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11/23/2020 0 Comments Who are You Thankful for This Year? Who are you thankful for this Thanksgiving? You likely have some relationships in your life that are extra meaningful. Perhaps you're thankful for a spouse or partner? Or maybe your children? Or perhaps siblings, friends, or even coworkers?
Do any of those individuals rely on you for financial support? Do you have a spouse who relies on your income? Or perhaps minor children who depend on your financial means? If so, this may be a good time to not only reflect on how much you appreciate them in your life, but also how their life may be impacted if something were to happen to you. It’s never pleasant to think about negative things that could happen in our lives. However, a failure to plan for possible threats could leave your loved ones exposed to risk. Below are three common risks that can disrupt a family and create serious financial hardship. If you haven’t planned for how to protect your loved ones from these risks, now may be the right time to do so. Death Death is inevitable. It’s also unpredictable. It’s never fun to think about your own passing, but it’s also unwise not to do so. At some point, you will pass away. If that happened sooner rather than later, how would it impact your spouse, children, or others who rely on you for financial support? Life insurance can be an effective way to manage the risk. You pay premiums in exchange for a certain amount of death benefit paid to your beneficiaries upon your passing. Your premium is based on a wide range of factors, including the type of policy, the death benefit amount, your age, and your health. Life insurance also doesn’t have to be expensive. One way to keep the cost down is to use term insurance, which provides coverage for a limited period of time, like 15 or 30 years. After the period ends, you can renew the policy or let it lapse. This can be a cost-effective way to protect loved ones temporarily. For example, you may use term insurance to provide financial support while you have minor kids in the home. Disability More than 25% of all adult workers will suffer a disability at some point that keeps them working for a year or more.1 What would happen to your loved ones if you were unable to provide income for an extended period? Disability insurance mitigates this risk by providing income if you are physically unable to work. There are two-types of disability insurance: short-term and long-term. Short-term coverage provides financial support for a limited period of time, like several weeks or months. Long-term coverage can provide support for a year or even longer, depending on the terms of your policy. Many employers offer disability coverage as part of their benefit program. However, it’s possible that your employer plan has gaps in coverage. For example, it may offer only short-term protection or it may only provide coverage for specific types of disability. If you haven’t reviewed your disability protection, now may be a good time to do so. It’s possible that you, and by extension your family, are exposed to risk. ABMG, Inc. can help you implement the right risk mitigation strategy for your needs and your budget. Long-Term Care Long-term care is a very real possibility for many seniors. Those turning 65 today have a 70% chance of needing long-term care at some point in the future. On average, women need long-term care for 3.7 years and men need it for 2.2 years. Much of the discrepancy is due to women having a longer life expectancy than men.2 Unfortunately, long-term care can be costly. In 2019, the average monthly cost for an assisted living facility was more than $4,000. Even in-home care services average more than $4,200 a month. Very often, these costs aren’t covered by Medicare. Long-term care insurance can help you, your spouse, and your family manage the cost. You pay a premium and then the insurer pays some or all of your long-term care expenses. Most policies even cover in-home care. You can often choose among a wide range of coverage options to tailor the policy to fit your needs and budget. This is the time of year to reflect on those you appreciate the most. It’s also a great time to evaluate your risk strategies so you can better protect those who are most meaningful to you. Let’s develop your risk protection strategy. Contact us today at ABMG, Inc. so we can start the conversation. 1https://disabilitycanhappen.org/disability-statistic/ 2https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html 3https://www.genworth.com/aging-and-you/finances/cost-of-care.html Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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 In true 2020 fashion, the presidential election has been a roller coaster ride. On Saturday, November 7, four days after election day, most media outlets projected Joe Biden as the next President of the United States.1
