Have You Failed

It’s that time again. Time to put away your summer fun and return to the classroom. When you send you kids, back to school it is usually the time we think about how much they have grown and where they will be in a few more years. Are your kids (or grandkids) getting close to graduation? Are they still in elementary school? Do you know if they are going to be ready for college when the times comes? Now is the time to start planning for college. It is never too late to start a 529 Savings Plan.

I know we have talked about this before, but I bring it up again because in a recent survey conducted by the financial service firm Edward Jones, 66% of people surveyed still do not know about 529 Plans, despite them being around for almost 20 years. What is slightly up from last year is 34% could correctly identify a 529 plan from four options given to them, but still do not understand how they work.

We all know that college is increasing in cost every year. Some people are at a loss on how to pay for college. We know that loans are an option, but some people do not like to have enough debt that they will be paying off into their thirties. The 529 Plan allows families to start early. You can set up a plan for your child when they are born or any time before they are in college. The soon you start the account the more chances you will have to save.

Each state has different rules for the 529 Plan, but most have the same key features. You set up an account. It does not who sets up the account. It can be a parent, grandparent, etc. The account is similar to a retirement plan, once it is time to send your kids to college, they can withdraw money from the account to pay for fees, books, tuition, and housing. If you would like more information talk to your financial advisor, or visit: https://www.learningquest.com/content/investing_with_a_529.html.

We all know the value of a college education. Let’s be proactive and help our children develop their future. By setting up a 529 Plan, you are helping your child manage the cost that will lead them on the path to higher learning and set them up for success.

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529 Plans and Saving for College

What is a 529 plan? Good question, right? This time of year is the perfect time to ask that question. It is back to school time and many student and parent wished that they had started a 529 plan a long time ago. The good news is you can start a 529 plan at any time, but the earlier you start the better.

Ok, back to the first question. A 529 plan is an education savings plan operated by a state or educational institution that helps family set aside money for future college costs. It is named after the section in the Internal Revenue Code that created the saving plan in 1996. A 529 plan can meet the costs for many colleges nationwide. A 529 plan is not affected by the state you saving plan is from. You can be a resident of VT, invest in a KS CA plan and send you student to a NC college.

Nearly every state has a 529 plan available, many offers more than one type and it is up to you to determine which is best for your family. Each state decides whether to offer a 529 plan and also how it looks. It is best to research the features and benefits for each plan before you invest. There are some benefits regardless of where you live. Some are:

  • The distributions that pay for the beneficiary’s college comes out tax-free
  • Many states offer tax breaks in addition to the federal treatment
  • Donor retains control of the funds
  • Low maintenance
  • Simplified tax reporting
  • Flexible
  • Substantial deposits are allowed

The 529 saving plans re categorized as either a prepaid or a savings plan. The savings plan is much like a 401K or IRA. You invest contributions into mutual funds or similar investments and your account will go up or down based on the value of the performance of the option you selected. The prepaid option lets you pay for part or all of the cost of instate public college costs. They may be converted for use at private or out-of-state colleges, but there is a separate investment plan for private colleges.

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Super-Funding College Saving Plans

We all know that college is expensive. It can cost upwards of $41,000 a year for private four-year college and $18,500 for a state college. Because of the high cost of college many wealthy clients are taking advantage of 529 college saving plans and the special rule that allows contributors to front-load five years of savings in one year.

The 529 college saving plan are a great way to save for college. The plan allows a parent, grandparent, etc. to establish a college fund for each child. This fund can be used to pay for college, but does not have a timetable on which the money has to be spent or withdrawn. It is a great way to save for college and can be included in estate planning.

There is currently a special rule that governs how contributions can be made. This rule allows contributors to front-load five years of savings in one year. So for clients, that means they can set aside 14,000 at the end of one year (in December) and then in January they can contribute another $70,000 for each would-be scholar. This is a grand total of $84,000 per child.

This strategy allows wealthy clients to take substantial amounts of money out of there estate without facing penalties from the IRS. If the money or part of the money is not used then the account can be transferred to another child, or the funds can be withdrawn. If the funds are withdrawn then there is a 10% penalty and taxes on the earnings.

There is one drawback. If the account is owned by the college student or their parents this counts as an asset and reduces the need-based aid by a maximum of 5.64% of the asset’s value. If the plan is in the name of the grandparents it will not affect the federal financial aid application, but the withdrawals made on the account do count against the aid needs and have a large consequence.

While this plan is good, very few can afford to do contribute that much at a time, but contributions can be made in December and then again in the spring with tax refunds. It just matters that you do something then wait until it is too late.

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Planning for Back-To-School

There are many changes occurring as millions of us head back to school. With so many changes, it is a good time to review financial plan. It is also a good time to discuss financial responsibility with children whether they are going off to college or starting Kindergarten.

During this time of year, it hit home just how much we spend on getting kids back to school. There are new gadgets to buy, clothes, shoes, school supplies, books, tuition, etc. that we spend our money on during back-to-school time. It is important, especially this time of year, to set a budget and keep it. Showing kids how to be financially responsible can start at a young age, and the knowledge will prepare them for the future.

To start create a family budget that include money for the extras of back-to-school, and keep to the limit set. If children are old enough to have and use credit cards, set a responsible limit, while allowing them the freedom to choose what they want to buy. A good way to do this would be to give them a prepaid card that has a specific limit. When the money is gone, it is gone. Make them earn more before you put more on the card.

Teach children to protect their personal information. Anyone at any age can be exploited and be a victim of fraud. Teach them to use secure passwords, and only use social security numbers if required.

