What’s a 529 Plan?

What's a 529 plan imageSaving for college can feel like an overwhelming task, especially since over the past decade, the average cost of college tuition has risen at more than double the rate of inflation. So, how do you prepare for this major expense? One of the more popular savings options is a 529 college savings plan, but what exactly is a 529 plan?

A 529 plan is a tax-advantaged investment vehicle sponsored by a state or educational institution that is designed to help families put aside funds to pay for future college costs. It’s named after Section 529 of the Internal Revenue Code.

Because there are so many 529 plan options available, it’s important to understand all of the aspects of a 529 plan.

For help understanding what a 529 plan is and if it might be the right option for you, CLICK HERE to download the free ePaper I’ve put together, What’s a 529 Plan?

In this paper you will find information on:

  • The differences between a prepaid college tuition plan and 529 college savings plan
  • Federal, state, gift and estate tax advantages of a 529 plan
  • The impact of a 529 plan on financial aid
  • And, much more!

Planning for college expenses can feel overwhelming. Reach out to me to conduct a college savings analysis to determine if a 529 plan is a good option for you and your family and get tips on how you can be doing more to prepare for this major expense.

For more information on getting your college needs analysis, email me at valerie@grinkmeyerleonard.com. I’m happy to answer any questions you may have.

Source: The College Board, Trends in College Pricing 2014

College Needs Analysis REVISED

What Does College Really Cost?

College Really Cost Image for Landing PageWith everyone settling down in the back-to-school routine, now is good time to think about your family’s future education plans. Do you want to help your child pay for college? Do you want cover all expenses or only pay for tuition? Do you know how much college really costs? Here’s a look at some of the numbers:

College Expenses
For the 2017-2018 school year in Alabama, public in-state tuition and fees averaged $6,288! And, tuition at larger universities like Alabama or Auburn can be as much as $10,500.

Many schools include the following expenses in their published costs for attendance, but the real numbers can vary significantly.

  • Books and supplies – In Alabama, books average $1,393 yearly. Most colleges provide estimates of this cost.
  • Room and board – Living costs including dorm or apartment costs, water, electricity/gas, cable, Internet, phone, groceries, snacks, and dining out averaged $10,440 nationally for the 2016-2017 school year.
  • Personal expenses and transportation – This category includes everything from clothing, laundry, toiletries, and entertainment, and the tab can add up quickly. Don’t forget to add in the cost for travel between home and campus for the weekends, vacations, and semester breaks. Consider how often your child will make the trip home and what mode of transportation will be used (bus, train, plane, or car). For the 2016-2017 academic year, the national average for personal expenses at a four-year public college was $3,270.

Pre-College Expenses – Even before kids enroll, college costs start adding up

  • Testing – High school students usually take at least one test for college admission, such as the SAT, ACT, or Advanced Placement (AP) exams. Because test results are an important part of the admissions process, students may opt to take an exam more than once to improve their scores. Plan on at least $200 in testing fees.
  • Test preparation – To gear up for college admissions tests, students may want or need to take preparation courses, which can run into the thousands of dollars for classroom instruction. Online exam prep courses typically cost less. Many who tout increased score results offer to reimburse you if scores don’t actually improve.
  • Application fees – Submitting an application typically costs around $50 and there is a growing list of schools that have a $75 application fee. Given that The College Board recommends that most students apply to between 5 and 8 colleges, these fees can amount to several hundred dollars.

Planning for college expenses can feel overwhelming. Now is the time to conduct a college savings analysis to determine whether you are saving enough and get tips on how you can be doing more to prepare for this major expense. For more information on getting your college needs analysis, email me at valerie@grinkmeyerleonard.com I’m happy to answer any questions you may have.

Sources: https://www.collegetuitioncompare.com/compare/tables/?state=AL

How to Build a Emergency Fund

How to build an emergency fund landing page imageIf the water heater breaks, you don’t want to be forced to beg or borrow just to make it through. An emergency fund can be your first line of defense against months or even years of debt. So how do you build one without giving up the ability to live your life? It all comes down to tricking your brain into making it easy. Try these simple steps and you’ll be on your way to feeling in control of your cash flow before you know it!

