Freeman's Blog


August 31st, 2012 by

Funding Higher Education with 529 Savings PlanParents generally don’t have to be convinced of the value of a college education for their children. Studies show that college graduates not only earn more but are healthier, more satisfied with their jobs, and more likely to remain employed during tough economic times.1 But paying for college becomes more challenging every year. Over the last decade, undergraduate in-state tuition and fees at four-year public colleges and universities rose at a 5.6% average annual rate above the rate of general inflation. For the 2011–12 academic year, the average cost of tuition, fees, room, and board reached $17,131.2 Private institutions are even more expensive, although their costs are rising at a somewhat slower pace. For the 2011–12 academic year, the average cost for tuition, fees, room, and board was $38,589 at nonprofit four-year colleges and universities.3

A Tax-Advantaged Savings Plan

As with saving for retirement, the key to saving for a college education is to develop a strategy and make regular contributions. One helpful savings vehicle is a Section 529 plan — a state-sponsored or college-sponsored program designed to help families save for future higher-education costs. Each plan has its own rules and restrictions, which can change at any time. The money in a 529 savings plan accumulates on a tax-deferred basis and can be withdrawn free of federal income tax as long as it is used for qualified education expenses at accredited post-secondary schools, such as colleges, universities, community colleges, and certain technical schools. Qualified expenses include tuition, fees, room and board, books, and other supplies. Section 529 plans feature high contribution limits (set by each state), and there are no income restrictions for donors.

As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan.  Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents and taxpayers.

Source: (1–3) The College Board, 2010–2011

Call The Host of Radio ShowPlan to make good investments in your children’s education. Let me help you find the best strategies that give you the best tax benefit while achieving your goals. Contact me at 833-313-7233 for a free consultation.

August 30th, 2012 by

Considering the high interest rates that apply to many credit cards, would it be smart to borrow from your 401(k), 403(b), or 457 plan instead?

Borrowing from retirement savings is fairly common. About 60% of 401(k) plans have loan provisions. At any given time, almost one-fifth of workers who have access to loans have an outstanding loan balance.1 But just because you can get a loan doesn’t mean you should. Borrowing from an employer-sponsored retirement plan involves rules and risks that should be considered carefully.

Know the rules. Under IRS rules, loans are limited to the lesser of $50,000 or 50% of the vested account balance. Loans must be repaid within five years (longer terms may be allowed for a home purchase). However, each plan is allowed to set its own interest rates and repayment policies. The good news is that even though the plan is required to charge interest, the interest is paid to the borrower’s account.

Understand the risks. If you leave your employer, the loan generally must be repaid within 60 to 90 days. Failing to repay on time means the outstanding balance may be treated as a distribution. Distributions from employer-sponsored retirement plans are subject to ordinary income tax. Early withdrawals taken prior to age 59½ may be subject to a 10% federal income tax penalty.

Of course, borrowing from your retirement plan could be a better option than carrying high-interest debt. But it’s usually recommended to consider a loan only in an emergency, not to maintain a lifestyle you cannot afford.

Source: 1) Employee Benefit Research Institute, 2010

Your Safe Money KitRetirement planning is not something you want to navigate by yourself. Download your FREE safe money kit to determine where your money is, what you can do with it and how to keep it safe. Then, let’s talk  833-313-7233. I’ll give you a free consultation without any obligation.

August 27th, 2012 by

Retirement Planning EarlyMost people have good intentions about saving for retirement. But few know when they should start and how much they should save. Sometimes it might seem that the expenses of today make it too difficult to start saving for tomorrow. It’s easy to think that you will begin to save for retirement when you reach a more comfortable income level, but the longer you put it off, the harder it will be to accumulate the amount you need. The rewards of starting to save early for retirement far outweigh the cost of waiting. By contributing even small amounts each month, you may be able to amass a great deal over the long term. One helpful method is to allocate a specific dollar amount or percentage of your salary every month and to pay yourself as though saving for retirement were a required expense.

Here’s a hypothetical example of the cost of waiting. Two friends, Chris and Leslie, want to start saving for retirement. Chris starts saving $275 a month right away and continues to do so for 10 years, after which he stops but lets his funds continue to accumulate. Leslie waits 10 years before starting to save, then starts saving the same amount on a monthly basis. Both their accounts earn a consistent 8% rate of return. After 20 years, each would have contributed a total of $33,000 for retirement. However, Leslie, the procrastinator, would have accumulated a total of $50,646, less than half of what Chris, the early starter, would have accumulated ($112,415).*

This example makes a strong case for an early start so that you can take advantage of the power of compounding. Your contributions have the potential to earn interest, and so does your reinvested interest. This is a good example of letting your money work for you. If you have trouble saving money on a regular basis, you might try strategies that take money directly from your paycheck on a pre-tax or after-tax basis, such as employer-sponsored retirement plans and other direct-payroll deductions. Regardless of the method you choose, it’s extremely important to start saving now, rather than later. Even small amounts can help you greatly in the future. You could also try to increase your contribution level by 1% or more each year as your salary grows.

