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Category: Financial Planning

Planning Life’s Biggest Vacation: Estate Planning

Posted on by Emily Promise

Presented by EMILY PROMISE AIF®, APMA®, CRPC®

Part of planning for ‘life’s biggest vacation’, aka retirement, involves not only making sure you are saving money to help make your goals and dreams come true, but also planning in the event that something happens to you. It is never pleasant to think about, but preserving all that you have worked for is very important.

By definition, estate planning is a process designed to help you manage and preserve your assets while you are alive and to conserve and control their distribution after your death according to your goals and objectives. But what estate planning means to you specifically depends on who you are. Your age, health, wealth, lifestyle, life stage, goals, and many other factors determine your particular estate planning needs. For example, you may have a small estate and may be concerned only that certain people receive particular things. A simple will is probably all you will need. Or, you may have a large estate, and minimizing any potential estate tax impact is your foremost goal. Here, you will need to use more sophisticated techniques in your estate plan, such as a trust.

Elements of an estate plan
A plan generally comprises four elements:

  1. The last will and testament is a blueprint that directs who will receive your property upon your death and the specific circumstances in which they will receive it. Your will governs only property that flows through probate. For example, financial assets with beneficiaries other than your estate, jointly owned property with rights of survivorship, and assets in a trust funded during life are not distributed under the terms of your will.
  2. The durable power of attorney (POA) authorizes someone, often called an agent, to handle your financial affairs if you were to become incapacitated. Without a durable POA, your family members would have to institute legal proceedings and request a probate court to appoint a guardian to carry out these responsibilities.
  3. The health care power of attorney (HCPOA) is a document that authorizes someone to make health care decisions if you are not able to. It can also allow your wishes to be known about end-of-life decisions in the event that you are unable to communicate. The latter may be part of your health care POA document or an advanced medical directive, also referred to as a “living will.”
  4. A trust is a formal arrangement allowing the trustee to hold assets. The trustee distributes assets to your beneficiaries at the time that you direct in the trust document. There are two basic types of trusts: a living trust and a testamentary trust. A living trust is funded during your lifetime and may receive your estate assets after probate is complete. It is often called a revocable trust because you retain the right to make changes or remove property during your lifetime. A testamentary trust is created after your passing and your will is approved by the probate courts.

Important considerations

Estate planning can be complex. It is important to keep the following in mind:

  • Be sure that your beneficiary designations reflect your wishes. Contact your current and former employers, your financial advisor, and your life insurance agent for the required paperwork to make any changes, if necessary.
  • Don’t make the mistake of assuming a change in your circumstances, like a remarriage, will make a prior designation null and void. Always make beneficiary changes on the correct paperwork specific to the financial institution.
  • Include both primary and contingent beneficiaries for your accounts. If your primary beneficiaries die before you, without a backup beneficiary, the death benefit would be paid to your estate. This can result in unnecessary fees and delays associated with probate, as well as accelerated taxes.
  • Relatives with special needs or disabilities rarely inherit directly. Receiving an inheritance outside of a special needs trust could mean the loss of valuable government benefits.
  • You can name a beneficiary of your retirement accounts, but be aware of the tax impact. In the end, the advantages of having the retirement accounts managed by a trustee may outweigh the tax disadvantages.

Remember that your plan should be reviewed every year or so and should reflect any life changes. Perhaps you got married, had children, lost a spouse, remarried. All these life changes will require review of your estate documents to reflect new beneficiaries or other changes.

Working with your financial advisor in conjunction with an estate attorney can help you plan for life’s biggest vacation and help preserve the legacy that you have worked so hard to achieve.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other expert advice we can provide towards your financial well-being.