However, the call for Joe Biden didn’t come without suspense, as the country waited for days for ballots to be counted in Pennsylvania, Arizona, Georgia, and Nevada.1 As of Monday, November 9, President Trump and many members of the GOP claimed that the election had been marred by fraudulent activity, and they vowed to pursue legal options to resolve those alleged issues.2 Barring any legal rulings that change the outcome, it appears that Joe Biden will be sworn in as the 46th president on January 20, 2021. What does a Biden presidency mean for the economy, the financial markets, and for your nest egg? Taxes What does a Biden win mean for the economy? It’s difficult to say. One certainty is that a Biden administration would pursue a wide range of tax increases. Biden’s tax plan includes income tax increases for those making more than $400,000 along with increases in payroll taxes, corporate taxes, and capital gains. The Tax Foundation estimates that the Biden tax plan would reduce GDP by 1.62% over the long-term.3 COVID and Stimulus However, there are some who think a Biden presidency could positively impact the markets and the economy. David Wessel, director of the Hutchins Center at the Brookings Institute, said that the coronavirus pandemic and any possible stimulus are the biggest near-term economic issues.4 He added that the paths each candidate may take on those issues are substantially different. Biden is expected to push for a large stimulus package for both individuals and businesses. “In fact, that’s the scenario the stock market seems to be expecting and welcoming, even though Joe Biden is talking about raising taxes on investors,” Wessel said in an interview with NPR.4 Energy Prices Some also speculate that a Biden presidency may lead to higher energy prices. A recent study from GasBuddy reported that “a Joe Biden presidency would favor more environmental controls with respect to drilling and emissions, increasing fuel mileage standards, alternative vehicle power like electricity, expanded tax credits benefiting fuel efficient vehicle owners, and evolving from fossil fuels.”5 Patrick DeHaan, head of petroleum analysis at GasBuddy, added, “Biden would end drilling, curbing U.S. oil production and end fracking, which could potentially send oil prices and thus gas prices higher.”5 Is Biden or Trump better for the economy? Since it’s election season, there’s always speculation about which candidate will be better for the economy and the financial markets. However, the truth isn’t so clear. According to Michael Townsend, vice president of legislative and regulatory affairs at Charles Schwab, “Markets are not historically affected by which party wins the White House and/or control of Congress, and that seems to be the case again this year.”6 This year has been one of uncertainty, and that will likely continue in 2021, regardless of whether Joe Biden is president or not. Let’s connect today to analyze your strategy and take action to protect you from market and tax risk. Contact us to start the conversation. 1https://www.cnn.com/2020/11/07/politics/joe-biden-wins-us-presidential-election/index.html 2https://www.theguardian.com/us-news/2020/nov/08/donald-trump-concede-legal-challenge-republicans-joe-biden-golf 3https://taxfoundation.org/joe-biden-tax-plan-2020/ 4https://www.npr.org/2020/11/03/930722317/how-the-presidential-election-winner-could-effect-the-economy 5https://www.marketwatch.com/story/why-a-biden-presidency-may-lead-to-higher-gasoline-prices-11603992805 6https://www.azcentral.com/story/money/business/economy/2020/11/03/how-biden-trump-election-win-affect-stock-market/6127375002/ Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.  The recovery in the financial markets hit some turbulence in October, as investors wrestled with anxiety about increasing COVID cases. However, a surge in gross domestic product (GDP) in the third quarter may signal that the economy is on the rebound.1
