Retiring Earlier Than You Might Have Planned

Lately I’ve been writing more about the concepts of financial freedom and independence. While there’s certainly nothing wrong, with going the “traditional path” of retiring in one’s 50’s/60’s, time is definitely finite, so exploring ways to achieve this, or perhaps use it to pay down debt have become inspiring. However, some may get faced with retiring earlier than expected for unforeseen reasons, and it can help to be prepared.

10 Decent Shopping Portal Bonuses from Acorns

We’ve previously talked about the micro investing site, Acorns, on here, and how it can be a great way to get started in investing, by rounding up the spare change from your purchases, for investing.  The company has been making strides into other ways you can earn money, through their Acorns Spend card, as well as brands willing to invest in you (similar to shopping portal payouts).  This month, there are 10 brands with payouts that might be worth checking into.

Paying for College With The 529 Plan

  529 Plan

Who has heard of the 529 plan?

Whether you’re the parent of a newborn, or your little one is in elementary or perhaps even making their way through middle school, there is no time like the present to start saving for college.

Many may think that just a regular savings account would be sufficient to start saving for tuition and textbooks.  However, there is another investment vehicle that you can use to get rolling.  Similarly to how one can stash away funds for retirement in an IRA, those wishing to save and invest funds for college can choose the 529 plan.  Read on for more.

What is a 529 plan?

According to the SEC, “a 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.”

There are two types of a 529 plan, prepaid tuition and college savings plans.

Prepaid Tuition

The SEC states “prepaid tuition plans let a college saver or account holder purchase units or credits at participating colleges and universities (usually public and in-state) for future tuition and mandatory fees at current prices for the beneficiary. Prepaid tuition plans usually cannot be used to pay for future room and board.”

Generally most prepaid tuition plans receive sponsorships from state governments and can also contain residency requirements for the one who is saving for college or the beneficiary.  It is important to note that these types of plans are not guaranteed by the federal government.  Some of these state governments will guarantee the money that you put into the plan, however others will not.  That being said, the importance of checking your individual state’s guidelines cannot be stressed enough.  For example, if your investments are not guaranteed by your state, and the plan’s sponsor should go broke or have some other sort of shortfall, then you could lose some or all of your money.

College Savings Plans

With this particular plan, “a college saver can open an investment account to save for the beneficiary’s future qualified higher education expenses – tuition, mandatory fees and room and board. Withdrawals from college savings plan accounts can generally be used at any college or university, including sometimes at non-U.S. colleges and universities. A college saver may typically choose among a range of investment portfolio options, which often include various mutual fund and exchange-traded fund (ETF) portfolios and a principal-protected bank product. These portfolios also may include static fund portfolios and age-based portfolios (sometimes called target-date portfolios). Age-based portfolios automatically shift toward more conservative investments as the beneficiary gets closer to college age.”

Almost on the opposite end of the spectrum, all college savings plans ARE sponsored by state governments and only a few have residency requirements for the saver or the respective beneficiary.  It is also worth noting that state governments do not guarantee investments in college savings plans.

Also worth noting is that college savings plan investments within mutual funds and ETFs do not get federally guaranteed, however, should you make some of your investments in some principal-protected bank products, those may be insured by the FDIC. Don’t forget too that similarly to most investments, investments within college savings plans have the potential to not make any money and could lose some or all of the money invested.

Additional Perks

As an added bonus, investors saving for college within a 529 plan may also get additional tax benefits.  Of course, make sure you understand the tax implications of investing in a 529 plan and consider whether to consult a tax adviser.

One perk is that many states will offer tax benefits for contributions to a 529 plan. Benefits can include deducting contributions from state income tax or matching grants. However, college savers may only be eligible for these benefits if investments are made in a 529 plan sponsored by that specific state of residence.

Also when it comes to 529 account withdrawals for qualified higher education expenses, earnings in the 529 account are not subject to federal income tax and, in most cases, state income tax. If 529 account withdrawals are not used for qualified higher education expenses though, they will be subject to state and federal income taxes and an additional 10% federal tax penalty on earnings.

Final Thoughts

While there are certainly other options for saving for college out there, if managed properly, the 529 plan can be a great investment vehicle while saving for your child’s college expenses.  If you would like to learn even more, the SEC offers up additional information and circulars for your reference to see if this might be a good fit for you and your family.

Teens - How To Save Your Way to a Millionaire This Summer

compound interest Ah summer, you can hear the birds chirping, the bees buzzing, fresh cut grass, and the shopping malls a callin’.  The sweet freedom of summer.  Hold up.  That last part, the shopping malls a callin’.  While your favorite retailer is probably hoping you’ll be more than ready to drop that hard earned cash this summer in their store, did you know that with a little planning, there could be an even better use for that money?  Compound interest.  Read on to find out more.