  1. Open an account at a bank on the other side of town – The first step to building a sizable emergency fund is to have a place to put money that’s out of sight and out of mind. In most cases, a simple checking or savings account will do. Don’t be bothered by the extra bells and whistles that banks can charge you. You’re not even looking to invest this money. The purpose of this account is easy access in case you need it. Choose the free version and keep it simple.
  2. Timing is everything – I strongly suggest a plan that includes putting money into your emergency fund each time you get paid. If you get paid weekly, your emergency account should be funded weekly. If you are paid bi-monthly, you should contribute to your emergency fund bi-monthly. Since most people are living paycheck to paycheck when starting to set aside reserves, this strategy will help you eliminate the timing challenges that come with savings.
  3. Any amount will do when starting out – For the first month, I suggest just getting started. Don’t stress over how much you need to save each pay day. Pick an amount that you can live with and go with it – even if it’s just $25 per paycheck. You’ll most likely find that you won’t miss it and you’ll be able to easily increase the amount any time you want. If you want to challenge yourself, that’s fine. Just be careful not to overdo it. It’s better to start small and increase than to start big and fail.
  4. Make it automatic – The most important part of the equation is to establish an automated link from your primary checking account to your new emergency fund account on the same day you get paid (or one day later). Ask your primary bank if they can setup automated transfers to this new account or ask your employer if they can direct deposit an amount there each pay day. If those aren’t options, ask your new emergency fund banker whether they can pull money into this new account from your primary checking account on their end. If that doesn’t work, setup automated bill payments from your primary checking account on the same day that you get paid so that a check will be sent to your new bank on a regular basis. Keep in mind that your plan has a high chance for failure if you are forced to manually transfer money or write a physical check each time. You should opt to set it and forget it.
  5. Don’t look at your statements – Okay, in good conscience I have to tell you to keep a watchful eye on your new account to be sure you avoid fraud, banking errors, or unnecessary fees. But the bottom line is that the less frequently you look at the balance of this account, the more likely you are to let it accumulate without the temptation of touching it. Put a note on the calendar to review it every six months and focus more on reviewing the amount you’re saving each payday than the total account balance. Your goal is to set aside at least 3-6 months worth of money to cover your monthly expenses. And another thing – try not to touch it even if you need it. Look to this account as a last resort when things get tough.

Building an emergency fund is an important part of your overall financial health. I want to help you feel in control of your money by using proven strategies that make it easy on you. If you’re looking for a money mentor who can help you reach your goals, hold you accountable, and plan for the unknown, contact me today at valerie@grinkmeyerleonard.com.

Should You Do a Balance Transfer?

Balance transfer image for landing pageYou are hoping to pay down your credit card debt and you’re considering a balance transfer to help you save money. Should you do it?

Credit card companies love to send you offers with low introductory rates and balance transfer options. And balance transfers aren’t always a bad thing. But there are a few things you should consider first.

  1. Transferring your balance is NOT the same thing as paying off your credit card. If you are going to move to a card with a lower interest rate than what you are paying now, that’s great! But you need to be disciplined and make payments that are large enough to pay off your balance before the rate increases. Otherwise, you could end up paying more interest over time.
  2. Balance transfers could hurt your credit score. Creditors want to see that you are paying your bills on time, reducing your balances to below 35% of your available credit limit, that you have a long history of using credit wisely, and that you are not repeatedly transferring balances from one company to another.
  3. Be sure to consider any balance transfer fees that may apply. Not every balance transfer is free and it is important to know what you will be paying up-front.
  4. Closing long-standing credit cards can hurt your credit score, so weigh the pros and cons of closing the credit card account you are transferring. If you keep your old card open, you will likely free up a lot of credit. But, if the temptation to use the old card is too great, it may be worth the short-term negative impact to your credit score to keep from incurring more debt.
  5. To transfer the entire balance of your current credit card, you would need to qualify for a high enough credit limit. That might not be possible. Even still, it could make sense to transfer a partial balance if you are disciplined enough to pay off the amount you are transferring over during the introductory period.
  6. Finally, the most important tip – QUIT USING YOUR CREDIT CARDS! If you really want to start saving money, you need to address the root of your problem and that very well may be that you have a spending problem. A cash reserve is an excellent alternative to using credit cards for emergencies, so consider building your cash reserve while simultaneously paying off your debt. This will keep you from racking up more debt in an emergency situation.