Through October 28, all major indexes had mostly recouped most of their losses from the COVID crash in March. However, all were down for the month of October. Below is each indexes return from October 1 through October 28: S&P 500: -2.73%2 DJIA: -4.54%3 NASDAQ: -1.46%4 Here are the year-to-date returns of the major indexes: S&P 500: 0.40%2 DJIA: -8.14%3 NASDAQ: 21.04%4 What spooked the markets in October? There are a few factors, but as is the case with most things in 2020, COVID may be the primary factor. COVID Cases Ramp Up The COVID numbers are surging in the United States, suggesting that the end of the pandemic may be nowhere in sight. On Wednesday, October 28, the seven-day average for new daily cases hit an all-time high of 71,832, an increase of more than 20% in only a week.5 Twenty-nine states hit record levels for daily new cases in October. Forty states had an increase of 10% just in the last week of October.6 Thirty-six states had increases of at least 5% in COVID-related hospitalizations in the final week of October.5 The surge in cases is leading to a new round of business closures and regulations. Illinois recently stopped indoor dining at bars and restaurants.7 Investors may be spooked by the prospect of a second round of closures and its impact on the economy. A new report from Yelp found that 60% of businesses that were shutdown for COVID will never reopen.8 Stimulus Outlook The uncertainty of a second stimulus may also be a drag on the markets. In fact, Gary Cohn, former president and CEO of Goldman Sachs and former White House National Economic Council Director, says it is a primary factor driving the markets’ poor performance in October.9 He added in a recent interview that, “no one thinks we’re going to have fiscal stimulus until after an election.” And again, “We know that the market does not like unpredictability.” He said that there was “100% probability” that stimulus won’t happen until after November 3rd, and possibly not until after the inauguration.9 Fund Flows Some recent data on mutual fund flows may provide insight into how investors feel about the financial markets. Through October 21, equity funds (including mutual funds and ETFs) saw net outflows for 11 consecutive weeks. That means more money flowed out of these funds than flowed into them.10 On the other side, taxable fixed-income ETFs have seen four straight weeks of net inflows. That may mean that investors are leaving equities for fixed income securities, even with interest rates near zero.10 GDP Surges in 3rd Quarter On a positive note, GDP surged by 33.1% in the third quarter, beating analyst expectations of 32%. The third quarter number is the largest quarterly GDP gain on record, easily beating the previous high of 16.7% in the third quarter of 1950.11 Of course, the third quarter surge comes after a 31.4% decline in GDP in the second quarter. Even with the increase in the third quarter, the economy is still projected to contract by 3.5% in 2020.11 The markets and the economy have rebounded, but the future is still uncertain. This may be a good time to explore options that can protect your assets from market volatility. Contact us today at ABMG, Inc. We can help you explore these options and implement a strategy to protect your financial future. Let’s connect today and start the conversation. 1https://www.cnbc.com/2020/10/29/5-things-to-know-before-the-stock-market-opens-october-29-2020.html 2https://www.google.com/finance/quote/.INX:INDEXSP 3https://www.google.com/finance/quote/.DJI:INDEXDJX 4https://www.google.com/finance/quote/.IXIC:INDEXNASDAQ 5https://www.cnbc.com/2020/10/28/covid-cases-hospitalizations-continue-to-surge-as-us-reaches-critical-point-in-pandemic.html 6https://www.cnn.com/2020/10/28/health/us-coronavirus-wednesday/index.html 7https://www.cnbc.com/2020/10/28/5-things-to-know-before-the-stock-market-opens-october-28-2020.html 8https://nypost.com/2020/09/17/majority-of-covid-19-business-closures-are-permanent-report/ 9https://finance.yahoo.com/news/stimulus-donald-trump-gary-cohn-markets-100-percent-probability-deal-wont-pass-before-the-election-214720697.html 10https://lipperalpha.refinitiv.com/2020/10/u-s-weekly-fundflows-insight-report-etf-and-fund-investors-focus-on-fixed-income-during-the-fund-flows-week/ 11https://www.cnbc.com/2020/10/29/us-gdp-report-third-quarter-2020.html Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.  The COVID pandemic has changed nearly every aspect of society. It’s changed the way we work, the way we learn, and even the ways in which we travel and dine. The pandemic also disrupted the economy and the financial markets, triggering record unemployment and bringing the longest bull market in history to an end.
