emergency fund already? Need a safe place to store the cash for one of the best returns on the market? Then check out the Yield Pledge Money Market Account at EverBank. EverBank has a diverse set of services (checking, money market accounts, CDs), but this review will focus on the money market account.

About EverBank

The first thing you notice about EverBank is the type of account they’re offering. It isn’t a traditional online savings account. It’s a money market account. Why does that matter? It doesn’t really. The account is still FDIC insured. The only difference is that EverBank has a bit more flexibility with how they invest your funds. This is why they have a higher return.

EverBank is a trusted, proven name in online banking. In 2007 they were named Money Magazine “Best of the Breed”. They also performed well over the past few years despite the banking industry woes.

Yield Pledge Money Market Account

Okay. Let’s quickly get down into the nuts and bolts of this yield pledge money market account. First off, EverBank has it’s drawbacks with this account:

They have a minimum requirement of $1,500. Not a huge hurdle for someone with an established emergency fund. But newbies should look somewhere else. The second thing you notice is that they charge a monthly fee (around $9) when you keep a balance of less than $5,000. That fee would negate any interest you’d earn on the account with less than $5,000 earning interest.

So, the way you should read this information is that EverBank is for people with a fund of at least $5,000 already built up.

They also have some restrictions on transfers you should read up on, which are typical of online banks. But I wouldn’t advise making this an account where you’re moving a lot of things around. Just open it up, dump the money there, and forget it till you’re ready to use it on it’s intended purpose.

What I Like About EverBank

Very nice introductory rate. At the date of this review, EverBank sits at the top of list of top high-yield savings accounts, and this is due to the fantastic 3-month bonus rate.

One of the highest yielding banks (even after the promo ends) – After the 3 month period it’s not like your rate drops to the floor. They still compete in the top tiers of the online interest rates. In fact, they’ve pledged to always be on top. See current interest rates.

FDIC insured and proven. As with any online bank account, I have a need for security. I need my assets to be protected. Therefore I only roll with FDIC Insured institutions, like EverBank. Plus, I like that EverBank has a proven track record and isn’t just throwing out rates trying to get customers.

Check writing abilities. With your EverBank account, you get checks. This would be ideal for someone saving up cash for a house down payment. You wouldn’t have to worry about a transfer to your checking account (which can take a week).

The bottom line on EverBank’s Yield Pledge Money Market Account is that it’s a no-frills account where big savers could earn top rate interest on their money. Perfect for a large emergency fund or other big savings goal. Click the “apply now” button below to sign up with EverBank.

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SEP IRA: An Entrepreneur’s Best Friend in Retirement

PT — Fri, 11 Dec 2009 23:50:11 +0000

This article contains information on the 2009 SEP IRA contribution limits.

Considering a SEP IRA

As a self-employed business owner, you may be looking for the right kind of plan to save for retirement. But it is easy to become overwhelmed about which is best for your situation or your company. For self-employed individuals, the SEP IRA may be one of the easiest accounts to set up and keep going. It may also be one of the less costly plans available to business owners. It certainly requires much less time spent on paperwork than a traditional 401k account.

A SEP IRA account has many advantages over other kinds of retirement accounts but only after carefully considering the pros and cons against other types of retirement accounts should you make the decision. If you are an employee of a small business or if you yourself are self-employed, you are eligible to be enrolled in this kind of account. Only the employer will make contributions to the account.

What is a SEP IRA?

The SEP in the SEP IRA stands for ‘Simplified Employee Pension’. This account is essentially like a traditional IRA account but it allows for much higher contributions. Each eligible person will have an account opened on their behalf.

The SEP IRA has several benefits in addition to the higher contribution levels, including the ease of set up and account maintenance, and the ability to be 100% vested once the SEP IRA account is established. A SEP IRA account contributions are also tax deductible on income taxes. The investments made are tax-deferred until the funds are withdrawn.

A business owner with or without employees can establish a SEP IRA.

Who Needs a SEP IRA?

A SEP IRA account may be the right option for employers who want to contribute high amounts to their own retirement accounts as well as contribute to partners in company or employees in a small business. You are eligible to make contributions to a SEP IRA if you are a business owner, a part of a partnership, or a sole proprietor. You are also eligible for this type of retirement account if you earn any income from self-employment even when you have a full time job elsewhere and are enrolled in another retirement plan.

An advantage to having a SEP IRA account is that unlike other plans, there are no limits regarding your income level. Part time employees who are 21 years or older and who have worked three out of the previous 5 years and earned $500 or more yearly must be covered by the plan. Employers can choose to provide coverage for employees under the age of 21 at their own discretion.

SEP IRA Rules

A SEP IRA account must be set up and funded by the tax filing deadline of the sole proprietorship or the business if it has been incorporated. In order to get a SEP IRA established, you must have an agreement in writing to make provisions for eligible employees.