Perhaps you have never stepped foot in your local bank or credit union, or on the flip side, maybe you are actively saving and investing for your future. Regardless, remember with little effort and patience, there’s something you may have heard of before that can help you better utilize that cash called compound interest.

Compound Interest - Saving Your Way to Millions

Compound interest - probably sounds complicated on the surface, right? Guess what though?  Compound interest is what is going to help you get on the fast track to being a millionaire.  It’s actually free money!  Still not sure what to think? Just check out this example of Ben and Arthur via to get just how much compound interest can help you in your savings journey for your summer job this year and go forward.

Ben and Arthur were friends who grew up together. They both knew they needed to start thinking about the future. At age 19, Ben decided to invest $2,000 every year for eight years. He picked investment funds that averaged a 12% interest rate. Then, at age 26, Ben stopped putting money into his investments. So he put a total of $16,000 into his investment funds.

Now Arthur didn’t start investing until age 27. Just like Ben, he put $2,000 into his investment funds every year until he turned 65. He got the same 12% interest rate as Ben, but he invested for 31 more years than Ben did. So Arthur invested a total of $78,000 over 39 years.

When both Ben and Arthur turned 65, they decided to compare their investment accounts. Who do you think had more? Ben, with his total of $16,000 invested over eight years, or Arthur, who invested $78,000 over 39 years?

Believe it or not, Ben came out ahead . . . $700,000 ahead! Arthur had a total of $1,532,166 while Ben had a total of $2,288,996. How did he do it? Starting early is the key. He put in less money but started eight years earlier. That’s compound interest for you! It turns $16,000 into almost $2.3 million! Since Ben invested earlier, the interest kicked in sooner.

Pretty sweet, eh?

So here’s what you can do now.  Your goal is to get going AS SOON AS POSSIBLE.  If you need help, reach out to your parents or teachers about how you can open a long-term investment account so you can get on your way to being a millionaire, too!  Finally, remember, the longer you wait, the less money there will be waiting for you at the finish line, so get rolling!




Your Top 8 Burning Questions About a Roth IRA

Roth IRA You already know that one of the best ways you can build wealth and save for retirement is through investing.  One of the most popular options through your employer can be your company's 401(k) plan.  Maybe you don't have that option though, but still want to get on the fast track to a healthy retirement. Enter - the Roth IRA.

Just What is a Roth IRA?

Glad you asked.  Simply - a Roth IRA (Individual Retirement Account) is a retirement savings vehicle with the purposes of allowing you to pay taxes on the money you put into it upfront.  Again, though, you might be asking, why should I have it?

There are two large advantages with putting away your after-tax contributions for your retirement savings.

  1. The money you invest in your Roth IRA, grows tax-free!
  2. You won't owe any taxes when you go to withdraw your money in retirement! For example, if the market goes bananas, and one of the funds in your account grows exponentially, you won't owe any taxes when it comes time to use that money in retirement!

Some other pertinent details:

  • Roth IRA accounts are something that you open and use outside of your employer retirement savings plan.  Although some employers may also offer a Roth 401(k) with similar advantages.
  • With Roth IRA withdrawals being tax-free in your retirement, they are a great idea for savers who are planning on be in a higher tax bracket when they retire.
  • For estate planning, you can choose beneficiaries to inherit your Roth IRA, and they will be able to withdraw funds tax-free as well.

What are The Differences Between a Roth IRA and a Traditional IRA?

The largest is in how each vehicle treats taxes.  Have a look at the below:

Roth IRA

The key to remember though for 2017 is that the total amount you can contribute to either a Roth IRA or a traditional IRA should not be any more than $5,500—or $6,500 if you happen to be 50 or older.

What Determines Roth IRA Eligibility?

If you happen to earn an income of any sort, then you are golden!  Of course there has to be a flip side to that right?  That is, you can't contribute any more than you make.  Say your adult child earned $2,000 one summer mowing lawns at a golf course, they could only contribute up to $2,000 to a Roth IRA. Conveniently, you can also contribute up to $2,000 on their behalf.

Even better, as long as you have earned income, you can contributing to a Roth IRA after 70 1/2, which is the cutoff for Traditional IRA contributions.

Are There Any Roth IRA Income Restrictions?

Per the Internal Revenue Service, tax filers that are single need to have a modified adjusted gross income or AGI, of less than $118,000 for being able to contribute the maximum amount—$5,500 ($6,500 if age 50 and older)—to a Roth IRA.  However, should your AGI fall between $118,00 and $133,000, you can still make contributions to your Roth IRA, but of course it will be for a reduced amount.

For those in wedded bliss, couples who file jointly have to have a modified AGI of less than $186,000 for contributing the full amount.  Of note is that contributions get adjusted for married couples with an AGI between $186,000 and $196,000.