Given the financial volatility we have seen during the pandemic, you might think that Americans are also changing their retirement strategies. However, a new survey from Forbes and YouGov suggests that’s not the case. The survey reached out to 9,675 people to learn more about their retirement planning. Many of the questions and answers focused on three main areas: CARES Act Distributions As the COVID pandemic hit the economy, the government passed the CARES Act to provide assistance to those who were impacted. One piece of the CARES Act allows 401(k) and IRA account holders to withdraw up to $100,000 without paying an early distribution penalty. They can also pay the taxes over a three-year period.1 While the pandemic may have created unemployment and other financial emergencies, few Americans are tapping into their retirement savings. According to the survey, only 4% of respondents took a 401(k) hardship withdrawal and 5% took a hardship withdrawal from an IRA.2 Most of those who took a withdrawal were younger in age. Among those ages 25 to 34, 8% reported taking a withdrawal. However, among those 55% and older, only 2% said they took a withdrawal from a retirement account.2 Working Longer While few respondents said they had tapped into their retirement savings, 11% said they planned to work longer before retiring. Those ages 45 to 54 were most likely to give this response.2 The decision to work longer may be due to market volatility in 2020. However, it also could be due to a surprising reason - employers suspending their 401(k) matching contributions. Nearly 4% of respondents said their employers had suspended matching contributions, but that number could increase.2 In the years following the 2008 financial crisis, nearly 20% of employers with more than 1,000 employees suspended their matching contributions.3 If you’re concerned about volatility or if your employer has suspended contributions, consider meeting with a financial professional. Working longer is an option, but it’s not your only option. A financial professional can help you implement the strategy that’s right for your goals and needs. Asset Allocation Changes In the survey, only 5% of respondents said they had made a significant change to their asset allocation and only 4% said they had lowered their 401(k) or IRA contributions. In fact, 72% of respondents said they hadn’t made any changes to their retirement strategy at all.2 While sticking to a long-term strategy is generally a good idea, there may be times when a change is warranted. If you haven’t reviewed your strategy recently, now may be a good time to do so. Let’s talk about your strategy and whether it’s still right for your goals. Contact us today at ABMG, Inc. We can analyze your strategy and help you make adjustments where needed. Let’s connect today and start the conversation. 1https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers 2https://www.forbes.com/sites/advisor/2020/05/11/how-covid-19-has-changed-retirement-planning/#7f6080b6830d 3https://www.forbes.com/sites/advisor/2020/04/10/covid-19-employers-suspending-401k-matching-contributions/#30e0b7cd285f Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20418 - 2020/9/17  On Wednesday, September 16, Federal Reserve Chairman Jerome Powell offered his assessment of the economic recovery. The press conference offered some positive news, but also a sobering prediction that a full economic recovery will take years.1
The good news is that the Fed has cut its 2020 median unemployment rate projection to 7.6%, down from a 9.3% forecast in June. The Fed also adjusted its projected 2020 GDP reduction to 3.7%, down from a 6.5% decline that was projected in June. GDP, which stands for gross domestic product, is a broad measure of economic growth. A decline in GDP means the economy is contracting rather than expanding.1 Powell also said that the Fed had shifted its focus to employment growth rather than inflation control. That means the Fed expects to keep interest rates at or near zero until the economy is near maximum employment and inflation is projected to exceed 2%. He added that it will likely take years before the economy has reached those thresholds.1 While low interest rates may be good for borrowers and investors, Powell’s comments indicate that the Fed believes the economy is years away from a full recovery. He indicated that unemployment is still four times higher than the pre-pandemic level.1 “That just tells you that the labor market has improved, but it’s a long way from maximum employment,” Powell said.1 Stock Market Returns The investment markets continue their recovery from the downturn that hit in March of this year. Through September 16, the indexes have the following year-to-date returns: S&P 500: 3.39%2 DJIA: -2.90%3 NASDAQ: 20.19%4 While the markets have mostly recovered from their losses earlier in the year, volatility can strike at any time. That’s especially true should the COVID pandemic worsen or if the economy suffers continued damage. There also may be increasing uncertainty as the election approaches. If you're concerned about risk, let’s talk about it. There are a wide range of strategies and tools we can implement to minimize risk and protect your retirement income . Let’s connect today and discuss your needs, goals and concerns. At ABMG, Inc, we welcome the opportunity to help you implement a strategy based on your objectives. 1https://www.cnn.com/2020/09/16/economy/federal-reserve-september-meeting/index.html 2https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_nHNjX8_WMNLKtQbPmoKICQ7:0,_BHtjX7uKPNqttQbohYywCQ7:0 3https://www.google.com/search?q=INDEXDJX:.DJI&tbm=fin&stick=H4sIAAAAAAAAAONgecRozC3w8sc9YSmtSWtOXmNU4eIKzsgvd80rySypFBLjYoOyeKS4uDj0c_UNkgsry3kWsfJ6-rm4Rrh4RVjpuXh5AgAzsV5OSAAAAA#scso=_hH9jX4eyE5m1tAbHirPABA7:0 https://www.google.com/search?q=INDEXNASDAQ:.IXIC&tbm=fin&stick=H4sIAAAAAAAAAONgecRoyi3w8sc9YSmdSWtOXmNU4-IKzsgvd80rySypFJLgYoOy-KR4uLj0c_UNjCxMjYtyeBaxCnr6ubhG-DkGuzgGWul5Rng6AwDeg85uTgAAAA#scso=_139jX-TyCIy3tAbe4bnYBg7:0 Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20415 - 2020/9/17  Thinking about retiring in the next year? If so, this is an exciting time. After a career that has likely spanned decades, you can now look forward to the next chapter of your life.
