Are You Getting Charged with High Bank Fees? Here’s What To Do

The pandemic has disproportionately impacted low-earning Americans and many are paying higher bank fees for their misfortune, according to a new survey.

Those financially hurt by COVID-19 are paying checking account fees that are four times higher than unaffected households with uninterrupted employment and income, a new Bankrate survey found. YouGov interviewed 2,743 adults online from Dec. 2-4 on behalf of Bankrate.

Those who have reported having financial hardship during the pandemic said they pay monthly checking account fees of $11.41, while those who have better weathered the pandemic unscathed are paying about $2.71 per month. 

Minorities and millennials — two groups that have suffered high rates of unemployment and income loss since March 2020 — reported paying the highest bank fees.

How to avoid bank fees

Many banking institutions may waive fees or interest if you contact them to report a financial hardship. It’s always best to get in touch as soon as your income is impacted and before you incur an overdraft fee or other penalty.

It also is important to avoid poor money management. Make sure you are establishing a budget using bucket strategies, and spreading out your bill payment deadlines if you find yourself strapped with cash all at one period.  You can ask lenders about the possibility to reschedule these deadlines if necessary.You can also consider linking a checking account to a savings account that can be drawn from if you overdraft as a backstop. Avoid overdrafting your account at all costs and seek financial institutions that will work with you and match your needs. Make sure to check interest rates before opening your account in order to maximize high yield returns.  If your current accounts are hitting you with high fees, seek out help and assistance from a financial professional or institution to help you find the right place. If you have any questions, please feel free to schedule a complimentary 30-minute consultation on our site here.

National 529 College Savings Plan Day

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Today is Friday, May 29 which means it’s “529 Day” or “National 529 College Savings Plan Day”. Each year, National 529 College Savings Plan Day draws awareness to the tax-advantaged way of putting money away for education costs. To help ease the burden of student loans, some parents put money aside each year for their children’s education. 529 plans have grown in popularity over the years, however many people still remain unaware that 529 plans are even an option for education savings.

So, what exactly is a 529 plan? 529 plans, also referred to as “qualified tuition plans,” are tax-advantaged savings plans sponsored by states, state agencies or educational institutions. Earnings are federally tax-exempt and most states exempt earnings from state income tax.

There are two types of 529 plans: Prepaid tuition plans and education savings plans. Both can be used as a way to save for a child or beneficiary’s education, but differ in their methods.

Prepaid tuition plans allow people to purchase units or credits at higher education institutions at current prices to be used in the future by the beneficiary. The credits are purchased for participating colleges or universities, which are usually public and in-state. However, it may be able to be used for an equal payment to private or out-of-state institutions.

The second type of plan is an education savings plan. It serves as an investment account that can be used for future qualified higher education expenses. Similar to a Roth401(k) or Roth IRA, plans offer several investment options and funds will rise and fall based on the investment’s performance. Generally, the accumulated funds can be used at any participating college or university, regardless of its location. You can also use up to $10,000 to pay tuition at elementary or secondary schools.

The ways you can spend this saved money differs based on the plan. Prepaid tuition plans can be used for tuition and mandatory fees, but not room and board. Education savings plans, however, can be used for tuition, fees, books, supplies, equipment, computers and sometimes room and board. Technically, a person can use the funds accumulated in an education savings plan for any expense they choose, but if the funds are used for a non-qualified distribution, they are subject to income tax, a 10 percent penalty and any additional state penalties. If a beneficiary doesn’t need the funds, they can be withdrawn with the payment of income tax and penalties, although there are exceptions to the penalty fees.

529 Day is a great time to review your college savings progress and if you haven’t started saving for college yet, it’s not too late!  Some states currently have different contests and incentives to try to boost interest and participation in their 529 savings programs. Click here to see what your state might have to offer.  If you have any questions about 529 plans or would like us to help set up a plan for your beneficiaries, please contact us – we’re here to help!

Ways To Build Wealth And Boost Your Savings While You’re Stuck At Home

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We’re all spending more time at home these days and it’s likely that money and finances are a stress for many during this pandemic. As the markets continue to be extra volatile,  many people are feeling a lack of control when it comes to their money.  Even though there isn’t much we can do about the state of the overall economy, there are some small-scale things you can do right now, from the comfort of your own home, to help you feel more in control of your finances. If it is all you can do right now to keep up with your bills, that should continue to be your main priority.  However, if you’re in the fortunate position of having an income or some extra cash, the following tasks take 30 minutes or less and might just have you feeling a little better about the state of your finances.