That said, if your income happens to exceed the eligibility limits, congratulations on doing quite well for yourself!  Unfortunately though that will mean the end of the road as far as opening a Roth IRA - however a Traditional one could still be an option to look into.  When it comes to tax benefits for those vehicles, those can have different eligibility requirements, so you might be better served to check with an investment professional, such as those at Personal Capital, who offer wealth management services.

What If My Spouse Doesn't Work?  Can I Still Contribute?

Of course!  If you happen to file a joint income tax return with your spouse and have a taxable income, you can both make contributions to your own Roth IRAs.  However, it is important to remember that IRS income-eligibility limits are still in effect.

My Employer Offers a Roth 401(k).  Is That The Same Thing?

We brought up the Roth 401(k) earlier, and no they are not the same thing, however they are taxed the same way.  They have the similar connotation though in that the name of either plan means the money you are contributing will be get taxed upfront, be allowed to grow tax-free, and be taken out tax-free upon retirement.

Roth 401(k) plans are savings vehicles that are sponsored by employers. Remember if you receive an employer match on your Roth 401(k), the match is NOT tax-favored. Which unfortunately means, the growth from your employer’s match will be taxed when you withdraw your funds in retirement.

The great thing is though that you can still contribute to both your Roth IRA and your Roth 401(k) at the same time.  Again though, contribution limits will still be in effect for the Roth IRA.

Great!  So How Do I Get This Set Up Today?

The best bet is to go with an experienced investing professional who will meet with you face to face.  Many financial institutions will offer investment services for their customers, but make sure to do your research first.  You want to make sure they have your best interests in mind, and not necessarily their own bottom line.  Or again, if you don't have the time to meet face to face and would rather over the phone, check out Personal Capital.

Granted, you can invest in anything you want in your Roth IRA, however your best bet will probably be to select mutual funds, keeping you well diversified.

Or if you want to go the solo route - offers a wealth of options as well.  You can get started right away with them with a whole batch of investment services, including portfolio re-balancing.

Alright!  My Roth IRA is Now Open!  Now What?

Now that you've selected your investments for your Roth IRA, sit back, relax, and keep at it for the long haul.  Understand that the market will rise and fall - and so will the value of your Roth IRA.  During its lifetime though, you should see a reliable and steady growth trend.  Keep on making those regular contributions and sail into your retirement with more peace of mind.


How to Invest in an IRA With Little Money

Betterment While many may already be investing in 401(k)'s through work, others may not have that option and still want to get investing in an IRA, be it Traditional or Roth.  Certainly if you are not investing at all, then now is as good a time as any to start.  You may be asking, but don't I need thousands of dollars to start investing?  Not at all.  Betterment makes it extremely easy to be able to both start and accelerate investing.  Read on for more.

Betterment can offer better returns

According to their Overview, the Betterment portfolio is designed to achieve optimal returns at every level of risk.  Utilizing features like diversification, automated rebalancing, better behavior and lower fees, their approach to investing can help investors generate 2.9% higher returns than the usual go it alone investor.

One of my favorite features is that they also offer Tax Loss Harvesting.  This can find systematically embedded capital losses that can help lower your investment taxes and increase after-tax returns.  Granted if you're looking for an IRA investment opportunity, this might not mean as much anyway due to your individual tax situation, but if you are looking for a separate investment account with them, then this feature could potentially help.

The company mentions that most people do not receive good and trustworthy investment advice.  Generally many financial advisors are paid to recommend certain investments so they recommend them - EVEN if it's not in the best interest of their client - resulting in a huge conflict of interest.  Betterment also is not paid to recommend any funds - resulting in no hidden fees.  They only choose recommendations that they feel are best for each individual and their respective goals.

History is on their side when it comes to results

Generally the company doesn't try to best the stock market, but with the goal of lowering costs and minimizing taxes, they strive to optimize your portfolio for the best-expected investor returns possible.  Looking at their page, they more often than not would have outperformed the average client investor in almost all periods over the last decade.

How Much Will This Cost Me?

Ah the million dollar question.  If you're looking to get started with your IRA investment, Betterment let's you get started with NO MINIMUM BALANCE, and you can cancel at any time!  The annual fee is only 0.25%.  You get automated portfolio management, tax-efficient investing features, advice across your investments and their award-winning customer support.  There are also no trade fees for buying and selling securities, no transfer fees for depositing or withdrawing from your account, and no rebalancing fees for when you want to change things up in your stocks/bonds allocation.

That said, we have had success with Betterment, and feel it is a great way for individuals and families to get started with their IRA retirement saving.  While one can never predict the stock market, surely it would have to beat today's interest savings rates with the proper allocations selected.

So what are you waiting for?  Get to saving and investing today - you can't afford NOT to.