For parents of children of any age, it is time to start a saving plan for college. It is never too late to start and never too early either. College can be financially draining to the college student and parents. By planning and saving even a little, it will help alleviate the cost burden of college. If starting early enough calculate cost for tuition, books, housing, etc. and set your saving to reflect the cost. Periodically check the total and adjust where needed.

By taking some small steps, financial responsibility can be achievable for anyone, including children and young adults.

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College Loans: Paying Them Off

Now that you are a college graduate, you have many things to think about; finding a job, maybe a new place to rent, and paying off student loan debts. With all the talk about student loan interest rates in Congress, it is important for student have a plan for paying off loans after college. Nearly 12 million students will take out loans to help pay for college, and with 37 million students currently with outstanding debt, the total student loan debt is reaching towards 1 trillion. Having a plan to help reduce student debt loan is vital for any college graduate.

Most college students do not fully understand the financial burden student loans will be on their future. Around 75% of them will make sacrifices, either personally or financially, to repay the loan. Some tips that will help make it easier to repay student loans debt are:

  • Understand You Options. It is important to know the different options of payment, including standard repayment, graduated repayments, extended repayment, and income-based repayment. Research which payment would work best for you and contact you lender for financial help. If you cannot pay there are options for you including deferment, forbearance, and loan cancellation. Many of the option will require an application and financial proof, so working with your lender is very important.
  • Keep Track of Paperwork. Keeping accurate records including promissory notes, correspondence from lenders, notes on phone calls and other loan related paper. If you lose any paperwork, you may have problems providing information to your lender if you need to seek a deferment, forbearance, or loan cancellation.
  • Grace Period. Most student loans have a 6 to 9 month grace period before official payments start. Use this time to find a job, make a budget and start tracking your monthly expenses. Make sure to budget in paying student loans, so you are not surprised when the payments begin.
  • Student Loan Interest Deductions. If you pay $600 or more to a single lender, our interest is deductable. At the end of the year you will receive Form 1098-E from your lender showing the exact amount of interest paid over the year.
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Charitable Deductions: Individuals Going to the Limit

Charitable DedutionsThe leaves are changing and the weather is getting cooler, and people are starting to think about the upcoming holiday season. We all know it will be here before we know it, and it is the time to give to those less fortunate then us. Charitable giving by individual donors accounts for 75% of all US giving according to recent reports by Blackbaud Inc. and Atlas of Giving, national organization that provide analysis trends over charitable giving in the United States.

Charitable giving as defined by the IRS as a contribution or gift to, or for the use of the following:

  • A state, but only if the contribution is made exclusively for public purposes, such as a gift to reduce the public debt.
  • A corporation, trust community chest, fund, or foundation that is created or organized in the United States exclusively for religious, charitable, scientific, literary, educational purpose, to foster national or international amateur sports competition, for the prevention of cruelty to children or animals, for war veterans, an auxiliary unit or society of, or as a trust or foundation for an entity.
  • A cemetery company owned and operated for the benefit of its members or a corporation chartered solely for burial purposes.
  • A domestic fraternal society, order or association operating under the lodge system, but only if the contributions is exclusively used for purposes stated above.

Once you know to whom you want to give your donation, it is important to know how much you can deduct on your taxes. When giving charitable donation, if an individual gives 20% or less of their adjusted gross income then there is no limit considerations. Depending on the type of donation and organization, there may be a limit of 20%, 30% or 50%.

There are very stringent documentation rules that govern donations. You must have a record of the amount of the donation and how the donation was made, example: cash, noncash, or out-of-pocket expense. Some documentation that works is bank statements, credit card statements, written communication from the organization, payroll deduction record. These must have the amount donated and the name of the organization.

By knowing the legal restrictions and regulations governing charitable giving, the process is easier for everyone. Having a good, trusted financial advisor to help is always the best course of action when making large donations.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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Tips for picking a CPA

Mike Crowley | Crowley Halloran CPA

Michael W. Crowley, CPA - Principal

One of the most critical decisions anyone can make is picking a good-quality, reliable accountant. There are several things to keep in mind when a business owner chooses an accounting firm. Many accountants are excellent, but are they going to meet your business needs?

There are a few basic tips to keep in mind, as a business owner, when choosing a CPA firm:

Certification: The CPA should meet all the states requirements and passed the required exam. It is important that an accountant has met all the requirements and even continues their education to stay certified. It is the best way to know that they are current in all the new procedures and tax laws.

Experience: Make sure the accountant or CPA firm is experienced in the business field that your business specializes in. It is important that they know what the unique business needs are and how to handle any problems that may arise. They should have worked with that business industry before or something very similar.

Size: While the larger, more popular CPA firms may be ok, do not over look the smaller firms. The larger firms can probably take care of all the business needs and more, but the smaller firms will offer a more personalized approach. Many of the larger firms will contract out the smaller firms to work on small accounts anyway, so why not start with the local, smaller firm and go from there. Just make sure they meet the requirements that your business needs.

Get a Referral: One of the most important factors to finding a good, reliable CPA is to get a referral. Ask your friends, family, co-workers and other business owners to see who they would recommend. The best reference usually comes from word of mouth.

Once all the references have been compiled, do some research on the CPA firm and then ask to meet them and conduct an interview. Ask questions and find the right fit for you. Remember your CPA is to be one of your most trusted advisors, so make sure they are the right fit for you and your business.

Here at Crowley & Halloran CPA’s, our consultants would be happy to help you plan and manage your business budget. Click here to request a proposal.

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