Is a 529 Plan the Best College Savings Plan?

Where do you put your money?

You contribute after-tax money, so gets US off your back because the money growing from now on is all tax-free as long as it’s use for college expenses.

There is a contribution CAP of about $300k to $350k, depending on the state of the plan.

What if you child decide to not go to college and wants to be a rock star instead?

In that case, you can change the beneficiary of the 529 plan to a close relatives, such as you other children, grandchildren or even yourself or your spouse.

However, if no one is going to use that money for college education and you decide to withdraw the money, you’ll be hit with a 10% penalty PLUS income tax.

Besides, money in a 529 Plan is considered during financial aid application process as parents’ assets.

Let’s take a look at another very similar savings vehicle…the ROTH IRA.

The ROTH IRA is not just for retirement.

You contribute after-tax money, so gets US off your back because the money growing from now on is all tax-free as long as you withdraw your money after 59 1/2.

But Uncle Sam is very smart, he limits what kind of money you can contribute AND how much you can contribute each year.

Contribution must be earned  income, meaning from a JOB.

The current annual contribution limit of $5,500, an extra $1,000 for catch-up if you’re 50 years old.

10% penalty on withdrawal before 59 1/2 PLUS income tax except if you’re using the money for college expenses, down payment for first home, and medical expenses.

An of course, if you take the money out after you turn 59 1/2, you can use it whatever way you want.

Best of all, money in an retirement account is not considered when applying for financial aid.

However, there is a income limit for contribution as well. So if you make too much money, you cannot contribute to a ROTH IRA.

What if you want to contribute more than $5,500 a year and still take advantage of tax-free growth?

* QUICK FACTS: $5,500 a year for x40 years = $220,000. Is that enough for your retirement. Rule of thumb is you’ll need x20 times of your current income for a COMFORTABLE retirement.

Your next option is an indexed universal life insurance.

You contribute after-tax money, so it gets Uncle Sam off your back because the money growing from now on is all tax-free.

The money in the cash account can be used for anything, such as college tuition and expenses. If your child decides to not attend college, he or she can use the money as down payment for his/her first home or invest in a business, etc.

When my daughter earns her first paycheck at 16, I opened a ROTH IRA for her to get her started. Even though she does not make $5,500, but because I started her early, I put the full amount of her earned income, so she has more years to save. We all know $5,500 a year is not a lot. With the money in the ROTH IRA, we invest in low-fees index funds.

All her gift money from birthdays and holidays goes into her life insurance cash account making “money babies” safely at 10% annual return and tax-free.

 

Slow and Steady Win the Race…is the idea behind Dollar Cost Averaging

Remember your childhood story of the race between the tortoise and the hare?

Slow Steady Wins the Race

The hare thought he is a lot fast than the tortoise decided to take a nap and runs very fast to catchup, but did realize he over-slept. Even though tortoise was slow, he just grinds on slowly and steadily and beat the hare.

What we learn from the story is rather than trying to be aggressive to time the market, you contribute consistently small amount every month to a low-fee index fund.

Low-cost Index Fund Trading

As you see in the example of Andy and Brenda. Andy sporadically invest lump sums of money while Brenda invest smaller amount every month consistently.

Dollar cost average vs Lump Sum Investing

Andy ended up buying shares only once at a higher price, while Brenda was able to buy more shares at various prices, which averages out to be cheaper per share price.

Now, when the price per share goes up, who has the better return?

So do you want to be Andy or Brenda?

Real life example. I contribute every month to my employer-sponsored retirement account  because my employer matches a certain percent.

My contribution is taken out of my paycheck every month whether the market is up or down. So during the 2008 crash, I was still contributing every month. So I was buying shares at dirt cheap prices. The year after the crash, I noticed an extra $60,000 in my account value.

Where else can you make $60,000 in a year without moving a finger?

This is the magic of Dollar Cost Averaging

Why You Want to be a Business Owner or Investor?

How are you making money?

The Power of Leverage

As business owner or investor, you generate passive income through leverage.

This is what separates the LEFT from the RIGHT quadrant. The RIGHT side of the quadrant, you are trading TIME for MONEY; on the LEFT, you are LEVERAGING other people and/or money for money.

This also explains why everyone has the same 24 hours a day, but some makes millions a month, and others barely scrape by each month.

A business owner owns a system that generates income. An investor owns investment that generates income.

Tesla

Tax Benefits for Business Owners and Investors

As an employee, can you deduct your car expenses, driving mileage, dining out, country club membership, entertainment, life insurance premium, laptop, smart phone?

Let’s see what kind of deductions employees are allowed. Let’s use me as a demo.

I have a regular full-time job as a pediatric dietitian. Each year my tax deductions in job expenses includes any fees I paid for continuing education, conferences that I attended, professional membership fees, professional re-certification exams, licensure renewal. That’s about it.

I purchase a car to commute back and forth to my job, put gas in the car so I can drive, pay for registration, safety check, insurance and whatever maintenance fee for my car, just so I can get to work. As a professional, I have to wear nice clothes to be presentable to my patients. I buy lunch in the hospital or I may bring leftover from home for lunch. All these are other expenses that I cannot deduct.