EMILY PROMISE is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262 and can be reached at (336) 885-2530.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser

Prepared by Commonwealth Financial Network and Broadridge Advisor Solutions

 

Planning Life’s Biggest Vacation: Employer-Sponsored Retirement Plans

Posted on by Steve LaFrance

Presented by STEPHEN LAFRANCE, CFP®, MBA

Planning for life’s biggest vacation takes discipline and a little bit of work on the front end. Having conversations with your financial advisor to identify your goals and dreams for retirement now will get you on the path to the best vacation ever!

Did you know that many people do not participate in their employer’s retirement plan because they believe they do not make enough money or because they feel they lack the knowledge about why to participate? One of the best ways to save for retirement is to take advantage of your employer’s retirement plan.

Employer-sponsored qualified retirement plans such as 401(k)s are some of the most powerful retirement savings tools available. If your employer offers such a plan and you are not participating in it, you should be. Once you are participating in a plan, try to take full advantage of it.

Understand your employer-sponsored plan

Before you can take advantage of your employer’s plan, you need to understand how these plans work. Read everything you can about the plan and talk to your employer’s benefits officer. You can also talk to a financial planner, a tax advisor, and other professionals. Recognize the key features that many employer-sponsored plans share:

  • Your employer automatically deducts your contributions from your paycheck. You may never even miss the money — out of sight, out of mind.
  • You decide what portion of your salary to contribute, up to the legal limit. And you can usually change your contribution amount on certain dates during the year or as needed.
  • With 401(k), 403(b), 457(b), SARSEPs, and SIMPLE plans, you contribute to the plan on a pre-tax basis. Your contributions come off the top of your salary before your employer withholds income taxes.
  • Your 401(k), 403(b), or 457(b) plan may let you make after-tax Roth contributions — there’s no up-front tax benefit but qualified distributions are entirely tax free.
  • Your employer may match all or part of your contribution up to a certain level. You typically become vested in these employer dollars through years of service with the company.
  • Your funds grow tax deferred in the plan. You don’t pay taxes on investment earnings until you withdraw your money from the plan.
  • You’ll pay income taxes (and possibly an early withdrawal penalty) if you withdraw your money from the plan.
  • You may be able to borrow a portion of your vested balance (up to $50,000) at a reasonable interest rate.
  • Your creditors cannot reach your plan funds to satisfy your debts.

Contribute as much as possible

The more you can save for retirement, the better chance you have of retiring comfortably. If you can, max out your contribution up to the legal limit (or plan limits, if lower). If you need to free up money to do that, try to cut certain expenses.

Why put your retirement dollars in your employer’s plan instead of somewhere else? One reason is that your pre-tax contributions to your employer’s plan lower your taxable income for the year. This means you save money in taxes when you contribute to the plan — a big advantage if you’re in a high tax bracket. For example, if you earn $100,000 a year and contribute $10,000 to a 401(k) plan, you’ll pay income taxes on $90,000 instead of $100,000. (Roth contributions don’t lower your current taxable income but qualified distributions of your contributions and earnings — that is, distributions made after you satisfy a five-year holding period and reach age 59½, become disabled, or die — are tax free.)

Another reason is the power of tax-deferred growth. Your investment earnings compound year after year and aren’t taxable as long as they remain in the plan. Over the long term, this gives you the opportunity to build an impressive sum in your employer’s plan. You should end up with a much larger balance than somebody who invests the same amount in taxable investments at the same rate of return.

For example, say you participate in your employer’s tax-deferred plan (Account A). You also have a taxable investment account (Account B). Each account earns 6% per year. You’re in the 24% tax bracket and contribute $5,000 to each account at the end of every year. After 40 years, the money placed in a taxable account would be worth $567,680. During the same period, the tax-deferred account would grow to $820,238. Even after taxes have been deducted from the tax-deferred account, the investor would still receive $623,381. (Note: This example is for illustrative purposes only and does not represent a specific investment.)