REVIEW YOUR BUDGET

 

 

Every solid financial plan starts with a good budget, and now is a great time to go over yours. You should review your spending habits and try to determine which areas of your spending are relatively fixed — such as monthly rent and insurance coverage — and those that are discretionary, like your lattes, subscriptions and eating out. 

Since you’ll likely be spending a lot of time at home this month, most of your convenience purchases will probably trail off. Comparing last month’s expenditures to this month, you will see where you are spending your money and you will be better positioned to make changes to your spending habits in order to prioritize saving money and spending on what you deem essential for your household.

GET SPECIFIC ABOUT YOUR FUTURE

 

 

Write down all the things that you want to do in your future – you can do this by yourself or with a significant other. Break it down into five-year segments. What do you want to do, where do you want to go, and what do you want to accomplish during each five-year segment? If you have career goals that include starting a business, making more money, or changing your job, you might need to learn some new skills to start down that path. 

Being confined to our home offices gives us a great opportunity to focus on learning something new and developing plans for the next steps in life, whether it is signing up for an online class or doing some research on what it might take to take your career in another direction.

SET UP A 529 COLLEGE-SAVINGS PLAN FOR YOUR KID(S)

 

 

If you’ve been considering a college savings plan for your child, setting one up online is quick and easy. You should start by reviewing the 529 plan options where you live, since they often provide tax benefits while you save for your child’s college education. Just remember to keep your own future financial goals in mind, as well. Saving for your children’s education is very important, but should come second to saving for your own retirement.

REVIEW YOUR BENEFICIARY INFORMTION

 

 

You should make a list of your financial accounts that include beneficiary designations —  like your IRA, 401(k), or life insurance — and make any necessary beneficiary information adjustments. Since these designations determine who will receive your account upon your passing, if they are left blank or not updated, your wishes could be ignored and assets could go to an ex-spouse, or state law could become applicable and decide how to split your accounts.

 

SET UP A NEW SAVINGS ACCOUNT

 

Now is the perfect time to set up a separate online high-yield savings account for your specific goals, whether it be for a vacation, saving for the holidays or possibly a new car. To make things even easier, you can also set up a direct deposit so that you put a little bit away from each paycheck towards that objective. However, remember that these “extras” should take a backseat to your emergency fund.  Having three to six months of expenses set aside in a money market or high-yield savings account can provide peace of mind and can be a lifesaver in times of temporary job loss or medical costs.

DO SOME BOOKKEEPING

 

 

Now might be a good time to do some overall bookkeeping.  This can include reviewing your insurance policies to see if you still have sufficient coverage for your needs, or working on your estate plan (are your medical directives all updated?).  If your kids are old enough, this could even be a good opportunity to teach them how to balance a checkbook by showing them how you do yours.

 

EVALUATE YOUR INVESTMENT PORTFOLIOS

If you have money in the market that’s earmarked for retirement, you might be a little worried about how current events will impact your goals. Now is a good time to have a call with your financial planner to determine if your portfolio is still meeting your long-term goals, or if it needs to be adjusted based on current events. 

 

Even though we may not have expected to be spending this much time in our homes over the past few months, it’s important to take advantage of the time while we can.  These unprecedented times have given us the opportunity to slow down and focus on our families, as well as other important aspects of our lives like our finances.  Taking just a half hour each day or week to go over these tasks can help us to feel more in control and less stressed about our money as we deal with the uncertainty of the times.  As always, if you have any questions about any of the suggestions above or any other concerns about your finances, please contact us.  We are here to help and we are all in this together!

Want to Get More “Financially Fit” in 2018? Set Savings Goals Now

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One of the most important elements of a good financial plan is regular saving. Unfortunately, it is one of the biggest stumbling blocks as well, with 57% of Americans reporting they had less than $1000 in savings in a 2017 survey. To make matters worse, 1 in 3 American has no retirement account, and only 1 in 4 Americans has over $100,000 in their retirement account.

These are concerning figures, particularly now. As interest rates keep rising – short term treasuries at their highest in nine years – and the market continues its climbing streak, you’re missing out if you are not putting savings to work for you.

Why aren’t more people saving when, according to a recent you.gov survey, “saving more money” was the 4th most popular New Year’s resolution for 2018?

One factor our clients have cited that kept them from saving in the past is discouragement due to past failures. The solution is to make sure your goals are SMART goals: goals that are Specific, Measurable, Attainable, Relevant, and linked to a Timetable.

It is important to set Specific and Relevant immediate, short, and long-term savings goals that you can visualize – like a beach vacation, a bigger home, or a child’s graduation ceremony. Tying savings goals to images that align with your life and your values can make them more emotionally compelling and easier to keep in mind.

