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Should You Super-fund Your 529 College Savings Plan?

January 22nd, 2014 | No Comments | Posted in Financial News

50845918With college costs already astronomical and rising, saving for them isn’t just a year-end thing. But if those prices – averaging $40,917 a year for a private four-year college or $18,391 for a state school, according to the College Board – have got you down, there are some ways to max out your savings before 2013 ends.

You can stuff a lot of money into a 529 college savings plan now and then do the same thing at the beginning of 2014 – a strategy that advisers say they are seeing many wealthy clients adopt this year. Because of the interplay of gift tax rules and generous contribution limits on these plans, affluent grandparents (or parents, but it’s usually grandparents) can set aside as much as $84,000 per grandchild over the next month or so.

Contributions to 529 plans are made with after-tax money, but earnings that build up in the account are free of federal and state income taxes when funds are withdrawn for qualified education expenses. Some states sweeten the pot by offering tax deductions or credits against those contributions. In Illinois, for example, contributions of up to $10,000 a year for an individual or $20,000 for a couple filing jointly are deductible for state income tax purposes.

Federal tax rules allow annual gifts excluded from gift taxes of $14,000 per grandchild or other recipient per year, and there is a special rule for 529s that allows contributors to front-load five years worth of savings in one year. That means you can set aside $14,000 now and another $70,000 in January – for each budding scholar you’ve got.

Two grandparents with enough money could double that – with each putting away $84,000 per grandchild. Depending on where the child goes to school and how much the money earns within the 529 plan, you might be done with one sizeable contribution.

“Think of this as super-funding,” says Michael Conrath, executive director and 529 program director at JPMorgan Asset Management, a unit of JPMorgan Chase & Co. “You are getting six years compressed into a small window. That is a strategy that more affluent families will look at” as a way to aggressively cover those college costs and save on taxes.

THE SUPER STRATEGY

There’s no timetable by which you have to spend down 529 funds and no required withdrawals, and that’s what makes these plans a good place to do some estate planning while you’re saving for college.

The super-funding strategy allows wealthy grandparents to get substantial amounts of money out of their estates, notes Mike Campbell, a tax partner in the private client services practice at tax and accounting firm BDO USA. He says he has clients taking advantage of the five-year front-loading for their kids and their grandkids. “They are thinking about it in terms of estate planning,” he says.

If your child or grandchild ends up not needing all of the money you’ve set aside, you can change the beneficiary on the plan to another child, a cousin or yourself. Even if you needed to withdraw the funds for some other purpose, you would get most of your money and earnings back – owing a 10 percent penalty and taxes on the earnings.

There are some ramifications for financial aid. For federal, need-based aid calculations, the 529 plans owned by college students (who are dependents for tax purposes) or their parents count as assets and reduce need-based aid by a maximum of 5.64 percent of the asset’s value. But money withdrawn to pay for college does not get factored into aid calculations.

The reverse is true for 529 plans held by grandma, grandpa or anyone else. Those assets won’t appear on the federal financial aid application so have no impact on aid at first – but withdrawals do count against aid needs and can ding you pretty hard.

The result, generally, is that it’s better to have the plans in the name of the parents or students (assuming they are dependents), than the grandparents. Grandparents can contribute to those plans, however.

BENEFITS OF COMPOUNDING

Of course, there are a limited number of people who can afford to set aside such astronomical sums. But even smaller savers can benefit by plowing money into a 529 plan now.

You could, for example, use bonus money or cash received for the holidays to fund a 529 plan before year-end, and then do a second funding in January or from a tax refund next spring.

To really see the value of 529 contributions, consider the way that earnings on those savings compound, and then compare that to the interest you might be paying on college loans if you don’t save enough, suggests mutual fund giant (and 529 plan provider) T. Rowe Price Group Inc.

Covering $40,000 in college costs, for example, would require $32,000 in 529 plan contributions over that child’s first 18 years or $61,000 in total payments on student loans, according to T. Rowe Price calculations.

Calculating the optimal contribution is less important than making a contribution, says Conrath: “Don’t get caught up in the numbers, but do something.”

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Student Loan Repayment Options

January 22nd, 2014 | No Comments | Posted in Financial News

shutterstock_112059581Most student loans are funded by the U.S. government.  These loans, called federal student loans, offer some flexibility in how they are repaid.  Below is a brief explanation of some of the most common federal loan repayment options.

