JoeTaxpayer

I saw this cartoon that paraphrases John Lennon’s “Imagine” in a tribute to those who were killed on 9/11 and chose to share it today. If you’d like, please share your thoughts, where you were, and how this day impacted you.

Joe

These plans have become more popular over the past few years. Let’s look at a few pros and cons of 529 plans;

Pros
You may deposit up to 5X the annual gift limit (in 2010, the limit is $13,000, so you can give $65,000 per recipient and treat it as 5 years’ of annual gifts. No gift tax is due, but you must file form 709 to declare the amount over $13,000)
Money can grow and be withdrawn tax-free (current tax law).
Funds can be designated for a different relative should the intended child not go to college.
The ‘approved relative’ list follows;

1.Child or descendant of a child.
2.Brother, sister, stepbrother, or stepsister.
3.Father or mother or ancestor of either.
4.Stepfather or stepmother.
5.Son or daughter of a brother or sister.
6.Brother or sister of father or mother.
7.Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
8.The spouse of any individual listed above.
9.First cousin.

There is no required distribution, thus you can save early for a yet unborn grandchild if you wish (by designating a child and then changing the beneficiary once the grandchild is born.)

Cons
Should you need to withdraw the funds and not use for school, regular income tax rates (not cap gain) apply as well as a 10% penalty.

Fund choices are typically very limited, and you may only change funds once per year.

Tip – MBNA offers a credit card linked to a Fidelity 529 account. You get 2% cash back on all purchases with no cap. There is no annual fee on the card and no annual fee on the 529 account. This is a painless way to save and a far better return than ‘miles’ cards.

This week, I start the roundup with Redeeming Riches’ 10 Guiding Principles For The “New Retirement.” I’m only slightly disappointed that Jason didn’t use the line “this isn’t going to be like your father’s retirement.” I never tire of the old cliches. The first new principle? Don’t stop working. That’s right, you won’t just grab a beer and slack off for the next 20 years, you might just have a whole second career ahead. Both to stay out of trouble, and to keep a bit of income coming in.

By coincidence, another 10 list – this one 10 Key Characteristics of Debt-Free People (of Modest Means) by my fellow Money Maven Len Penzo. I love these kind of lists, they make you stop and think how you might change your own behavior to improve your situation, in this case getting out of debt.

The last of the lists this week was BSimple’s 8 Financial Seeds to Plant Now to Simplify Your Finances. An inspiring list of how to start some simple efforts which can benefit you in a big way in the future. BSimple doesn’t promote himself as a religious blogger, but the parable of the mustard seed is easy to see in this excellent article.

Next we are introduced to the Big Difference Between Average and Median Net Worths. Turns out, the average American household net worth is $435K, but the median is only $91K. The observation itself is from Dr Thomas Stanley’s blog, with Free Money Finance offering some of his own commentary. A good read.

Last this week, Tax Girl invited a guest poster to discuss Are Expiring Tax Cuts a Good Thing? Michael Rozbruch gives an overview of just what will happen when the tax cuts expire, if they are allowed to do so. We still have nearly 4 months to see what happens.

Happy Labor Day!

Joe

“Prediction is very difficult, especially if it’s about the future.” This quote is often incorrectly attributed to baseball legend Yogi Berra, but attribution should go to scientist Niels Bohr. This is my longwinded way of saying I am not making a prediction either way, the cartoon just struck my fancy.

Joe