Have questions about balance transfers? Wondering how to put together a plan to save money, build up your cash reserves, and pay off your debt? Contact me at valerie@grinkmeyerleonard.com and together we can come up with a plan that works for you!

How Do You Go from Having No Money Leftover to Accumulating Cash?

Accumulating Cash Image for Landing PageOne of the most popular questions I’m asked is, “How do I go from having no money leftover to accumulating cash?”

One tip I often give my clients is to adopt a zero-based budget. What’s that you ask? A zero-based budget is just a fancy way of saying you should decide two things before you ever receive your paycheck:

  1. What amount are you going to put into savings each paycheck?
  2. How much of your paycheck would you like to give away to charity?

Now, here’s the trick – you AUTOMATE those two expenses so that they come off the top of your take home pay. An easy way to make this happen is to ask your employer to direct deposit a specific percentage of your paycheck into your cash reserve account and the rest into your primary checking account. Here’s something else to consider – if your savings account is held at a bank where you can’t easily access the money, you’ll find it will accumulate faster than you ever imagined!

Similarly, when you commit to putting money into your company’s 401(k) plan, your employer will automatically withhold your contribution from your paycheck which means you never get the chance to spend it!

Both of these savings strategies can have a powerful psychological effect on your spending habits because they are automatic and they help you avoid temptation. Let’s face it, saying, “no” to ourselves is the hardest part of budgeting! Next, if you develop the habit of making your charitable gifts the day you get paid, you’ll be able to spend the rest of your money knowing you’ve made a wise financial choice.

If you have any questions about how to adopt a zero-based budget or if you want to talk further about how to get ahead, please email me at valerie@grinkmeyerleonard.com. I would love to hear from you!

Where Do You Go for Wisdom & Guidance?

Wisdom and Cents image for Valerie's blogIt’s easy to Google a topic and find lots of information. But information is NOT wisdom. True wisdom requires you to discern what information matters, to think about how you would apply that information, and to consider the moral implications of your decisions.

I have spent my career helping people make wise financial decisions and now I’m devoted to sharing the wisdom I have gained from my clients, from industry leaders, and from my own personal experiences with YOU!

I invite you to follow me on this journey by connecting with me on Facebook.

I hope to enrich your life with knowledge that truly matters.

What Do I Need to Know About Being a Cyber Victim?

GettyImages-965548548(1)After a cyber breach, we most often worry about what we need to do next to protect ourselves. But for a change, let’s talk about the crime from the cyber thief’s point of view. What does the crook do with our data once he or she has stolen it?

The going rates on the black market
First, cyber criminals use our stolen information for individual gain, opening lines of credit with our social security numbers or draining our bank accounts. They also look to make still more money by selling our information. In fact, there’s a vast and complex underground marketplace where our stolen information is offered for sale.

The table below shows what crooks can get on the cyber black market for commonly stolen confidential data.

Cyber victim information

On their own, stolen pieces of credit card information command relatively low prices. That’s because thieves can’t do much damage, for example, with numbers alone; they also need to have names or billing addresses associated with the numbers. So it’s no wonder that hackers look to make big scores by breaching the websites of major corporations from which they can steal thousands of pieces of information and turn a large profit by selling bundles of credit card numbers and associated data.

Prepaid cards and gift cards. Hackers also use our account information to purchase prepaid cards. They then sell the cards on the black market—in addition to actual account information—which makes for a bigger hacker payday. Other tactics include using credit card information to buy gift cards. The crooks then purchase expensive electronics or other goods with the cards and sell them at discounted prices to people who don’t care where the products came from because they’re getting “such a great deal.”