Capture the full employer match

If you can’t max out your 401(k) or other plan, you should at least try to contribute up to the limit your employer will match. Employer contributions are basically free money once you are vested in them (check with your employer to find out when vesting happens). By capturing the full benefit of your employer’s match, you will be surprised how much faster your balance grows. If you do not take advantage of your employer’s generosity, you could be passing up a significant return on your money.

For example, you earn $30,000 a year and work for an employer that has a matching 401(k) plan. The match is 50 cents on the dollar up to 6% of your salary. Each year, you contribute 6% of your salary ($1,800) to the plan and receive a matching contribution of $900 from your employer.

Evaluate your investment choices carefully

Most employer-sponsored plans give you a selection of mutual funds or other investments to choose from. Make your choices carefully. The right investment mix for your employer’s plan could be one of your keys to a comfortable retirement. That’s because over the long term, varying rates of return can make a big difference in the size of your balance.

Note: Before investing in a mutual fund, carefully consider the investment objectives, risks, charges, and expenses of the fund. This information can be found in the prospectus, which can be obtained from the fund. Read it carefully before investing.

Research the investments available to you. How have they performed over the long term? How much risk will they expose you to? Which ones are best suited for long-term goals like retirement? You may also want to get advice from a financial professional (either your own, or one provided through your plan). He or she can help you pick the right investments based on your personal goals, your attitude toward risk, how long you have until retirement, and other factors. Your financial professional can also help you coordinate your plan investments with your overall investment portfolio.

Know your options when you leave your employer

When you leave your job, your vested balance in your former employer’s retirement plan is yours to keep. You have several options at that point, including:

  • Taking a lump-sum distribution. Before choosing this option, consider that you’ll pay income taxes and possibly a penalty on the amount you withdraw. Plus, you’re giving up the continued potential of tax-deferred growth.
  • Leaving your funds in the old plan, growing tax deferred. (Your old plan may not permit this if your balance is less than $5,000, or if you’ve reached the plan’s normal retirement age — typically age 65.) This may be a good idea if you’re happy with the plan’s investments or you need time to decide what to do with your money.
  • Rolling your funds over to an IRA or a new employer’s plan (if the plan accepts rollovers). This may also be an appropriate move because there will be no income taxes or penalties if you do the rollover properly (your old plan will withhold 20% for income taxes if you receive the funds before rolling them over, and you’ll need to make up this amount out of pocket when investing in the new plan or IRA). Plus, your funds continue to potentially benefit from tax-deferred growth.

By taking advantage of your employer’s retirement plan, in conjunction with regular review meetings with your financial advisor, planning for the biggest vacation of your life will be easier than ever. And the earlier you can start, the better off you will be. Make sure to take the time now to put those plans in place. You will be so glad you did!

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.

STEPHEN LAFRANCE, CFP®,MBA is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. 336-885-2530.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Prepared by Broadridge Advisor Solutions

Planning Life’s Biggest Vacation: Setting Retirement Goals

Posted on by Robert Blakely

Authored by ROBERT BLAKELY, CFP®, AIF®, CHFC®

You work all your life and take the time to plan vacations each year with your family, but are you taking the time to plan for the biggest vacation of your life, your retirement?  Many of us get caught up in the day-to-day of life and do not think about the day when you can wake up and do anything you want.

Today, we want to give you some guidelines as to how to begin planning for that ultimate vacation.

Begin by setting your retirement goals early. We see it all the time. People spend so much time planning a summer vacation, with all the details to make it a fabulous trip. But why not take some of that time and energy and begin thinking about your goals after retirement. How do you see yourself once you retire? What would you like to be doing? Where do you want to live? Do you want to buy a beach or mountain house? Do you want to stay near family? By answering these questions, and working with a financial advisor, you can begin to roadmap the steps you need to take to reach those goals.

The old adage, time is of the essence holds true here. What is your time horizon?  When do you plan to retire?  The sooner you determine when you want to retire, the sooner you can set your goals and put your plans in motion. Remember, time is your friend. Planning and saving early will pay dividends in the future.