The owner of a self-employed business is considered to be an employee when relating to a SEP IRA account, as well as an employer. There is an agreement form, Form 5305-SEP, available from the IRS. Unlike a traditional 401k retirement account, you can not borrow against the funds in a SEP IRA account.

SEP IRA Contribution Limits

The amount of a SEP IRA contribution is capped at 25% of compensation. In 2009, the contribution allowance was up from $46,000 to $49,000 annually. Contributions are not mandatory in every year where there is a net profit. You also do not need to maintain a certain level of contributions. You have the freedom to make the choice, for instance, you can make the full amount contribution one year and then only a smaller percentage the following year.

You can also contribute nothing at all in that following year even if there was a net profit. For employees that have a SEP IRA account, the money is yours once the employer makes an account contribution. Only the employer makes contributions to the account.

Find a Good SEP IRA Calculator

If you are considering a SEP IRA account but are not completely confident that it is the right account for your retirement savings or your business, you can check your actual figures by using a calculator specific to the SEP IRA account.

There are several retirement fund calculators available online such as this SEP IRA-specific calculator or this contribution calculator at Individual401k.com. Enter your information to see if this kind of account is right for your situation and your retirement savings.

Where to Open a SEP IRA?

SEP IRAs can be established at a bank, mutual fund, brokerage house, or any other financial institution. An SEP IRA account can be established for a business typically within a day after the agreement form is completed.

Again, there are many options available for retirement accounts for small business owners and the self-employed. Compare the SEP IRA to other traditional retirement accounts to see which has the most advantages for your situation.

10 Reasons to Get Off Your Butt and Start a Roth IRA

PT — Fri, 04 Dec 2009 18:41:33 +0000

I really love the Roth IRA. There are so many reasons to start one of these bad boys and get going with your retirement savings. Today I thought I’d do a little convincing and list some of the reasons to start a Roth IRA. So check these out and then get started. Seriously. No excuses.

1. You’ll Be More Prepared for Retirement

The Roth IRA was created to provide incentive for you to save for your own retirement. Use it. Retirement will be a big chunk of your life. Do you want to be relying on someone else to fund your trips to see your Grand kids or your golf course green fees (or fill in the blank with what you want to do)??

2. Pay Less in Taxes

The Roth IRA was created as a result of the Taxpayer Relief Act of 1997. This account allows you put in after-tax dollars, and never pay taxes again on those funds, AND never pay taxes on the earnings from those funds. If you used a regular savings account, CD, or taxable investing account for retirement savings, you’d have to pay taxes on your earnings. With a Roth IRA you can avoid all of that.

3. Tax Diversification

Odds are you already have a 401(k) or Traditional IRA. Those accounts use pre-tax dollars and then tax you when you retire. The Roth IRA is just the opposite. It uses after-tax dollars and then you never have to pay taxes on those funds again, or the earning you’ll receive from those funds. So by having both a 401(k) and a Roth IRA you hedge your bets against the future of taxation in the U.S.

4. More Control Over Investment Options

With a Roth IRA you have a broad range of investment options. Unlike your 401(k), you’re not restricted to a limited number of funds you can invest in. This is great because you can go out and find funds with lower expense ratios. Which will allow your retirement savings to grow even faster.

5. Because You’re Young

Young people have two big advantages with a Roth IRA: the power of compounding and a low income. For instance, if you’re in your 20s, you have around 40 years until you’re able retire. That’s 40 years that your money has to grow and compound on itself. Also, since you have a low income now, you’re more likely to fall under the IRS income requirements. High income earners aren’t able to contribute to a Roth IRA. Invest in a Roth IRA while you still can.

6. Because You’re Old (um, I mean not young anymore)

If you’re older than 50, and your income is still below the limits, you get to contribute an extra amount each year in “catch-up” contributions to your Roth IRA. That’s more tax advantaged savings towards your soon-to-be retirement.

7. You Can Withdraw the Contributions Without Penalty

With a Roth IRA you can withdraw all of your funds (both contributions and earnings) tax-free and without penalty at age 59 and a half. But there are circumstances that allow you to withdraw the funds even earlier.

While I don’t recommend this practice, you can withdraw funds from your Roth IRA prior to retirement to be used for whatever you want. As long as you don’t pull out more than your original contribution, you won’t be taxed or penalized. Pulling out earnings is what gets you taxed and a 10% penalty. But there are even loopholes for that.

8. Use Funds to Buy Your First Home

You can withdraw all your Roth IRA funds (contributions and earnings) if and when you decide you want to buy your first home. Again, I don’t recommend this practice, but it’s good to know the Roth IRA is so flexible.

9. Extra College Savings

While I believe you should try and put retirement before paying for their kid’s college, you can use the Roth IRA funds towards a college education. Some people specifically use a Roth IRA to save for college expenses.