Bank and PayPal accounts. As for the going rates on bank account or PayPal credentials, it all depends on the bank account balance. Some hacker marketplaces sell phished PayPal credentials for a price much smaller than the account balance. The buyer purchases the stolen login ID and password from the hacker for a fee and then is free to do what he or she wants with the information.

Medical ID information. Health insurance credentials are worth even more than credit card numbers on the cyber black market because thieves can use the data to wreak greater financial damage. With stolen medical ID information, a criminal can pretend that he or she is someone else and obtain a host of expensive medical services under the real customer’s name. For example, such criminals could spend beyond an actual patient’s benefit limit so that, when the patient needs medical services, he or she would have to pay for those services out of pocket.

Protecting yourself
Although anyone can be a victim of a major data breach—which makes it difficult for you to stop your information from getting out there—following some cyber security best practices can help keep your information secure even if it is stolen:

  • Enable multifactor authentication (MFA) on your online accounts. With MFA, you’re prompted to enter an additional piece of identifying information—typically a passcode sent to your smartphone—after you submit your username and password. That way, if your password is compromised, a hacker still won’t be able to access your account without your phone and the code.
  • Enroll in identity protection services and keep close tabs on your credit reports.
  • Audit your medical and insurance statements regularly. If something isn’t right, you can contact your health insurer and perhaps at least minimize any misuse of your information.

Cyber theft is scary and it’s helpful to have an advocate who cares about the risks you take. If you are looking for a financial advisor that understands your needs, reach out to me today. I would love to hear from you!

This information originally appeared in the June issue of Hills & Castles magazine.
Sources: Bankrate and The Guardian


13 Expert Tips That Will Help Protect Your Identity

sticky note with weak easy password on laptop keyboardThe Federal Trade Commission estimates that more than 9 million Americans face an identity theft-related problem each year. Luckily, you can take steps to make it more difficult for thieves to access your personal data.

What is identity theft?
It used to be that thieves would compromise your identity by stealing your mail or wallet, but today they are just as likely to obtain your personal information from businesses you frequent. Or, using a technique called phishing, they may try to trick you into providing information by posing as your bank or a government agency. Once they have your key data, they can change your address with your credit card issuers, open up new credit cards in your name, drain your bank account, take out loans, apply for government-issued identification, or impersonate you during an arrest. They may even entangle your identity in a sophisticated fraud on a third-party without you even knowing it.

How can you combat fraud?
Use the following tips to help keep your personal information safe from thieves:

  1. Keep a close eye on your credit by requesting a free credit report once a year. Call 877.322.8228 or visit annualcreditreport.com. This is the only source authorized by federal law to obtain your free report so don’t be fooled by similar-sounding websites that are in the business of selling credit protection services.
  2. Review your credit card and bank statements regularly (as often as weekly) for charges you didn’t make. Some thieves will charge a small purchase to test if the account is active; if it goes through undetected, they’ll move on to much larger purchases.
  3. Be smart about your passwords. Because it’s relatively easy for thieves to obtain information about you from social networking sites, don’t use your phone number, birthday, or names of your children or pets as passwords. Strong passwords include a combination of lowercase and uppercase letters, numbers, and symbols.
  4. Ask the businesses and institutions you work with (or for) about how they secure your information. “Dumpster diving” is a popular way for thieves to access information carelessly thrown away by businesses.
  5. Don’t fall victim to a phishing scam. If you receive a call or an e-mail that appears to be from a trusted institution or business, don’t immediately provide identifying information. Instead, visit the business’s website and call its customer service number. Or, if the message appears to be from your credit card company, call the number printed on the back of your card.
  6. Don’t click on links within e-mails. Rather, type the URL directly into your browser’s address line.
  7. Secure your mail. Before you travel, ask the post office to hold your mail until you return. Don’t leave bill payments in an unsecured mailbox and have reordered checks delivered to your bank rather than mailed to your home.
  8. Shred your credit card receipts, bank statements, and other documents that could provide a thief with your financial information.
  9. Don’t carry your credit or debit cards in your wallet if you don’t plan to use them. Never carry your social security number in your wallet.
  10. Update your computer’s virus protection and don’t open e-mail attachments from people or businesses you don’t know.
  11. Install a firewall on your computer to thwart hackers.
  12. Look for the lock icon or “https” address when shopping online. Always log off when leaving a password-protected site.
  13. Use a wipe utility program before throwing away old computer equipment or smartphones.