While you’re probably excited to retire, it’s important that you don’t make the leap too early. It’s not uncommon for retirees to realize that they weren’t quite ready to leave the working world. The result is that they return to work in some capacity. You can avoid that outcome by making sure you’re fully prepared before you pull the trigger on retirement. Before are four financial milestones that could indicate you’re ready for retirement. This list isn’t comprehensive, but if you meet these four major markers, retirement may be in your near future. You have a retirement budget. A budget is always a valuable financial tool, but it’s especially important in retirement. A budget helps you control your spending and make sure you’re on-track to hit your financial goals. Without a retirement budget, it can be easy to fill your newfound free time with costly activities like travel, dining, and shopping. If you spend too much in the early years of retirement, you may not have enough assets left in the later years. Unfortunately, many Americans don’t regularly use a budget. In fact, according to a 2019 poll from Debt.com, nearly a third of all households don’t use a budget.1 If you’re among that group, now may be the time to start using one. A budget could be the key that helps you maintain your assets and your income through a long retirement. You have an emergency fund. Emergencies happen. There is always the potential for a home repair, costly medical procedure, or other unplanned expense. As you get older, the possibility of a costly medical bill may be even more likely. While Medicare may cover most of your care, it doesn’t cover everything. In fact, Fidelity predicts that the average 65-year-old couple will spend $295,000 out-of-pocket on health care in retirement.2 An emergency fund can help you handle medical costs, home repairs, or any emergency bill that may pop up. When you’re working, it’s often advised to have a few months worth of living expenses in an emergency fund. However, in retirement you may want to plan for a longer period of time. After all, you no longer have a salary to replenish the emergency fund. You have little revolving debt. For many of us, debt is a fact of life. From mortgages to car payments to student loans and credit cards, debt is often a necessity. As you reach retirement though, debt can be a serious financial burden. Every dollar you spend servicing debt is a dollar that isn’t used to cover living expenses or to grow your assets. Debt could force you to drain your retirement assets more quickly. If you have significant levels of debt, especially high-interest credit card debt, you may want to rethink retiring soon. Develop a plan to tackle that debt and free up cash flow. A financial professional can help you implement a strategy. You have a retirement income plan. Finally, perhaps the most important question to answer is where your income will come from in retirement. You’ll likely receive Social Security benefits, and you also may have retirement savings in a 401(k) or IRA. Perhaps you also have a pension, annuity, or other source of income. A retirement income plan maps out exactly how your income will be generated and how much income will come from each source. A financial professional can help you develop a plan that protects your assets and maximizes your income. They also may be able to help you generate income that is guaranteed for life, no matter how the market performs or how long you live. Think you’re ready to retire? Let’s talk about it. We can help you analyze your needs, goals, and concerns and implement a strategy. Contact us at ABMG, Inc today and let’s start the conversation about your next chapter. 1https://www.prnewswire.com/news-releases/fewer-americans-are-budgeting-in-2019----although-they-think-everyone-else-should-300824384.html 2https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. *Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. 20416 - 2020/9/17  Choosing the wrong savings plan for your child’s future college could cost thousands in avoidable taxes and missed financial aid opportunities. Do your research and check into all of the ways you can save for your child’s college education. Select the saving plan that works best for you and start your savings immediately. Even if you only save $50 per month per child, it will help avoid you racking up student loan debt.