Standard Repayment – You pay a fixed monthly amount and pay off the loan in 10 years (or less).  You pay the least amount of interest with this repayment plan.

Graduated Repayment – Starts with a lower monthly payment amount and then gradually increases the payment amount every two years.  Like standard repayment, the repayment period is up to 10 years.  However, you’ll pay more interest over the life of the loan.

Extended Repayment – Stretches loan payments from the standard repayment period up to 25 years.  This lowers the monthly payment, but increases the total paid in interest.  Total student loan debt must be more than $30,000.

Income-Based Repayment (IBR) – Can help borrowers keep their loan payments affordable, with payment caps based on their income and family size.  This option can significantly lower payments and is best used in conjunction with a loan forgiveness program such as Public Service Loan Forgiveness.   Repayment period is up to 25 years.  Estimate monthly payments using the government’s Income-Based Repayment calculator.

Public Service Loan Forgiveness (PSLF) – Program for borrowers who work in certain kinds of “public service” jobs, including jobs in government and nonproft 501(c)3 organizations. It will forgive remaining debt afer 10 years of eligible employment and qualifying loan payments. Also, during those 10 years, the Income-Based Repayment (IBR) plan can help keep loan payments affordable.

Pay As You Earn (PAYE) – Usually has the lowest monthly payment amount of the repayment plans that are based on your income.  Your payment amount may increase or decrease each year based on your income and family size.  Repayment period is up to 20 years.  Use the government’s Pay As You Earn calculator to see if you qualify for the Pay As You Earn repayment program.

Federal Loan Consolidation – Can reduce the number of loans to one monthly payment.  However, it usually won’t lower your overall monthly payment.  Learn more by visiting www.loanconsolidation.ed.gov.  Private loans cannot be consolidated as part of this program.

Rehabilitation – Rehabilitating a defaulted loan requires nine on-time payments within ten months.  At that point, the loan is reinstated, derogatory remarks are removed from the credit report, and collection costs are waived. Rehabilitation arrangements are typically made by calling the original creditor or outside collection agency.

Deferment or Forbearance – Deferment or forbearance lets you temporarily suspend making your student loan payments. However, unless you have subsidized loans, interest charges will continue to accrue and the size of the loan will continue to grow during the deferment period.  You’ll need to work with your loan servicer to apply for deferment or forbearance.

  • Education Deferment – As long as you are attending school at least half-time, payments on the loan can be deferred until after you cease to be enrolled half-time. In fact, most loan payments will resume six months after half-time enrollment ceases.
  • Economic Deferment – You may qualify for an economic deferment if you are experiencing economic hardship due to low income.
  • Unemployment Deferments – If you can’t find a job, you may be eligible for an unemployment deferment for up to three years after you get out of school.
  • Disability / Rehabilitation Deferment – You may qualify for a loan deferment if you’re unable to work due to an injury or illness, if you’re caring for a dependent or spouse that is disabled, or if you’re undergoing rehabilitation for an injury or illness.
  • Family Leave Deferment – A parental or family leave deferment may be available if you can’t work or attend school because you’re pregnant or caring for a newborn or a newly adopted child.
  • Military Deferment – You may be eligible if you’re on active duty as a member of the armed forces, or serving full-time in the National Guard or Reserves.

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Postponing Student Loan Repayment

January 22nd, 2014 | No Comments | Posted in Financial News

Education dollar Business SchoolDeferment and forbearance are common options for postponing student loan payments. But use them wisely because, even though you aren’t required to make payments for a specified period, interest continues to accrue and debt balances continue to grow on most loans.

What is a Deferment?

A deferment temporarily suspends required payments of a student loan. Interest will stop on subsidized federal loans, but will continue to accrue on unsubsidized and other loan types.

Deferment:

As long as you are attending school at least half of the time (as defned by your school), loan payments can be deferred. Most loan payments will resume six months afer you are no longer attending school at least half time.

Economic Deferment:

Economic deferments generally fall into one of two categories: economic hardships and unemployment deferments. Students must demonstrate need through a statement of annual earnings.

Disability/Rehabilitation Deferment:

You may qualify for a loan deferment if you are receiving rehabilitation training under an approved program, unable to work due to an injury or illness, or caring for a disabled spouse or dependent.

Family Leave Student Loan Deferment:

A parental leave (or family leave) student loan deferment is available to borrowers that are pregnant or caring for a newborn or a newly adopted child.