If you suspect that your identity has been stolen, follow the steps provided on the Federal Trade Commission’s website at http://www.ftc.gov/idtheft.

What about identity theft protection services?
With cases of identity theft on the rise, many companies have entered the market with services promising to protect or minimize your risk. Certainly, these services are convenient, but they don’t offer anything you can’t do for free. Furthermore, it’s important to keep in mind that the industry has its own share of fraudulent promoters of worthless services. Be sure to do your research and understand the level of protection the company offers.

Many well-known businesses offer credit monitoring, among other services. Find out more by visiting http://www.fightidentitytheft.com.

 This information originally appeared in the May issue of Hills & Castles magazine and has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

5 Financial Spring Cleaning Tips that Will Make You Better Organized

Money laundering

Spring is in the air, which for many means waking up from hibernation and cleaning out the clutter. Don’t forget about clearing the cobwebs from your “financial house,” too! Even if you recently took a look at your finances as you prepared for tax season, here are five areas that could use your attention.

Dust off your credit report and score
If you’re concerned about identity theft or you’re planning to make a major purchase, you should know your credit score and what’s on your report. Businesses also inspect your credit history when evaluating applications for insurance, employment, and even leases. With so much on the line, it’s important to review your score for accuracy at least annually.

Fortunately, checking your credit report is easy. You’re entitled to one free annual report from each of the three major credit reporting agencies—Equifax, TransUnion, and Experian. You can request the report at http://www.annualcreditreport.com. Be wary of sites that charge you for these reports. If you use a credit monitoring service, be sure to check the terms of service. 

Revamp your emergency fund
If you don’t have one already, starting an emergency fund should be on your spring cleaning to-do list. The size of your fund depends on your particular situation and other factors such as your family size, current debt, and insurance coverage. The standard is to set aside 3-6 months of expenses in case you or a family member encounters the unexpected, such as losing a job.

By planning ahead, the smaller emergencies (e.g., replacing a broken hot water heater) can be easily covered. Remember, it’s far better to have an emergency fund and never need it than to experience the reverse scenario.

Revisit credit cards
Review the terms and conditions of your credit cards to ensure they’re still in line with what you originally signed up for. It’s a good idea to contact your credit card providers every 18-24 months to see if you can negotiate a lower rate. If you have a good account history, they may be willing to drop your rate just by simply asking. Also consider whether another provider could offer you better deals or rewards than your current credit card company. But, keep in mind that transferring balances, opening new accounts, or closing long-standing accounts could negatively affect your credit score if you’re not careful.

Go paperless
If your home office is overflowing with statements and receipts, switching to paperless transactions is a pretty simple way to streamline your life—and help the environment. Besides minimizing desktop clutter, online financial management may offer access to tools that help you become more efficient and organized.

  • Electronic bill payment. You can arrange online payments with your bank or through various service providers. Bills from public utilities, mortgage companies, and credit card companies often highlight the availability of this option.
  • E-delivery of investment statements. I encourage you to sign up for electronic delivery of your account statements and trade confirmations. Going paperless is a simple, secure, and eco-friendly way to receive your documents.
  • Online banking. Switching to electronic statements can conserve paper and save you time and trouble. You can track your balances in real time on your bank’s website and transfer funds from your desktop. At work, direct deposit of your paycheck not only saves paper but also cuts down on trips to the bank. It’s easy to set up with your employer and checks generally clear faster.