10. It’s Easy

Opening a Roth IRA can be done online in less than 30 minutes. If you need more convincing or a helping hand through the process, check out the Roth IRA Rules and how I Opened My First Roth IRA.

Do you have another reason to start a Roth IRA? Leave it in the comments below…

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Common Questions About 529 Plans

PT — Mon, 30 Nov 2009 21:25:45 +0000

I’ve had some questions come in lately regarding saving for education expenses using a 529 Plan. Since I just recently set up a 529 Plan for little Miss PT, the topic is fresh on my mind. I thought I’d take today to attempt to answer some common questions about 529 Plans.

What is a 529 Plan?

A 529 Plan is a savings plan for educational expenses (named after the Federal tax code) set up by individual States or institutions. They’re designed so that you are encouraged to help save for your child’s education (college or trade school). The encouragement comes in two forms: the ability to save money free from Federal taxes and the ability to receive a deduction on State taxes.

The 529 Plan is really the Roth IRA of the college savings world. Your savings grows tax-deferred and the withdrawals are tax-free as long as you use them for qualifying educational expenses. They’re really a good deal.

What About Prepaid vs. Savings Type Plans?

529 Plans usually come in two types: prepaid and savings. It’s important to know the difference. Some States offer one or the other, both, or a plan that combines the features.

Prepaid 529 Plans usually give you more tax benefits and college discount for schools in that particular State. The prepaid plans are considered inflation-busting, since they allow you to save for college at today’s prices.

But they also come with more restrictions. For instance, if you decide to use a prepaid plan in your State and then later send your child to a college out-of-state you’re going to forfeit some of the savings you were able to get by being in an in-state prepaid plan. This varies greatly by State plan.

529 Savings Plans are more flexible. You can usually use these types of plans at any accredited college or university in the Country. I’m a resident of Texas and have a 529 Savings Plan with Ohio’s College Advantage Program. Since it’s a savings-type plan, I can use the funds where ever I want, as long as it’s for qualifying education expenses.

What if my child doesn’t end up going to college?

The savings and earnings from the savings are always your money. The donor (you) always maintains control over the funds. The beneficiary (your child) has no control. You can switch beneficiaries at any time (typically once a year).

So, if your first kid doesn’t go to a qualifying institution, then you can switch the plan beneficiary to another child, yourself, or whoever. Or, you can withdraw the funds. There is generally no limit to how long keep the funds in the 529 plan account.

The only thing that you may forfeit for not using the funds for educational spending is the tax savings on the funds, and a 10% penalty on the earnings from the savings.

As an example, let’s say:

You deposit $50,000 now into a 529 Plan.
Fast forward 18 years and your funds are now worth $60,000. You’ve earned $10,000!
Let’s assume your child decides to skip college.
If you withdraw those funds and use them for yourself on Twinkies, the $10,000 would be subject to the tax and the penalty.
You’d roughly owe the Federal Government $3,000 to $4,000. You’d walk away with around $56,0000 of your $60,000.

But, the 10% penalty can be waived if your child becomes disabled, dies, or gets a scholarship.

What if my child gets a scholarship to college, then what happens to the 529 Plan funds?

Like I said above, you generally have a few options: transfer to another beneficiary and give it to them, sit on the funds until another option becomes available, or withdraw the funds penalty-free (you just have to pay the taxes). The penalty is waived if your child gets a scholarship though.

Should I open a separate 529 account for each child or should I have just one account?

Yes, open an account for each child. To my knowledge you can only have one beneficiary of the funds from an account.

Do I have to use my State’s 529 Plan?

No. But there may be a good reason for you to. Typically the savings in State taxes is the biggest factor. The best guide I’ve found for helping me determine this is Kiplinger’s Best 529 Savings Plans. They will tell you if there’s a reason to stick to your State’s 529 Plan or go with a top 5 plan from another state.

Can you withdraw 529 Plan funds for an emergency with or without pentalty?

Generally, you have complete control over the funds in the plan. You can withdraw your funds at anytime, for any reason. As I mentioned above though, you’d be subject to a tax and penalty on the earning from the savings. There is no hardship rule that I know of that would exempt you from the penalty.

What age or when do you HAVE to withdraw the 529 Plan funds?

There generally is no age or time limit for withdrawals.

Could the 529 Plan act as a nest egg fund for my children?

Using the 529 Plan for anything other than educational expenses would be an inefficient use of the plan. If you’re looking for a place to stash some emergency savings, consider an FDIC insured high-interest savings account.

Should I consult a CPA, CFP, and understand the plan I’m getting into?

Yes, yes, yes! Please visit a fee only financial professional to understand your full range of college savings options. There are other options like Coverdell ESAs that might be a better for your situation.