#1 Opening A Savings Account Many families open a savings account in a child’s name to help save for their college education, but is that really the best option? It may seem like a really smart move to tuck money away for their education when your child is young, but most of the time it is not enough because the interest rates on savings accounts are too low. Although the risk is low, it is not the most effective way to save for college. In addition you need to be aware that your students’ income and savings have a bigger, more negative, impact on the availability of financial aid than parental assets and income. Your student’s financial aid is based on income and assets from the year prior to applying for financial aid so students with sizable savings accounts often lose a portion of free college money. #2 529 College Plans One of the most popular ways to save for college is through a college specific savings plan. Think of 529 college savings plans as a way to allow parents to save for a child’s education tax-free through a variety of investment options similar to an IRA or 401(k) plan. Some of the age-based investment packages put funds in aggressive investments when your child is young, and then automatically switches the funds to more stable options when your child nears college age. Some state-sponsored college savings plans, in states such as California and Kentucky, offer big tax advantages. In fact, the gains on these accounts are tax-deferred and as long as the parents use the funds to pay for qualified tuition expenses, they will never pay taxes on those funds. The money in the 529 college savings plan can be used to pay for either for undergraduate or graduate studies at any accredited two- or four-year campus in the United States. Keep in mind that a 529 plan belongs to the parent, not the child, which means the parent is the account owner and can change the beneficiary, if needed. Therefore, if a parent invests in a 529 plan and their child chooses not to go to college, the parents the account can change the beneficiary so the money will still be used for education. This prevents the child that is not going to college from taking out the money out for non educational expenses. Although 529 savings plans offer significant advantages, there are some restrictions you need to be aware of before investing. The 529 college savings funds can be withdrawn tax-free only for qualified education expenses, including tuition, books, fees, supplies, and room and board. Any money that is withdrawn for unqualified tuition expenses is subject to income tax and a 10 percent penalty on earnings. Another disadvantage is that account owners can only switch how money in these plans can be invested twice a year. #3 Roth IRA Another option for parents is opening a Roth IRA in the child’s name once he or she begins earning income. This can give their child a solid financial start. The downfall is that when your child turns 18, they control the account. Another downfall is that there are restrictions on Roth IRA withdrawals in order to keep investors from taking earnings out penalty-free until the age of 59 1/2. However, one of the exceptions to this rule allows early withdrawals due to specific circumstances such as hardships, purchasing a first home or qualified education expenses. #4 Prepaid Tuition Plans Prepaid tuition plans are designed for parents who are sure that their child will attend an in-state public university The plan is appealing to parents because it allows them to pay for tuition credits in advance at a predetermined price. Although the prepaid 529 plans retain the same tax, financial aid and parental protections as 529 college savings plans, they are protected from swings in the stock market. The disadvantage of prepaid tuition plan is that if the child decides to go to school out of state. Although you will still receive a return on your money, it will not be the full value of the plan. For instance, if you prepay for one year of tuition at a Virginia state school at a locked in price of $14,000 and the tuition increases to $22,000, you would still receive a year of tuition at the prepaid price. However, if your student chooses to attend a college in Pennsylvania, they will only receive about $15,000 or $16,000 towards their tuition. Similar to the 529 college plans, the prepaid tuition plan holders can change beneficiaries at any time. However, the prepaid college plan can only be used for college tuition to avoid penalties. Anything other than college tuition will be charged a 10 percent penalty plus income tax on funds used for other college expenses #5 Trusts Establishing a trust in your child’s name is another option for parents. However, these plans often have legal, administrative and tax fees that can be costly for the beneficiary. Another downfall is that the money usually belongs to the child and the parent will have no control over how the money is to be spent. The biggest downfall of a trust is that it can have an enormous impact on financial aid than parent-owned assets. Colleges expect a family to use 20% of a dependent child’s funds each year to pay for college, while parents are only expected to use 5.6% of their own assets to pay for college expenses. Therefore, if your child is the sole beneficiary of a $25,000 trust, your child’s financial aid eligibility will be reduced by $5,000. If that is not bad enough, your child will also need to report trust monies received as annual income on the FASFA form which can further reduce aid eligibility by as much as 50% of the amount of income. The biggest mistake parents make is not saving at all for their child’s future. Many parents believe that student loans will cover their child’s education not realizing that they will be responsible for an expected contribution once they fill out the FAFSA (Free Application for Federal Student Aid) form. If you don’t have a means to contribute, you will be asked to finance your portion of your child’s college education via personal loans or Parent PLUS loans.  Many Americans have no idea where to begin when choosing a financial advisor. Let’s face it. This is your hard earned money and you are entrusting a stranger to provide solid financial advice that can impact your financial future.
