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Jun 12015

Understanding who benefits from 529 plans

By |June 1st, 2015|General Personal Finance|Comments Off on Understanding who benefits from 529 plans

I’m a big believer in getting bang for your buck. When it comes to saving for college, the 529 plan definitely deserves a place in your portfolio. There are reasons for this, which I’ve written about before, but there are also misconceptions that should be brought into the light.

As a savings solution for the middle class, 529 plans appear to have an image problem. Public perception seems to be that the high account limits and tax breaks offered by 529 plans benefit the wealthy, and certainly there is a great deal of truth to this. If your position is to oppose any sort of provision that benefits folks with lots of money, this probably isn’t in your wheelhouse.

The way I see it, there isn’t much logic in opposing something simply because it benefits someone else (I realize that this makes me almost un-American these days.)   The truth is that there is plenty for the rest of us to like about 529s, if only we pay attention.

Here are the major tax benefits of 529 plans, not coincidentally listed in order of the ascending income of those who benefit most. If you are planning on funding someone’s education, it’s important to understand this savings option.

Tax-free earnings

529 plans offer federal tax-free earnings on qualified withdrawals, i.e. withdrawals that are used to pay for college expenses. Additionally, many states offer this benefit, and some even offer deductible contributions (up to the limit set by the state.) Withdrawals taken to offset a scholarship, employer tuition assistance or veterans benefits are subject only to income tax on earnings, allowing the owner to reap the benefits of tax-deferral for those amounts.

Since the tax-free earning feature appears to be under fire lately, let’s look at what happens if taxes turn out to only be deferred. Consider an investment of $1,000, followed by monthly $100 investments, 7% return rate (net of fees, compounded monthly) over a period of ten years. For a person in the 25% tax bracket, a taxable account would earn $4,354. That same account, tax deferred, would earn $6,420. Taxes upon distribution would bring this number to $4,815 – about 10% more than the earnings in a taxable account.

In the worst case, nonqualified withdrawals are subject to the aforementioned tax on earnings and an additional 10% penalty those earnings. The 10% penalty would bring the earnings number to $4,173. The worst case scenario – where you don’t end up using the money for college at all – costs you $361 over ten years. This picture improves as your tax bracket goes up – at 30%, the numbers are close to equal. Not a terribly risky gamble to take with money that would otherwise be invested in a taxable account.

Accelerated Gifting

Another tax feature of 529 plans is accelerated gifting. For 2015, the gift tax exclusion limit is $14,000 per person. However, 529 plans allow you to front-load up to five years of gifting, so that you can contribute $70,000 to one beneficiary’s account without incurring gift tax.

I know. We’re back to the wealthy again. The degree to which this feature is touted probably feeds into popular misconceptions about who benefits from 529 plans. If you have $70k you’re looking to park somewhere – congratulations. Put the money to work all at once, rather than piecing it out over five years and missing out on potential gains (see my post on dollar cost averaging.)

But it’s important to remember that $70,000 is the high end. The gifting provision applies to any amount over $14,000 (and below $70,000), and I know a few grandparents with that kind of money to pass along. 529 plans allow them to gift money to grandchildren without actually giving it.

The accelerated gifting provision makes 529 plans a useful estate-planning tool, which brings me to my next point.

Estate Planning Benefits

Once assets are gifted through a 529 plan, they are removed from your estate for estate tax purposes (though if you die before the beginning of the fifth year, a pro-rated amount will revert back and be subject to estate tax.) However, since you are the owner of the account, you retain control of the assets. This is my favorite part – you can reduce your estate tax exposure and still keep your money. Furthermore, if you designate a successor account owner, those assets will pass into the hands of your designee without going through probate.

(And yes. The estate tax exclusion for an individual for 2015 is $5.34 million. This one benefits only the wealthy.)

The bottom line is that the tax benefits of 529 plans matter to anyone who might be planning to send a beneficiary to college. And the penalties for not using the money as intended are relatively minor.