And each State plan and tax implications have an impact on your decision. Lastly, take time to research the plan you’re getting into. Read the guidelines of the plan. Call up your State’s plan administrator and have them explain it to you.

Good luck getting started with your college savings!

Photo by cogdogblog

Take Real Savings Action: Start a Savings Goal with SmartyPig

PT — Mon, 23 Nov 2009 03:43:22 +0000

This is my review of the SmartyPig Savings Account. I’ve added a new bank to my list of top high-yield online savings accounts. It’s called SmartyPig. I know it doesn’t sound like a bank, but it is. And they offer a very competitive interest rate. Currently, one of the highest on my list. SmartyPig is different from your typical online saving account though for a couple of reasons:

they encourage socializing your savings goals and progress, and
when you open an account, you’ll need to create specific savings goals before you can start contributing.

Bottom line: SmartyPig is all about helping you save more using specific goals / actions and social encouragement.

What is SmartyPig?

SmartyPig is a Des Moines, Iowa based company that allows you to open a goal-based savings account that can be attached to social networking features (Facebook, MySpace, Blogger, Google, etc.) allowing your friends and family to view and even contribute to your savings goals. They launched in April 2008. SmartyPig’s U.S. banking partner is West Bank, a subsidiary of West Bancorporation, Inc. All of your funds are actually held by West Bank and your funds are FDIC insured up to the legal limit of $250,000. Sweet!

How Does SmartyPig Work?

Today I signed up with SmartyPig and walked through the sign up process. Here’s how it goes:

1. Basic Info – The initial application process is similar to that of any other online savings account. You provide some basic information, including your ssn, driver’s license, and date of birth. They run a soft pull on your credit.

2. Connect a Funding Account – Once you have the account set up, you are then asked to connect with an account where you will ACH the initial deposit from. This is the account that can also be used to periodically fund the SmartyPig savings account. But you can connect multiple accounts. So, all you need is a regular checking or savings account already set up somewhere else, and you’re good to go. Just give SmartyPig the routing and account numbers.

3. Create a Savings Goal – In the next step you are required to create an actual savings goal for your money. This is what separates SmartyPig from other savings accounts. They encourage action. Here’s a snapshot of the page where you create your savings goal:

You’re required to input your goal dollar amount, due date, funding source (checking or savings account you connected in step 2), and funding frequency. See the questions below for minimum and maximum deposit and goal amounts.

4. Achieve Your Goal – Once you have it set up, you’ll just need to wait till your deposits grow your savings account towards your goal. For a little more encouragement you can display your savings progress on your favorite social networking site, like Facebook. You can stop at anytime and withdraw your funds though.

5. Withdraw Your Funds - As this chart shows, there are three basic ways to withdraw your funds once you’ve achieved your savings goals:

It couldn’t e easier to take action and start saving with SmartyPig. If this savings account sounds good to you, I encourage you to check out SmartyPig.

Questions About SmartPig

Do I have to share my goals publicly? SmartyPig touts itself as a social savings account. But you don’t have to make your savings social. You can be as private as you want. Are there any hidden fees? Opening, funding and redeeming a goal with SmartyPig is absolutely FREE. However, a year or so ago there were concerns about SmartyPig and some of their fees. Those concerns have been removed as SmartyPig got rid of just about all of their fees. Here’s the rundown of the fees that they have (all of which should not affect you in your normal savings efforts):

Contributing funds to a public savings goal via Credit/Debit Card, a 2.9% processing fee per transaction will be charged to the purchaser. SmartyPig account holders can contribute to a public savings goal using their existing checking or savings account (ACH) and the processing fee is waived.
Purchasing a physical or electronic gift card via Credit/Debit Card, a 2.9% processing fee per transaction will be charged to the purchaser. SmartyPig account holders can purchase a physical or electronic gift card using their existing checking or savings account (ACH) and the processing fee is waived. For physical gift cards, shipping charges may apply.
When closing a Savings Goal online, the account holder has three options to receive their funds. These options are provided at no cost to the customer. The customer can choose to place their savings plus interest on a pre-loaded SmartyPig MasterCard® Debit Card, Best-In-Class Retail Gift Card or the funds can be transferred back to the customer’s existing checking or savings account (ACH).
Replacement of a lost, stolen or discarded SmartyPig MasterCard® Debit Card is $6.
Overdrawn accounts will be charged a $27 fee per overdrawn item.

What are the minimum and maximum savings goal limits? The minimum savings goal has to be $250. And for you big time savers, the maximum goal is $250,000 (right up to the FDIC limit). What are the minimum and maximum deposit limits? To get started you need to deposit $25. But each deposit after that must be at least $10, and can go up to $50,000. Can my child or a minor under my care have a SmartyPig account? Yes, anyone may open up an account with SmartyPig account. However, customers under 18 years of age must be invited to become co-owners by parents or legal guardians who have first opened their own SmartyPig accounts.