 Many professionals earning high salaries seek ways to save more money and cut their taxes. Often these professionals look at the advantages of having a Roth IRA, which allows money to grow and be withdrawn tax free. Unfortunately, Roth IRAs have income limits which prohibits high income earners from contributing. If your adjusted gross income exceeds $131,000 (for single filers) or $193,000 (for couples), you cannot contribute to a Roth IRA directly.
This is disappointing to professionals that believe a Roth IRA is the best way for them to manage their tax bill in retirement. Roth IRAs are attractive for several reasons. While funded with after-tax dollars, any earnings are tax-deferred and withdrawals in retirement are tax-free. In addition, Roth IRAs are not subject to the minimum annual withdrawals required from traditional IRAs during retirement, so they can also be an excellent tax-planning tool. So does this mean that professionals making too much money are simply excluded from the advantages that a Roth IRA can offer? The answer is NO!!! If you have decided that a Roth IRA is the best retirement account for you, there is a way to convert your traditional IRA or employer-sponsored plan into a Roth IRA. The IRS has not established any income limits on converting funds initially made to traditional IRAs into Roth IRAs. Many professionals have implemented this strategy to obtain a Roth IRA to have more tax-free funds available in retirement. The first step is to contribute the maximum allowed in your company’s 401(k) plan. It is an easy way to save and consistently invest money that will grow over time, especially if your employer matches part of your contributions. Keep in mind there are still limits to these contributions. The maximum pre-tax contributions is $24,000 for professionals age 50 and older. The next step is to open an after-tax traditional IRA. If you are married, you can double up and open open for your spouse as well. Anyone is eligible to open a nondeductible IRA, even if they are contributing the maximum to their company’s 401(k) plan. You can contribute up to $5,500 annually, or $6,500 if over age 50. Again, if you are married, you can increase this by opening up a traditional IRA for both you and your spouse. Now you can convert your traditional IRA into a Roth IRA. The best way to do this is to consult with a financial advisor on when this account can be converted into a Roth IRA. In order to minimize the taxes owed, you need to convert the traditional IRA to a Roth IRA as quickly as possible. The more time that elapses between your initial contribution and Roth IRA conversion, the more risk of the funds generating a gain. If the traditional IRA generates a gain, you will need to pay taxes on the gains. In addition to converting your traditional IRA into a Roth IRA, you can also convert assets from your 401(k) or other employer-sponsored plan to a Roth IRA. However, you need to make sure that the money is transferred directly to the financial institution to avoid them withholding 20% percent of the account balance for tax purposes. Although it can be stressful converting your retirement savings to a Roth IRA, once the process is complete, you can enjoy tax-free income during your retirement.  Financial Goals to Achieve BEFORE Investing Before investing, you need to determine if you really have the money. It takes time to see a return on your investment. Keep in mind that they money you invest will need time to grow, in most cases, and you will need to patient to achieve long-term wealth. Therefore, don’t invest money that you will need immediate access to a few months or years later. If you are looking for fast money you need to realize it comes with high risks and you may lose everything. Smart investors are patient and realize the rewards of investing take time.
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November 2020
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Larry Lerner
Founder Artists Business Management Group Financial Planning 5950 Canoga Ave. #417 Woodland Hills, CA 91367 CA License #: Og28398 818.719.6541 [email protected] |
Licensed Insurance Professional. Respond and learn how insurance and annuities can positively impact your retirement. This material has been provided by a licensed insurance professional for informational and educational purposes only and is not endorsed or affiliated with the Social Security Administration or any government agency. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
Annuities are insurance products backed by the claims-paying ability of the issuing company; they are not FDIC insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union or its affiliates; are unrelated to and not a condition of the provision or term of any banking service or activity.
By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product.
16310 - 2016/12/29
Annuities are insurance products backed by the claims-paying ability of the issuing company; they are not FDIC insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union or its affiliates; are unrelated to and not a condition of the provision or term of any banking service or activity.
By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product.
16310 - 2016/12/29