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May 282015

The Beginner’s Guide to Binary Options

By |May 28th, 2015|General Personal Finance|1 Comment

Binary options is fairly new in the stock market trading, more like in its infancy in the world financial trading arena. Binary options give the traders alternatives who are not exactly experts in the most complex financial instruments or for those who do not have the means to invest thousands of dollars on their first trade. This type of option is very feasible, especially for beginners.

With binary options, you can benefit from significant profits and at the same time, take advantage of of a minimal investment.

Since this type of trading is relatively new, we’d be giving you basic information on what you need to know to be able to trade and get started making money with binary options.

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What is Binary Options?

It is a very simple contract with fixed rewards and fixed risk. This is an upcoming financial trading method where this is only the two outcomes that you would expect from it. You, as the trader, will first sign up with a platform, like Binary Uno, and then will guess if the assets will increase or decrease by the time it expires. If you guessed it right, you get the profit and if not, you’ll lose your investment minus a percentage that remain in your account. It is not that complicated. When you think that the asset will go up, you select the Up option in most binary platforms and if you think that it will decrease, select the Down option and put in your price.

It means that for the average trader, it provides instant results and gratification. This type of trading also happens in a web-based environment so that you can do it from your own PC connected to the internet. The trading is a whole lot simpler and straightforward than any other kind of financial trading out there in the market. As for the benefits, this includes instant results, a simple trade, low risk, Web-based trading, a game-like experience and a prospect for huge profits.

There are three key ingredients to a binary option trade and that is:

  • Expiry Time – simply the length of time wherein from the moment you “buy” the option until it closes.
  • Strike Price – the price you were able to enter the trade. This determines whether your trade will win or lose.
  • Pay-out Offer – the offer of the binary option broker to you.

Is there any downside to Binary Options?

As much as it sounds extremely easy, the downside of this type of trading is that like any other market out there, if you venture into this trade without research or enough preparation, you can definitely lose money. If you treat this as a casino since it is fairly easy and fun to do, that can be also dangerous.

The risks are typically limited and pretty low, contrary to other financial markets. You will know exactly what you will get based on how much you want to invest and you can’t possibly lose more than that. Do keep in mind though, that you pay for losing trades — you lose your trade amount or the majority of it.

Now that you know the basics on binary options trading, another thing to consider as well is that you would need to find a reliable, trustworthy, dependable broker. If they offer excellent advice, the better. You will still need assistance no matter how easy this type of trading may sound. Be sure to look out for binary brokers that offer great customer service support, flexible in trading assets, and easy to navigate website for your convenience.

Would you try out binary options and add it to your investment portfolio?

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May 252015

When it comes to managing cash, do what works

By |May 25th, 2015|General Personal Finance|1 Comment

Most of my more recent friends think of me as being good with money. To an extent, their perception is accurate. I love talking about total return, asset allocation and risk tolerance. I would happily debate the merits of holding stocks in a portfolio past retirement age, or the importance of guarding against inflation risk.

These are concepts related to investing. Cash management, however, is an entirely different animal.

From the time I was little, my relationship with cash has leaned toward the dysfunctional. I have experimented with multiple bank accounts at different institutions, paying myself for services I have decided to forgo, and putting money in a swear jar. I have gone to ridiculous lengths to keep from raiding the proverbial cookie jar, including bank accounts in far away cities with no access points whatsoever and complicated electronic “envelope systems” that ultimately and inexplicably led to overdraft fees in multiple accounts at the same time.

risk evaluation

Some time after I joined the “real” world, cash and I reached an understanding. I no longer need go to ridiculous lengths to keep my family solvent. But even now, careful scrutiny of my comparatively streamlined approach to cash management will betray signs of its tumultuous beginnings.

Here are some of the tricks I have used to save for a goal, keep my spending under control, and keep things interesting. Because let’s face it, managing cash can be BORING.