And one other thing to consider in your overall plan is how much money will you need to save to reach your goals? Without a steady paycheck, you will need to know where your day-to-day living expenses will come from. Social Security, pensions, and individual retirement accounts will all come into play when identifying how much money you need to live. Working with a financial advisor can help you identify the amount of money that you will need at the time of your retirement. There are many tools that an advisor has at his or her disposal to help you work towards those goals.

Just as you are dreaming of that fun summer vacation in the next month, spend some time dreaming about and planning life’s biggest vacation – retirement. By planning ahead and consulting with a financial advisor, you will be prepared to have the biggest vacation of your life when you retire.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.

ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc. celebrating 25 years in business.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Is Now the Time to Buy or Refinance?

Posted on by Robert Blakely

Presented by ROBERT BLAKELY, CFP®, AIF®, CHFC®

June usually marks the height of the spring real estate market; it is National Homeownership Month, after all. And as June comes to an end, this June hasn’t been typical. With job loss numbers in the tens of millions, the economic impact of the coronavirus pandemic has put home ownership at risk, with many struggling to make mortgage or rent payments.

There is one unexpected bright spot, though: Interest rates have dipped to historic lows. And, if you’re in a position to take advantage of opportunities to buy a home or refinance a mortgage at an irresistible rate, you may be wondering whether you should.

To Buy or Not to Buy?
It depends. There are pros and cons to buying now, and it really hinges on your specific situation. Here are a few things to consider:

Time, and numbers, are on your side. If you’re a first-time buyer or an investor looking to seize the day, you probably don’t need to rush. Although most of the job losses seem to be behind us and consumer confidence appears to have bottomed out, rates likely will remain low for some time. And, though home values are showing more resiliency than they did in 2008, prices may decrease a bit more, getting you a little more for your money.

Supply, and available credit, are not. Even if you’re willing to brave a fluctuating market, overall inventory is relatively low and there’s little to choose from. Not surprisingly, many sellers are reluctant to list properties during the pandemic and are holding out for more favorable economic conditions. If you’re having trouble finding what you want and are unwilling to wait, don’t rule out working with a developer. Many need cash flow right now, so it could be your chance to make a deal.

Keep in mind the mortgage market hasn’t been immune to the impact of the pandemic, with liquidity dipping along with rates. May saw a tightening of lending standards, according to a recent Mortgage Credit Availability Index report issued by the Mortgage Bankers Association. Cautious lenders are changing underwriting guidelines, so you may expect more stringent credit score and down payment requirements—and your credit will factor into whether you get the best available rate. First-time buyers, in particular, may need to look at various financing options, such as conventional loans with private mortgage insurance or FHA loans, if they have a lower credit score or want to put less down.

Is Refinancing the Right Move?
Historically low interest rates are causing a flurry of activity for existing homeowners, too, and with good reason. Refinancing offers possibilities like reducing your monthly payment, switching from an adjustable to a fixed rate, shortening the life of your loan, or even cashing out a portion of your equity to use toward paying for college, home improvements, or other outstanding debt. Although it may seem like a no-brainer, it’s not always the right move—and you could find yourself with less money in the bank instead of more.

Think long term. The traditional rule of thumb was to refinance if you could lower your current mortgage rate by at least 2 percent. Not anymore. If you can lower your rate by 1 percent or more, you may see significant savings. How much, though, may depend on how far along you are in paying your current loan. For example, if you’re 3 years in and want to shorten your loan from 30 to 15 years, you can save on interest, even if you end up with the same or slighter higher monthly payment, but over much less time. If you’re 10 years into a 30-year loan, however, and want to lower your monthly payment by refinancing for another 30-year term at a lower rate, you may end up paying more in interest over 40 years.