Military Deferment:

You can obtain a military deferment if you are on active duty as a member of the Armed Forces, or when serving full time in the National Guard or Reserves.
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What is a Forbearance?

A forbearance is similar to a deferment, however, it is typically easier to qualify for a forbearance. Interest continues to accrue during the forbearance period.

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4 Sneaky Retail Tricks

January 22nd, 2014 | No Comments | Posted in Lifestyle

Retailers know sales entice us to spend, and to that end stores play some magic tricks to present the illusion of a deal. For example, did you know that certain numbers used in pricing entice us to buy?

Don’t be duped! Watch out for these sneaky retail tricks.

Goldilocks Pricing

If you’ve shopped for electronics, like TVs lately, you’ve probably noticed three similar sets with three different prices: low, medium and high. It’s strategic and known as ‘Goldilocks Pricing,’ according to Mark Ellwood, author of the new book Bargain Fever. And with this positioning, retailers know exactly which price we’ll fall for.

“What the store is trying to make us do is gravitate to the one in the middle, because that’s probably where the margins are best. I guarantee you there’ll be very little feature difference between the cheapest and the middle one. So if in doubt, go for the bargain,” says Ellwood.

Anchor Pricing

Another tactic called ‘anchor pricing’ makes a regularly priced item seem like a better value when placed beside a much pricier piece in the same store.

“Next time you walk into J. Crew look for one of the Collection pieces — it’s one of those $900 blouses. They’re hanging on the rack not to be sold but because they will make the $200 blouse next to it look a whole lot cheaper,” remarks Ellwood.

Ellwood suggests carrying the lower priced item into another department for a clearer perspective. Then ask yourself if you still think it’s worth the price.

Misleading Phrases

Next, studies show certain words trigger spending, and some retailers employ misleading phrases to increase sales. Words like “low price,” “great value” or “today’s special” can be used on a product that hasn’t actually been reduced in price. You may want to double check it’s truly a discount by simply asking a sales associate.

Manipulative Pricing

Finally, we rely on price tags to tell us what something is worth, but this is another way retailers sometimes try to manipulate.

Ellwood says we associate prices ending in a ‘9’ with a good deal, while prices ending in a ‘0’ connote high-quality goods. And exact prices, such as $12.97 or $8.24 suggest an item has been priced as low as it can go. “Somehow we assume that that price that is so exact has been calculated or worked on and they’ve really given us the best possible deal,” he says. Of course, certain retailers have been known to use certain digits for final sale items. For example, as Consumerist reported, Radio Shack, Gap and many other major retailers tend to use the number 7, for example $8.97, for final markdowns. But don’t always follow that assumption.

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Don’t Fall Victim To These Email Scams

January 22nd, 2014 | No Comments | Posted in Lifestyle

emailMany of us love shopping on the Web and keeping in touch via email, but a digital life comes with a downside: Americans reported losing an incredible $525 million to online cons in 2012, with the average loss a whopping $4,573, says the federal government’s Internet Crime Complaint Center. Phishing ploys are among the most common culprits. (The term is a play on the word “fishing,” because it means someone tries to reel in your private info and then steal your money or your identity.)

In two-thirds of the cases, victims are hooked by a bogus email that appears to have been sent from their bank or credit card or an online payment service such as PayPal, reports the Anti-Phishing Working Group. Such a message usually says there is a problem with your account and that your input (specifically, your password or other details) is needed. If you take the steps requested, you share enough personal details for the thieves to access your bank holdings or online payment service and steal your money. Or, they may secretly install malware, an insidious form of software, on your computer.

After that, once you click on a link or download a file, that software “will record everything you type when you log in at a bank site or shop online with your credit card information,” explains Marian Merritt, an Internet-security expert and the author of Norton’s Family Online Safety Guide. Either way, the con artists snag the info they need to use your credit cards, hijack your bank accounts, or steal your identity.

Do Damage Control

But what if – uh-oh – you unwittingly wind up revealing your personal info? First, don’t touch the device you were using when you fell for the scam. Use another device to log in to your critical online accounts (your email service and financial accounts) and start changing your passwords. Next, reach out to family and friends via a method not involved in the phishing scam. For example, text them if the thieves got into your email; email if they sneaked into your Facebook account. Warn your contacts not to respond if they receive anything from you via the compromised communication method. Hackers may send messages pretending to be you, saying, I’m out of town and in a bind; please wire cash ASAP! Believe it or not, these ruses often work.