The Coffee Game. Ever have a habit that needs a hard look, but is too dear to you to bear scrutiny? Mine was fancy coffee. $4 worth of it, nearly every day. So I started saving my coffee money and brewing the coffee at home, just to see how fast it would grow. I used a jar because I wanted to literally watch it grow, but these days online banking makes it easy to do it in a bank account. But I like the cash – it makes it more fun. (The result of my diligence was a taste for only black coffee, which has saved me lots of money over the years.)

Save the Fives. This is another one that helped me make good decisions about my smaller spending decisions. There was never a time in my life where spending $5 would cause me to lose sleep, yet saving my fives was enormously satisfying. I’ve used this one to save for things that I didn’t think I could afford at the time, and it taught me to be mindful of how small changes can have a big effect on my financial situation.

Turn on the autopilot. When online banking became a thing, I was sure it was a gift from heaven, just for me. I started adding up my fixed expenses (rent, car payment, insurance, etc.) and redirecting them to a separate account (the one in a different city with no access point, actually.) I also included just a little bit extra each month, just to be safe, set up all my bills on autopay, and pretty much put the whole thing out of my mind. Lo and behold, when I checked back several months later, there was a surprising amount of money in the account – more, in fact, than I had ever had at one time. It was that feeling that helped the lesson sink in. In order to build wealth, I had to find a way to foil my own worst self.

Obvious, yet elusive

I am perfectly aware that not one of these scenarios netted a result I couldn’t have foreseen with some pretty basic calculator work.   But that’s not the point. As you may be aware, it’s a theme of mine that people rarely behave rationally, and I am a spectacular example. There is absolutely no reason to be ashamed or embarrassed because you find the basics of managing cash to be elusive. Saving money is difficult for many of us, and admitting that you may need to do something unconventional to accomplish what is simple in concept is the first step to building wealth.

Of course, from a strictly financial standpoint, not one of these strategies makes sense. Don’t let that stop you. Remember that sometimes the best tool for managing cash is the one that works for you.

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May 252015

How Do Quick Loans Work?

By |May 25th, 2015|General Personal Finance|Comments Off on How Do Quick Loans Work?

If you’re short on cash and need money in a pinch, turning to a quick loan is a viable option. However, before applying, you may have a few reservations about what a quick loan is and how it works. Below is a brief overview of the quick loan process.

What is a Quick Loan?

Quick loans are a convenient method to get money fast and when you need it the most. It is a loan with a high-interest rate that could lead borrowers into a huge financial trap if not use appropriately. However, quick loans should be used as an emergency short-term loan. You can get access to these loans in as little as 24 hours.

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How to Qualify for a Quick Loan

Unlike a typical loan, your credit score is not used to determine your eligibility for a quick loan. Therefore, a credit check is not necessary. Typically the qualifications for a quick loan are that you need to have a reliable form of income. You also need a valid checking account since the quick loan will be deposited into your account electrically. In addition to that, your payments will be automatically withdrawn from this account.

Your eligibility amount is determined by your verifiable income. Since most quick loans are required to be repaid on your next paycheck cycle, it should not be more than your paycheck amount. Some quick loans, however, do offer flexible repayment options. So you could qualify anywhere from $250 to $5000 and more.

What Proof of Documentation Do You Need?

Today applying for a quick loan is quick and easy. To show proof of eligibility, you may need to submit the following documentation:

  • State issue photo id
  • Proof of income
  • Valid checking account information

You may be required to either fax or uploads those documents to the quick loan lender.

Faxing and Emailing Tips

Since you may be pressed for time and need your money immediately, running around town to make copies of your documents can be a hassle and have you miss the cutoff deadline. So below are a few tips on how to successfully fax or upload your documents to get approved for your quick loan fast.

  • Take a picture of your documentation with your smartphone
  • Upload your documents to an online storage drive
  • If required to fax your documents, use a free service such as HelloFax or FaxZero

Above is a brief overview of how quick loans work. Now you should be able to have everything at your fingertips to apply and be approved ASAP.