Shop around and do the math. Although refinancing can often save money over the life of your mortgage loan, it can come at a price. In addition to the interest rate, pay attention to things such as closing costs, up-front fees (e.g., appraisal, legal, loan origination, and title search fees), points, and whether the lender will service the full life of your loan. You may find some lenders offer “no points, no closing costs” options at slightly higher interest rates. Finally, consider the costs of the loan against how long you plan to stay in your home. Ideally, you want to break even on your refinancing costs within one year. Be sure to shop lenders and run the numbers with your CERTIFIED FINANCIAL PLANNERTM professional—making meaningful comparisons can help you snag the best possible deal and ensure that savings outweigh costs.

Final Thoughts . . .

Taking advantage of low rates is attractive, but your personal circumstances will dictate whether it’s a good time to buy or refinance, especially with lingering uncertainty around the economy. One caveat: If you’re an investor looking to become a landlord, plan to have an emergency fund of about three months’ salary on reserve (as well as enough funds to cover transactional costs). The economic fallout of the pandemic could affect the ability of residential and commercial tenants to make rental payments.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.

ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc. celebrating 25 years in business.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer

Saving Tips For Your Summer Vacation

Posted on by Robert Blakely

Authored by ROBERT BLAKELY, CFP®, AIF®, CHFC®

Summer is now upon us and you are probably thinking about a vacation. Do not let your finances get in the way of relaxing and having a great time with your family. Here are six simple ways you can prepare for your vacation to ensure you enjoy it to the fullest.

Estimate your costs

To begin planning your family vacation, you will need to research the desired destination. This will give you a better understanding of how much the trip will cost. You will need to take everything into account including identifying the average hotel rate. Factor in transportation costs and determine how much you will spend on food and entertainment. Do not forget to budget in a little extra for emergencies, such as a flat tire or parking charges. Once you gather all your costs, you will see just how much you will need to go on vacation.

Create a realistic budget

Vacations are meant to be fun and relaxing, so do not go into debt going on one. Create a realistic budget that everyone can agree upon. Identify where you can cut costs. Maybe for lunch one day you pack sandwiches for your family instead of eating at a local café or chose to self-park instead of valet. Identifying where you can free up money will help keep costs down and will allow you to enjoy yourself!

Open a vacation savings account

Opening a separate savings account dedicated to vacations is a great opportunity to put money away for that special trip. Each week deposit a decided amount and do not pull the money out until the time comes to take that vacation. Fifty to one hundred dollars a week will build up in no time and you will end up with a nice chuck of change to vacation with. Though it may not be enough to cover the entire cost of your vacation, it will certainly help with your budget.

Cut expenses that drain your pocket now

Do you really need that $5 cup of coffee every morning before work? Buy the same brand of coffee and make it at home. Try cutting back on unnecessary expenses and we promise you will not miss them. Take those dollars you save and put them in your vacation account. You will be pleasantly surprised at how much your vacation budget grows once you cut out those unnecessary purchases.

Plan your stay

Before arriving at your vacation spot, plan your stay. Is there a tourist spot that you would like to visit? Or a well-known restaurant that you are dying to try? Look up coupons for that area on-line or call the local travel center to see if they have any discount deals available. This will prepare you ahead of the trip and save you a couple of dollars in the process.

Staycation

Of course, if money is tight, or you prefer the comfort of your own bed, you do not have to travel anywhere to relax. Plan a ‘staycation’. Turn off your phone and become a tourist in your own town. Visit museums. Go to local parks. Pack a picnic lunch and a blanket and go out into your backyard for a fun dinner under the stars. Get creative and you might even enjoy being able to just relax at home without worrying about a budget.

No matter where you might go for your summer getaway, remember that budgeting is always a good idea and planning ahead takes the stress out of travel.

Enjoy your summer and always remember to consult with your financial advisor to work towards those travel dreams goals as well as your financial future.

 

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.

ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc. celebrating 25 years in business.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

A Closer Look At Saving For Education Using A 529 Plan

Posted on by Steve LaFrance

Presented by STEPHEN LAFRANCE, CFP®, MBA

Since it is National 529 Day, we thought it would be appropriate to take a closer look at saving for education through a 529 plan. We will also compare a few other options that may make sense for you, depending on your specific situation.