Now let’s look at my tax deduction as a business owner.

I’m in the financial and real estate business.

For my business, I deduct any fees I paid for continuing education, conferences that I attended to learn more about personal finance to help more families, professional membership fees, professional re-certification exams, licensure renewal, laptops and cell phones to write contracts, articles, advertising and contacting clients, legal and professional fees for professional advices, meals when I’m out meeting with clients, part of my car expenses when driving to meet clients, travel expenses when visiting my rental property in California, which happens to be where my daughter goes to college.

I can keep going on with this list. Business owners and real estate owners enjoy tax benefits that employees do not. And the impact of tax on your income can significantly affect how fast your wealth accumulates.

Learn about WFG Business Opportunity

Free Download Guide To Estate Planning

Who will make decision for you?
Guide to Estate Planning

Download this FREE guide to learn more about how proper estate planning can protect your family legacy and relationships.

 






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Life Insurance is Like Real Estate

Do You Rent or Do You Own Your Life Insurance?

Deciding what life insurance to buy is like deciding whether to RENT or OWN your life insurance.

When you buy TERM life insurance, it’s just like RENTING. You get to live in the home for a fixed period of time. After that you either renew your rental lease agreement or you move on. All the money you pay each month for rent is all gone paying for your landlord’s mortgage and building his/her wealth.

 

When you buy permanent life insurance is like buying your own home.

When you BUY your home, you own your home for life AND you have equity.

When you buy PERMANENT life insurance, you own your policy for life AND you have cash value.

As the year goes by, your home EQUITY goes up in value. Same is true with your CASH VALUE in your life insurance policy. As the year goes by, your CASH VALUE goes up in value as well.

In time of need, you can borrow money against your HOME EQUITY for emergency, down payment for a second home, private school or college tuition, supplement retirement income, medical expenses, etc.

In time of need, you can borrow money against your CASH VALUE from your policy for emergency, down payment for your first home or a second home, private school or college tuition, supplement retirement income, medical expenses, etc.

Related article: Be Your Own Bank (B.Y.O.B.)

When you die, your family will inherit your home, equity and mortgage.

When you die, you family will receive the death benefit pay out PLUS cash value.

FREE Download Saving Your Future

I want to share this book “Saving Your Future” with you because the information in this book has changed my life, and I hope it will change yours too.

You might be thinking why “Saving Your Future” instead of “Saving for Your Future”? We all know we need to save for our future. But the more urgent problem is many of us may not have a future…many people nowadays live paycheck-to-paycheck and is just one paycheck away from poverty. Because of that, there is no money left at the end of the month for investing. And worse, many carries never-ending credit card debts, mortgages, student loans. So, where is your future? Can you depend on your employers for  your retirement? Do you have a pension plan? How much would you get from social security? Can you survive on your social security income? Do you have savings? Are you saving enough?

This book contains a lot of simple financial strategies. You don’t have to read from front to back in sequence. You can look at the table of content and jump straight to the chapter that best fits your financial goals.

Consider signing up for the Financial Strategies Workshops in Honolulu, HI. There is no substitute for learning in a fun and interactive environment with experienced financial advisors.

If you want to learn more about our company, visit Join the Cause.

Remember, SHARING IN CARING

Please pay it forward and share this download link with your families and friends who could use this information.

Saving Your Future





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How to Maximize Your Tax Benefits?

Tax and Death

“In this world, nothing can be said for certain, except death and tax.” Benjamin Franklin.

As savvy tax payers and entrepreneurs, we take any deductions and credits to lower our taxes. We’re not trying to avoid taxes, we’re just trying to minimize what we have to pay in tax legally so with the tax money we saved, we can use that to generate more wealth.

Let’s start with the tax basics. Watch this video to learn how to calculate your taxes.

Tax Deductions vs Tax Credits

Tax Deductions are expenses that the US government allows to reduce your taxable income. For example, you make $70,000 a year, and incurred $10,000 in medical expenses. The $10,000 medical expenses are deducted from the $70,000. So instead of paying tax based on $70,000, your tax will be assessed based on $60,000 income.

Medical expense is only one of many allowed tax deductions.

Tax Credits are “free money” that the government gives you. Remember, back in 2008 when Obama was dishing out $8,000 tax credit to all new homebuyers? I’m a beneficiary of that credit.

Between tax deductions and tax credits, I’ll take tax credit anytime. It’s like free money, but, of course, you have to meet the criteria. And usually, it is a one-time deal.

Impact of Tax on Your Income

Tax and Inflation

As the above illustration shows, if you’re not careful, your income tax and inflation can eat up your savings like termites.
None of us can control inflation. But we can at least do something with our taxes to lessen the impact.

Tax now

Tax now…

Brokerage account

Checking account

Certificate of deposit

Savings account

 

Tax later

Tax later…

401k/403b

Annuity

Pension

SEP IRA

Traditional IRA

Tax never

Tax free…

529 College Savings Plan

B.Y.O.B. (life insurance)

Coverdell

Health Savings Account

Roth IRA

Roth TSP