Follow up, says Stephen Haag, Ph.D., an Internet-safety expert in the Department of Business Information & Analytics at the University of Denver, by running antivirus software if you have it, conducting a full scan of the involved device. “If your device has a bug on it that can’t be removed,” he says, “contact the antivirus-software publisher, which can most likely provide a software patch to rectify the problem.” If you don’t have antivirus software already running on your devices or you have any questions, get help from a professional service, such as Best Buy’s Geek Squad or Apple’s Genius Bar. “It’s rare that fixing the problem would cost more than the device or take longer than a few days,” adds Haag. (It typically costs about $200 to repair this kind of damage.) If you or your contacts actually lose money to scammers, reach out to your bank or the money-transfer service that was hacked as well as to the FBI’s Internet Crime Complaint Center (ic3.gov) to report the loss.

Prevention Pointers

Use antivirus software to help keep your computer safe from hackers. “It needs to be running every day, on every download,” warns Haag, whether you use a PC or a Mac. Some trusted names to look for when shopping: Kaspersky, Vipre, Bitdefender, and Norton.

One more tip: Store sensitive information, such as PDFs of old tax returns, on an external hard drive or as a password-protected document. “If anyone is on your computer without your permission, the first thing they look for is a file named ‘tax return,’ ” says Merritt. “Fraudulent tax-form filing is a huge problem” and a new avenue for identity-swiping, she says.

The Latest Ploy

The rule about not clicking on links or downloading files doesn’t apply just to your email: Wily scammers are turning to social media. Have you ever received a direct message on Twitter warning about what someone is saying about you? Or perhaps you’ve noticed a friend’s Facebook post touting a video with a come-on like “You’ll never believe what this guy did!” These are all new forms of phishing; if you open the link, you might well trigger a malware download. So stay smart and skeptical: Not clicking will help you hold on to your cash.

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January Economic Update

January 22nd, 2014 | No Comments | Posted in Monthly Economic Update

January Economic Update

10 Bargain Health Foods that Should Be in Your Basket

January 22nd, 2014 | No Comments | Posted in Lifestyle

Make your food dollar go further with these high-nutrition, low-cost choices.

bargain1. Beets
For less than $2 a pound, a two-for-one deal: Eat the roots and the leaves, for a double dose of fiber, potassium, and folate, and get antioxidant betalains and beta carotene in the bargain.

2. Cabbage
This modest member of the brassica family is rich in potential cancer-fighting sulforaphanes, and vitamins K and C. Cooked right, it’s mild and sweet — and paying 22 cents a serving is pretty sweet, too.

3. Canned salmon (pink)
For as little as 65 cents per 3-ounce serving, canned salmon is a great alternative to tuna, with more omega-3 fats and less mercury. Be sure to look wild canned Alaskan salmon.

4. Eggs
Versatile eggs offer perfectly balanced protein, vitamin B-12, selenium, and choline. Even enhanced with heart-healthy omega-3 fats, they’ll only set you back about 50 cents for two.

5. Lentils
A 1-cup serving of these fast-cooking legumes gives you half the fiber you need for the day, plus plenty of protein, folate, and iron — all for about 25 cents.

6. Oats
They’ve got more protein than bulgur wheat, plus soluble fiber, thiamin, iron, and selenium — and a hearty oatmeal breakfast for four costs about a dollar.

7. Quinoa
At less than 50 cents a cup, this tender, nutty grain-like seed beats brown rice when it comes to fiber and protein, and has healthy amounts of vitamin E, magnesium, and iron.

8. Sunflower Seeds
Get the nutrition and crunch of nuts, for a fraction of the price (generally less than $2 a pound). Sunflower seeds rival almonds for protein and fiber, and offer tons of vitamin E to boot.

9. Sweet Potatoes
A medium baked sweet potato gives you all the vitamin A you need for the day, as well as potassium, fiber, and vitamin C.

10. Tofu
A quarter-pound costs less than a dollar, but boasts 18 grams of cholesterol-free protein. Plus, the kind made with calcium sulfate provides more than half your daily requirement of calcium.

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The TOP 5 Super Bowl Advertisements from 2013

January 22nd, 2014 | No Comments | Posted in Videos

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