What is a 529 Plan?

A 529 plan is generally a qualified tuition program created by the government in the 90s to incentivize saving for educational goals. The “529” comes from the location of the rules governing the program in section 529 of the Internal Revenue Code.

There are two types of 529 plans: prepaid tuition and savings plans. The latter is the most popular as the prepaid plans allow you to prepay tuition at today’s prices, typically reserved for participating in-state public universities. On the other hand, savings plans are much less restrictive and more popular than prepaid plans.

While the IRS governs the plans, individual states create them to allow for states to tailor them to their needs, specific to their university system. While most states offer at least one plan, there are multiple plans in some states. However, you can use any 529 plan, regardless of its originating state. Check with your state’s plan for potential tax deductions on contributions or tax-free earnings on qualified withdrawals. If you don’t have a specific state tax benefit, there could be a better option with another state’s plan.

Investment Options

Every 529 plan will have a different lineup of investment options that you can use with varying costs and features. You’ll want to make sure you choose a plan with investment options that match your risk tolerance and goals. Most 529 plans offer age-based investment options that adjust as your child gets older and closer to using funds, which is helpful as you want to make sure the aggressiveness of the portfolio matches the time horizon of the goal. These model portfolios are ideal, given a limit of two changes to investment elections per year in 529 plans.

Fees & Expenses

The difference in fees and expenses can drastically separate some plans. Some may offer only one option, while others may offer several share classes of investments. You’ll want to consult with your financial advisor to determine which is best based on your goals. Depending on the plan, advisors are compensated differently, so ask your advisor how they are paid. Some state plans are not available for use by financial advisors. Ask your financial advisor about the differences between advisor-sold plans and non-advisor-sold plans. You may prefer to pay a commission to your advisor through the investment options. Alternatively, you may choose to find a fee-only plan. Your advisor charges you a flat fee either one time or annually to advise you on investment options and/or assist with processing contributions/withdrawals. If you are confident that you can make those decisions and want to handle the operational portion, then a non-advisor sold plan might be best for you.

Whether you choose a plan through an advisor or not, choosing a reputable financial institution with good customer service is essential. It’s also important to consider ease of use. Is their website easy to navigate? Can you process contributions and withdrawals online? Can you make address changes, automatic investment changes, or add a bank account online? Do you want to do all those things yourself or have an advisor do it? As a reminder, whether you end up using one or not, it’s essential to consult with a financial advisor when making these decisions.

Qualified Withdrawals

One of the most important aspects to understand about 529s is what expenses are qualified, meaning you don’t pay taxes on the growth of the funds when you make a withdrawal. That is the primary driver for why people choose to use a 529 versus other savings vehicles. Still, it can add some complexity as you have to keep track of expenses and make sure you match withdrawals with eligible costs.

These qualified expenses have always included the total cost of tuition, fees, books, equipment, and room and board of accredited colleges or universities in the United States. More recently, the plans were expanded to allow $10,000 per year for K-12 expenses and a $10,000 lifetime limit per beneficiary for student loan repayment. You can also move funds to pay off up to $10,000 of student loans for the beneficiary’s siblings. In addition, there is an existing plan called a Coverdell ESA designed to save for K-12 expenses, but these are obsolete with the expansion of 529s to include K-12 costs.

Contributions

One of the benefits of 529s is that anyone can contribute to them, whether the parents, grandparents, friends or even the beneficiary themselves. This flexibility means you don’t have to open separate accounts for each contributor, and all the funds can be held for each beneficiary. However, siblings do need to have individual accounts. You can always move funds for a 529 to the account of a family member without penalty. We won’t delve into specific rules here, but these transfers can be to parents, in-laws, and even first cousins.