Do an overall financial review
Take the pulse of all your accounts regularly. This includes reviewing your insurance policies, annuity contracts, retirement plans, and educational savings accounts. Are you on track to achieve your goals? Do you need to make adjustments? Are your beneficiary designations up-to-date? Be sure to discuss any changes in your situation with your financial advisor so she can update your financial plan accordingly.

Although these financial spring cleaning to-dos may take a few hours, checking them off your list will free you up to enjoy the season—and ultimately save you time throughout the year. Let me know if I can help you feel more confident about your financial house.

This content originally appeared in the April issue of Hills & Castles magazine. 

4 Important Ways to Help Save Money on Taxes This Year

GettyImages-855008648.jpgWhen it comes to your money, it’s not what you earn, it’s what you keep. Recent tax reform has made it easier to save money using certain strategies. Here are some ideas for 2018 that may help you keep more of your income in the long-run.

Consider a 529 Education Plan for K-12 and College Expenses
The recent tax reform produced a significant change regarding saving money for education expenses. Now, you are able to use money from a 529 account to pay for private school for your child in K-12 grade levels in addition to qualified college expenses.

One advantage of using a 529 plan is tax-free compounding since investment earnings in the account grow and won’t be taxed until you withdraw the funds. Additionally, taxpayers will be able to withdraw up to $10,000 per year tax-free for these expenses.

Another potential benefit is that over 30 states allow income tax deductions or credits when making 529 plan contributions. Alabama is currently one of these states. However, it is unclear whether amendments to current 529 plan state tax laws will be proposed, so that will be something to watch.

Invest for the long-term
Generally, income isn’t taxed until it is received, so you may find it beneficial to delay realizing gains by investing for the long-term. Try to hold an asset for more than a year; that way, earnings will be taxed at the lower long-term capital gains tax rate – 0%, 15% or 20%, depending on your tax bracket in 2018. If assets are held for a year or less, earnings are considered short-term capital gains and are taxed at ordinary income rates, which can be as high as 37% (that’s down from 39.6% under the old tax law).

You may be able to invest for the long-term and still receive current income from your investment in the form of dividends. If you receive “qualified” dividends, they are taxed at long-term capital gains rates, as long as you meet the holding period requirement. Generally, “qualified” dividends are those paid by domestic corporations or by foreign corporations whose stocks trade on an established U.S. stock exchange. Nonqualified dividends are taxed like short-term capital gains at your ordinary income tax rate.

Consider taxable versus tax-deferred vehicles
Another key to tax efficiency is the location of assets. You may want to keep investments that produce current income in a tax-deferred account, like an Individual Retirement Account (IRA), and hold investments that produce long-term gains or tax-free income in a taxable account. For example, you can hold corporate bonds and dividend-paying stock in an IRA, so you can defer paying taxes until distribution. Likewise, you can keep growth stock and municipal bonds in a non-retirement brokerage account to get long-term capital gain treatment on the stock and tax-free treatment on the municipal bond interest.

Tax-efficient distributions are also important. Distributions from traditional IRAs are taxable, and qualified distributions from Roth IRAs are tax-free. If you have more assets in traditional IRAs, you may consider converting some of those assets into a Roth IRA in a year in which you may have lower taxable income or when tax rates are low. Income limitations for Roth conversions no longer apply. Keep in mind, however, that tax reform no longer allows you to recharacterize, or undo, a Roth conversion so it’s wise to consult your tax advisor before deciding on this permanent transaction.

Finally, during retirement, you can choose from which vehicles you withdraw money (traditional IRA, Roth IRA, variable annuities, or non-retirement brokerage accounts) to keep from going into a higher tax bracket.

Tax Planning Advice
It’s always a good idea to consult a tax or legal professional about your own personal situation when considering various tax strategies. Additionally, having a financial advisor that understands how your investments may impact your income tax liability is extremely important. If I can help evaluate your investment strategy and whether it’s tax-efficient, please let me know. I would be happy to help! 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. 

This content originally appeared in the March issue of Hills & Castles magazine.