March 2010 Newsletter
March 9, 2010 by Jean Keener, CRPC, CFDP
The March 2010 Newsletter is now available. It includes an investment market update, Part II in my series on how to tap into your home equity in retirement, considerations in evaluating an early retirement offer, information on 2009 tax deduction for 2010 Haitian relief contributions, 2011 tax rate proposals found in the federal budget, credit card act provisions, and a reminder on the deadline to take advantage of the home buyers credit. Click here to read it.
Motley Fool Endorses Garrett Planning Network
March 3, 2010 by Jean Keener, CRPC, CFDP
I’m writing to let you know about an exciting new development in my business. The Motley Fool has exclusively endorsed and is promoting the services of financial advisors affiliated with the Garrett Planning Network, the international organization of fee-only financial advisors with which I am proud to be associated.
The Motley Fool has long admired Garrett’s approach to fee-only financial advice. And we are fans of The Fool’s
approach to everything they do to educate, empower and amuse the public and their members about investing. Garrett, The Motley Fool and I share a commitment to make trustworthy financial advice accessible to everyone.
The Motley Fool is one of the most admired financial brands in the world. Each month, 4 million unique visitors visit its website at Fool.com. At the core of The Fool’s business model are hundreds of thousands of premium members—many enjoying subscriptions to multiple investment newsletters. Clearly, the company is fulfilling its quest to broaden access to winning financial advice, and I am delighted to have access to all of these resources through our partnership with The Motley Fool. (If you’re not familiar with The Motley Fool, please find some additional information below.)
While there’s no doubt that The Motley Fool’s advisory services are answering a great need among individual investors, the company came to recognize that many of its members yearn for more hands-on help managing life’s complex financial decisions—especially in light of the recent rollercoaster stock market. The Fool decided it was time to look at expanding into the direct financial advice category.
Rather than building a financial advisor network from scratch, The Fool kicked off a search for a well-established, like-minded outfit with similar values with which to partner. I am delighted that they found a new match in an old friend—the Garrett Planning Network! As we know well, when it comes to financial planning, Garrett advisors offer the same kind of trustworthy, transparent, and community-driven advice that The Fool has built its business on. The Garrett-Motley Fool relationship has the makings of a great partnership.
Thanks for reading, and thanks for your support. Please don’t hesitate to contact me with your questions.
February 2010 Newsletter
February 9, 2010 by Jean Keener, CRPC, CFDP
The February newsletter is now available. It includes an update on January stock and bond market performance, the first article in a two-part series on how to tap into your home equity for retirement income, a preview of a new financial planning service, and more. Click here to read the newsletter.
Texans’ Options with 529 Education Savings Plans
January 27, 2010 by Jean Keener, CRPC, CFDP
Many states provide an incentive for their residents to use their state’s 529 plan through use of a state income tax deduction. Because Texas doesn’t have a state income tax, your options are really completely open in terms of what state’s 529 savings plan you use. You can go shopping for the best options and lowest costs for your particular situation. You can also use any state’s plan regardless of where your child plans to attend school.
Understanding the pros and cons of 529 plans
529 plans represent a solid savings opportunity because of the opportunity for the money to grow tax-free over an extended time horizon. Funds are deposited after tax. Principal and earnings may be withdrawn for qualified educational expenses tax-free. The more time you have, the more beneficial the tax-free growth is. But even within a year or two of starting college, 529 plans can be helpful.
There are also drawbacks to 529 plans. You lose flexibility in how you use the funds — if you withdraw funds for non-qualified expenses, you will be subject to income taxes and a 10% penalty on the portion representing earnings. 529 plans also carry increased investment expenses and have fixed investment options.
Selecting the Right Plan for you
In determining which plan is right for you, there are some factors that matter to everyone and some unique to your situation. Everyone’s consideration should include review of:
- quality of investment options offered in the plan
- costs of the plan — both administrative fees and investing costs (these vary widely from state to state)
- ease of access in opening your account, recurring deposits, withdrawals, investment changes, and reviewing statements
Most states also offer a direct plan option and an advisor option. The direct option allows you to open an account directly with the state’s plan without paying any investment sales commissions. The advisor option generally results in you paying investment sales commissions up to 5.75% on all deposits into your 529 plan. These commissions can require you to save a lot more to reach your savings goals. You can still use the direct plans and receive advice from an advisor on college planning and investing even by working with a fee-only advisor.
Other factors that may be relevant to your particular situation:
- Specific plan rules around which relatives can be named as a beneficiary in the event you want to transfer your 529 account balance to a different beneficiary.
- Contribution maximums
- Time limits for using your 529 account balances
- Investment options that match your particular needs:
- for a child close to college a guaranteed principal plus interest option is a must
- for someone who doesn’t want to monitor and adjustment their investments on an ongoing basis, a target-date investment program may be attractive that gets more conservative as the child get closer to college (although you need to exercise caution in selecting these)
One of my favorite sites for comparing different option 529 savings plan options is www.savingforcollege.com. Providing recommendations on how much you need to contribute, how your contributions should be invested, and which plan offers the best balance of low fees, features, and investment options for your situation is also one of the services that Keener Financial Planning provides.
Getting the Most of Employer Matching
January 19, 2010 by Jean Keener, CRPC, CFDP
Many employers have reduced or eliminated matching in the past several years. If you’re fortunate enough to still have a match, you want to take full advantage of this potentially significant boost to your retirement plans. Every dollar your employer contributes toward your retirement is a dollar you don’t have to.
To make the most of employer matching, you need to answer two questions:
- What’s the formula?
- How does my employer handle “maxing out” — reaching the federal limits of $16,500 for 401(k) plans for those under 50, and $22,000 for those 50+ — before the end of the year?
The first part – understanding the formula — is usually the easy part. Once you know the formula, you need to contribute at least as much as they match if at all possible. A common formula is 100% up to 3% and then 50% on the next 2% — so you would need to contribute a minimum of 5% to get the full match. Other times, employers match up to 6%, 10% or more, so your contributions to make the most of the match are higher.
The next part – answering the max out question — can get more complex. Sometimes the most aggressive and well-intentioned savers actually hurt themselves by completing their full contribution before the end of the year. Companies have several choices in how they approach calculating your match, and it all really depends on your plan’s summary plan description. Here are some of the ways it’s handled:
- If you don’t make a contribution in a particular pay period, no match for that pay period. This way can result in forfeited matching contributions if you don’t spread your deferrals out over the whole year.
- The employer spreads your “earned” match out over the entire year regardless of how early in the year you max out your contributions. This way never results in forfeited matching.
- Employer stops matching when your contributions max out, but then “trues up” their match early the following year.
As you can see, front-loading your contributions doesn’t hurt you in the second and third scenarios, but can reduce your match significantly in the first scenario. To find out how your company handles it, read your plan description or make a call to your 401(k) provider or benefits departments. Then make sure you time your contributions to comply with your company’s practices on awarding the full match. It’s also a good idea to monitor your paycheck stubs and retirement plan account statements to ensure that matches are happening correctly.
With saving enough for retirement an increasingly big challenge, it’s important to take full advantage of every bit of help we can get.