Grandparents & FAFSA

If the students plan to fill out the FAFSA (Free Application for Federal Student Aid), it would be best to open 529s in the grandparents’ name to avoid including these assets in the FAFSA. Students’ and parents’ assets are included, but grandparents are not. This is a popular planning strategy for wealthy grandparents trying to efficiently draw down their estate with the least taxes or penalties. There are other factors to consider with that strategy, so it is best to consult with a financial advisor to help determine the best course of action for your specific situation. Also, keep in mind the estate and tax ramifications if the grandparents pass away still owning the assets. If keeping the assets out of the parents’ name seems attractive, consult with a financial advisor or estate planning attorney to understand what else might need to be done.

Should you use a 529?

After walking through the specifics of what a 529 is, and the existing rules and limitations, many ask if all the headache is worth it? The most significant benefit you can get from a 529 is the compounding time value of money. Given that the goal starts at birth, usually as an 18-22 year funding goal, that time horizon begins shrinking immediately. As that happens, the ability for the funds to grow substantially starts shrinking as well. Even if you start at birth, a typical age-based portfolio will be predominantly fixed income ten years before the end of the spending goal for a child that begins college on time and earns a four-year degree.

If you start saving at birth, the tax savings and the time value of money are compelling reasons to use a 529 if you are confident your child will go to a four-year university. However, if that isn’t a certainty in your mind, or you are getting a late start to saving, there might be some other alternatives that I alluded to earlier.

Custodial Account Option (UTMA \ UGMA)

If you trust your child or think you will be able to trust them when they reach adulthood, a custodial account may be a great option. The funds in the account are deemed irrevocable gifts to the child but can be used for their benefit before they can take control at 18 or 21 (depending on the state), including to pay for college. Earnings are taxed at your child’s tax rate, subject to kiddie tax rules, but for the most part, the taxes are virtually zero throughout their time as a minor if appropriately managed. If you are seriously considering this option, it would be best to consult your tax advisor to see if the kiddie tax rules would apply, etc.

Roth IRA’s?

While technically not an account typically used for college savings, if you can contribute to a Roth IRA, you might want to consider this option. You can always take out your contributions to a Roth IRA free of taxes. While they would be subject to income tax, the earnings are spared the tax penalty if used for education. It may not be the best option, but if you want to use a few different options for funding the goal, you should consider this.

Last resort

If you aren’t sure your child will go to college, aren’t willing to trust them with your hard-earned money when they reach adulthood, and aren’t eligible to contribute to a Roth IRA, maybe a simple savings or taxable investment account would be best. The one point I want to get across is that no matter what type of account you choose, the most critical decision you can make is to save for your goals.

As I have said many times, should you have questions about how this applies to you, please consult with the appropriate advisor, whether related to taxes, investments, or legal concerns.

Engage with the Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide for your financial well-being.

STEPHEN LAFRANCE, CFP®, MBA is a financial advisor with BLAKELY FINANCIAL, INC., located at 1022 Hutton Ln., Suite 109, High Point, NC 27262, and can be reached at 336-885-2530.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Authored by the Investment Research team at Commonwealth Financial Network

Teaching Children To Save & Budget

Posted on by Blakely Financial

Presented by STEPHEN LAFRANCE, CFP®, MBA

May is Family Wellness Month, focusing on healthy family lifestyles and habits. One of those healthy financial habits is teaching your children the importance of saving and budgeting; as the old saying goes, the sooner, the better. By introducing sound financial habits early on and teaching them that the money they receive is directly related to their work, you will give your child a head start on becoming an informed investor. Below, we have provided some creative ideas and book and website suggestions for raising a financially savvy kid.