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May 222015

How to Maximize Your Wealth Potential

By |May 22nd, 2015|General Personal Finance|Comments Off on How to Maximize Your Wealth Potential

Rather than wasting your time with half-hearted efforts to attain more money, why not focus on the money you already have? Whether you are thinking of buying a property, looking for a suitable investment or attempting to increase your savings, you should seize any opportunity to make the most of your finances. Here are some ways to maximise your wealth potential.

1. Improve your financial literacy

Do you ever have trouble making sense of your finances? Deciphering documents such invoices and tax returns can be a complicated process, especially if you don’t have much experience with managing accounts. Expanding your financial vocabulary will make bookkeeping significantly less confusing and enable you to comprehend the most important details of your finances. A qualified accountant or financial planner can help to broaden your understanding of money, giving you the potential to maximise your wealth and secure a financially stable future.

Dollar cost averaging to reduce risk

2. Forex trading

Forex trading involves speculating the value of currencies on the foreign exchange market, with the objective of generating a profit. It may sound complicated, but anyone can learn how to become a forex trader, and it presents the possibility to generate a source of income. If the world of trading sounds appealing to you, consider expanding your knowledge with a training organisation such as Learn to Trade , where experienced traders can provide expert advice via a Forex workshop .

3. Establish an investment plan

In order to successfully invest your money, it is essential to have some sort of a plan in place. Resist the urge to rush out and invest your savings without stopping to consider the consequences first. Identifying an appropriate investment can take time, but by studying the stock market and taking note of current market trends, an opportunity to maximise your wealth potential should eventually present itself. Even putting as little as 10% of your earnings each month into an investment can eventually lead to a valuable source of capital, especially as your wage increases over time.

4. Combine your bank accounts

Unless your have an unavoidable reason to keep your checking accounts separate, combining them could save you hundreds of dollars in bank fees. As small as they are, you might not take much notice of fees as they are deducted from your account, but they can add up over time and hinder your capacity to maximise your wealth potential. By transferring every last cent of your day-to-day spending money into the one account, you can protect your hard earned cashed from costly fees. In order to resist spending your savings, they should be kept separate, preferably in a high interest account where they can’t be easily accessed, and any unused banks accounts should be closed down immediately.

Anyone can maximise their wealth potential, regardless of their current financial situation. Do you have any advice on how to make the most of your money? What has worked and what hasn’t worked for you? Share your thoughts in the comments below and contribute to the discussion.

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May 202015

YourWela Review

By |May 20th, 2015|Personal Finance Tips|Comments Off on YourWela Review

Have you been looking for a place to organize all of your investing accounts or create and track your financial goals?

YourWela.com is one site that can help you do just that, plus so much more.

Getting Organized with YourWela

YourWela.com is different compared to other financial tools websites and I have checked several of them. What makes them unique is that they will give you holistic and real visions of your financial situation.

They don’t sugar-coat things and make you hear what you want to hear. Whether this is regarding investments, getting out of debt, cash or real estate values, they are straight to the point. You can use this information to make a plan and stay motivated to reach your financial goals.

Another great offer they have is the ability to create a personal portal which allows you to set the most relevant financial goals to you and as a user you will also have access to real people that can relate to you and your situation to share tips and pointers for financial improvement.

The creators of Wela have decades of experience as financial advisors, so you know that you are in good hands.

YourWela Review

Aside from this, their website is chock full of great features? They offer free tools and resources so that you can customize and create your own action items and goals. One of my favorite parts of the free service is that they’ll send you emails to keep you accountable for the goals you set.

If you would like the assistance of one of their team members for investment management, they also offer it at a very low cost.

Here’s a complete breakdown of what you can get with a free account:

  • A personalized financial game plan to help you reach your goals step by step
  • The ability to view all financial accounts from one dashboard
  • Detailed 401k and 403b allocation
  • How much house you can afford
  • How much you should save for your children’s college
  • Debt destroyer calculator
  • Set and track financial goals
  • Have emails sent to you to keep you on track with your goals

Choose YourWela

There is a no-one-size-fits-all approach to finances and YourWela knows this. They will look at your current financial situation with the goals you have in mind, create a game plan for you, and help keep you accountable.

You can check out Your Wela here.

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