Equally critical is to make your goals Measurable and set a Timetable: how much you are planning to save each month, or by a certain date. Don’t set figures or dates that are impossible; make sure they are Attainable as well.

Just like physical fitness, financial fitness is best achieved by setting specific, achievable, and measurable goals. A defined goal, whether it’s “save 5% of each paycheck” or “add extra hours to save for a vacation,” gives you a much better shot at success rather than a simple “I should be saving more.”

A huge part of good financial planning is goal setting. A good financial planner can help you calculate the long-term benefits of saving more and on a regular sustainable basis. It’s particularly important that your financial planner is a fee-only Fiduciary: that means there will be no “additional charges” or investment recommendations with commissions for the broker that could throw off your savings calculations.

And if you’d like help defining financial goals and evaluating whether you are saving enough to achieve them, please feel free to contact me for a free introductory call. We are always on call to help you realize your highest financial potential.

How to Make “Cents” of the Changes to 529 Plans

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Are you saving for your child’s education with a 529 account?

If you are already contributing to a 529 plan, reduced deductions in the new 2018 tax law mean you may want to increase your contributions – or even create a second 529 account – to offset higher state taxes.

If you haven’t yet opened a 529 account, this year’s important changes in tax and 529 regulations have made 529 accounts an even more valuable option for parents of school-aged or college-aged children.

Here are the changes and why contributing to a 529 account is more important than ever:

K-12 Tuition is Now Covered by 529 Plans

529 plans were originally created to let you to save and invest for your child’s college education – while paying no federal tax on qualified withdrawals. The good news is that benefit has now been expanded: you’ll be able to withdraw up to $10,000 per year per student for elementary, middle, and high school tuition if your child attends or will attend a private or religious school. And, if you’ve already been saving for K-12 with a Coverdell ESA, you can also rollover that account to a 529 plan without tax consequences.

Saving by Off-Setting State Taxes

The new 2018 tax law limits deductions for your state income and property taxes to $10,000, so you might find yourself paying more state tax this year. But if you live in one of the 34 states that offers a state tax deduction for contributions to a 529 plan, you can lower your state taxes by contributing more to your 529. In most states you have to be enrolled in one of that state’s own plans to take the deduction, but several allow you to deduct contributions from any state plan. And, if you live in one of the several states whose 529 plans include state tax credits, you could also find yourself paying considerably less.

Turbo Charging the Benefits for Younger Children

529 plans allow “front-loading,” a term for making up to five years of contributions at once. This not only allows you to “catch up” for a child already in elementary or secondary school, it also allows you to maximize state tax deductions or credits. And anyone can make contributions to your child’s 529 plan. Friends and relatives can each contribute up to $15,000 per recipient, they can also “front-load” up to five years of contributions as well, maximizing their own tax savings. Additionally, if they make direct payments to services provided for beneficiaries’ tuition or medical expenses, these expenses would be tax-free, even though the costs surpass the annual gift tax exclusion.

New Benefits for Special Needs Students

The new tax law allows assets in 529 accounts to be transferred to ABLE accounts without any penalties as long as they are transferred by 2025. ABLE plans – named for the Achieving a Better Life Experience Act – are designed to provide tax-favored savings for people with disabilities without limiting their access to benefits such as Medicaid, Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). The annual contribution cap for ABLE plans is $15,000 and an account can reach $100,000 without affecting SSI benefits. You can also make tax-free withdrawals when paying for expenses such as housing, legal fees and employment trainings.

Plans Can Be Transferred to Another Child

If you no longer need the account for the child it was created for, you can change the plan’s beneficiary to another family member, saving you the income tax on 529 earnings and 10% federal penalty you pay if you withdraw money for non-educational purposes.

The Bottom Line

Every parent – and grandparent – should consider opening one or more 529 accounts for their children’s education. There is no limit to the number of plans you can contribute to, or the number of accounts that can be opened for any child, so study up to determine which plans make the most sense for you. But remember: each state’s rules are different so – like your kids – you’ll want to do your homework.

Then, as with all smart savings plans, contribute on a regular basis over time, through market ups and downs, to benefit from dollar cost averaging and watch your interest compound – and your child’s educational opportunities grow.

 

For how the new tax law affects the “Kiddie Tax” for Uniform Gifts and Transfers to Minors (UGMAs and UTMAs) please click here.

At Sherman Wealth Management we’re passionate about children’s education so please give us a call if you have any questions about your state’s 529 options.

A version of this article initially appeared on Investopedia.com