Toddler Age: Although it may seem early to begin instilling investment know-how in your toddler, the first few years of life are critical for mental development. Toys that incorporate counting, such as building blocks, can help your child develop mathematical skills. Other educational toys include:

  • LeapFrog Learn & Groove Animal Sounds Guitar. Children can rock out through rhythm, rhyme, and sing-along songs while sharpening their counting skills.
  • Learning Resources Counting Cookies. This set of 10 numbered cookies (each with a corresponding number of chips) makes learning to count delicious.
  • Chicco Teddy Count-With-Me. Children can learn their first numbers and words in English and Spanish with this bilingual talking bear.
  • Infantino Development Toy, Counting Penguin. Your child inserts colored fish into a penguin’s mouth and learns to count from 1 to 10.
  • ABC 123 Magnetic Poetry kit. For older toddlers, these magnets promote learning their letters and numbers.

Ages 5 and over: Board games are entertaining to teach kids about managing finances. Monopoly covers all the bases—earning money, saving and spending, capital budgeting, risk and reward, and taxes. This classic game now comes in an electronic banking edition and even a smartphone or tablet application. Other options for a fun-filled family game night include the Game of Life, Billionaire Tycoon, Moneywise Kids, and Payday.

Ages 8 to preteen: At this stage, many children start to accumulate income from allowances, cash gifts for birthdays and special occasions, and even small businesses, like lemonade stands or shoveling driveways. As your child begins dealing with actual money—no matter how small the amount—talk to them about saving and spending. In addition, because many kids in this age group are Internet experts, online games can be an effective teaching tool.

Teenage years: As a teen, your child may take their first summer job or build income through part-time work like babysitting. Visit the local bank together and set up personal savings and checking accounts in their name; this will give your child a sense of responsibility and help familiarize them with different banking transactions. Plus, banks often offer helpful resources geared toward young customers.

College years: This is a hard time for you and your child as you send them off to live on their own in a dorm or apartment. It would be best to discuss budgeting with your college student before they leave home as they will be on a fixed budget, and you will not be there every day to guide them. You are helping them stick to that budget through their college years by strengthening their ability to do so when they are entirely out from under your financial support.

A tremendous overall website with excellent resources for children from four years old through college age is The Money Savvy Generation (www.moneysavvy.com), which focuses on helping kids get smart about money so they can not only survive, more importantly, so that they thrive. We love their Money Savvy Pig, a four-slotted piggy bank that helps children learn how to save, spend, donate, and most importantly, we believe and invest!

Books:

Books on personal finance kill two birds with one stone: getting children to read while teaching them an important life skill. Full of illustrations on all aspects of money and finance, Neale S. Godfrey’s Ultimate Kids’ Money Book is an excellent resource for children ages 7–12. For young people ages 13 and up, Growing Money: A Complete (and Completely Updated!) Investing Guide for Kids by Gail Karlitz and Debbie Honig focuses solely on investing.

Written primarily for parents, Yes, You Can . . . Raise Financially Aware Kids by Jack Jonathan includes activities that you can do with your child to put financial concepts into practice.

Online Games:

One of the best websites for teaching kids about money is https://monetta.com/kids-corner/, presented by the Monetta Young Investor Fund, a mutual fund that invests in companies familiar to children and teenagers. Although you can find most of the games elsewhere online, the site brings them all together and organizes them by age group. The games are free and range from basic quizzes to more advanced activities.

Of course, there are plenty of other websites that aim to help children build their financial literacy. But, remember, although the Internet can be a valuable tool, it is no substitute for one-on-one conversations and your good example.

Start early!

As with many financial matters, our team at Blakely Financial believes the best advice is to start early. The sooner children learn financial fundamentals, the more likely they will become informed investors later in life. You never know; you may even benefit from learning alongside your child! If there are areas where you could use a refresher, take the time to review those topics as you approach them with your son or daughter. Remember to always consult with your financial advisor for guidance on investing and saving.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.

STEPHEN LAFRANCE, CFP®, MBA is a financial advisor with BLAKELY FINANCIAL, INC., located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. 336-885-2530.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Authored by the Investment Research team at Commonwealth Financial Network