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11/10/2017 0 Comments

5 Ways To Save Money For Your Child’s College Education

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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.

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11/2/2017 0 Comments

What To Look For In A Financial Planner

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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.

When choosing your financial advisor, you need to know the types of financial advisors available, their credentials and their ethics and credibility.  You should take the time to research financial planners in your area and interview them.
 

You can start by getting names of planners in your area from the profession's major membership organizations: 

•  Contact the National Association of Personal Financial Advisors to obtain a directory of fee-only practitioners.

•
Contact the American Institute of CPAs to obtain a list of CPAs who have earned the credential of Personal Financial Specialist (PFS). 

• The Financial Planning Association has a registry service you can use to get names of members in your area. Visit its Website, where you can do an online search. The site also features consumer information related to financial planning. 

• Ask friends and family about their financial advisors.

Now that you have narrowed down your options, take the time  to find out whether any of the potential financial advisors has ever been disciplined for any unlawful or unethical behavior. Financial Industry Regulatory Authority’s (FINRA) BrokerCheck will provide you with the information regarding your potential financial advisor.  You should also take the time to look up your advisor on the CFP Board’s site, to verify that they each have CFP certification status.

Select at least three potential advisors and meet each one at their office. You should request a detailed statement of fees and services, a resume and references.

When meeting with the potential advisor, you should look for the following qualities:

A Skilled Listener
Is the potential advisor listening to what you are saying as a client?

It's essential that your future financial advisor is trying to understand what you are looking for in a financial planner.  If your potential financial advisor is doing all the talking, they are not interested in your specific needs.  You want to look for an advisor with the understanding and ability to follow you as the the client to where you want to go with your finances.  The financial advisor also needs to be easily available and generous with his/her time to provide you as a client with an action item or recommendation based on your client discussions.

You want to look for a potential financial advisor who is introspective, self-disclosing, transparent and humble.  You want to look for a future advisor who can weather the storm with you.  One that will prevent you from selling off your assets during bad times.  One that will lead you in the right direction and assist you in weighing your options during difficult circumstances.

Type Of Advisor

• Commission-based These types of advisors (brokers, insurance agents, registered representatives) sell financial products such as mutual funds, annuities and insurance and receive commissions on those products. Commission-based financial advisors are often employed by large financial institutions and are paid based on what they sell.  Most clients feel there is a major conflict of interest for these types of financial advisors and tend to steer away from them.  If you choose a commission-based financial advisor, you need to be aware that their recommendations can be influenced by their potential commissions.

• 
Fee-based: These types of advisors are typically affiliated with a broker/agent and generally hold a license to sell investments or insurance for a commission.  Fee-based financial advisors charges a fee for financial planning. However, they also can sell products and get paid commissions. Therefore, there can still be a conflict of interest.  If you choose a fee-based financial advisor, you need to be aware that their recommendations can be influenced by the products in which they receive commissions.

•  Fee-only: These types of advisors have a fiduciary duty to act in the best interest of their clients.  Fee-only financial advisors only make money through flat fees, hourly rates or a % of the assets they manage.  They don’t receive commissions based on product sales.  Often these advisors provide more comprehensive advice that extends to estate, retirement, investing, taxes, education funding and insurance planning.  If you choose a fee-only financial advisor, their recommendations will not be influenced by commissions because they do not receive any.  This often the most recommended type of financial advisor because they offer the most comprehensive financial planning and/or asset management.  

Additional Learning
​ Your potential advisor should always be seeking additional training in both finance as well as behavioral skills.  They should seek specific training in specialized competence areas of interest, such as working with widows, job loss, educational goals, etc.  A financial advisor should have both formal and informal education that will help sustain both longevity and integrity.   Your potential advisor should have membership in financial associations which suggests your advisor is keeping up with continuing education.  You want a future financial advisor to be on top of their field which may require additional education, memberships to financial groups and staying on top of current events.

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Larry Lerner
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Artists Business Management Group
Financial Planning
5950 Canoga Ave. #417
​Woodland Hills, CA 91367
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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.
 
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16310 - 2016/12/29