Distributions from tax-deferred retirement plans, such as 401(k) plans and traditional IRAs, are taxed as ordinary income and may be subject to an additional 10% federal income tax penalty if withdrawn prior to age 59½.

*This hypothetical example of mathematical compounding is used for illustrative purposes only and does not represent the performance of any specific investment. Rates of return will vary over time, particularly for long-term investments. Investments offering the potential for higher rates of return involve a higher degree of investment risk. Taxes, inflation, and fees were not considered. Actual results will vary.

August 23rd, 2012 by

financial-freedom-RothIRANearly 20 million U.S. households have a Roth IRA — a significant number considering that it has been around only since 1998. However, Roth IRA participation still lags behind that of traditional IRAs, which were first introduced in 1974.1 Source: Investment Company Institute, 2011

The good news is that you can invest in more than one type of IRA (the combined contribution limit in 2012 is $5,000, or $6,000 for those aged 50 and older). And regardless of your income, you can convert all or part of your traditional IRA to a Roth IRA and benefit from tax-free withdrawals in retirement.

Paying Taxes Now or Later

Contributions to a Roth IRA are made with after-tax dollars (subject to income limits), whereas contributions to a traditional IRA are generally tax deductible. When you withdraw money, however, qualified distributions from a Roth IRA are free of federal income tax if you’ve satisfied the requirements (distributions may be subject to state income taxes). By contrast, traditional IRA withdrawals are taxed as ordinary income.

When you convert tax-deferred IRA assets to a Roth IRA, the conversion amount is taxed as ordinary income in the tax year of the conversion. This can be a significant expense, but there’s a trade-off: Under current tax law (and if all conditions are met), the Roth account will incur no further income tax liability for the rest of your lifetime or for the lifetimes of your account beneficiaries, regardless of how much growth the account experiences.

Here are some considerations to help determine whether a Roth IRA conversion might be appropriate for you.

1. Changing tax brackets. The logic behind deferring taxes on retirement dollars is that consumers may be in a lower tax bracket in retirement than they were during their working years. This is not always the case, of course, so you need to consider your own situation. Also keep in mind that tax rates are scheduled to increase after 2012 (unless Congress takes further action), so you may pay higher tax rates in the future.

2. Mandatory distributions. Unlike the case with traditional IRAs, there are no required minimum distributions (RMDs) at age 70½ for original Roth IRA owners, so you can keep money in your account until you need it, or bequeath it to your heirs if you wish (IRA beneficiaries must take RMDs). The longer your retirement dollars can pursue growth, the more advantageous it might be for you and your beneficiaries to have tax-free withdrawals.

3. Current value versus growth potential. If your tax-deferred assets have fallen in value over the last few years, one silver lining is that taxes on a conversion may be lower. Again, your choice on converting may depend on how much time your portfolio will have to pursue growth.

Call The Host of Radio ShowRetirement planning and retirement income are at the heart of my financial strategies. Don’t navigate your retirement income and planning alone. I want to help you keep your money safe! Contact me at 833-313-7233 for a free consultation.

August 10th, 2012 by recently put out an article about the 25 best places to retire in 2012. The trend is still towards warmer climates, which makes Florida, New Mexico and Arizona prime locations for retirees.

Many different factors go into considering a retirement city. Besides the usual financial factors that must be considered, retirees are concerned with weather, availability of doctors, serious crime rates and activity during retirement. considered evaluations by Bicycling Magazine and for this portion of the results list. Furthermore, consideration was taken that more and more retirees are working, at least initially. So account was taken for both unemployment rates and rankings of job and economic growth compiled by the Milken Institute. And, the tax issue was the most difficult to evaluate. As you might know, a lower tax burden might mean a lower level of services for retirees. Nine states do not have a state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming. However, before you thing about packing & leaving, remember that such states tend to have other taxes that are higher ( like sales tax and property tax).

So, based on these determining factors, here are the most desirable places to retire in 2012:

City Pros Cons
1. Albuquerque, New Mexico Terrific weather, good air quality, low taxes, lot of doctors, below average cost of living, average home price $163,000, active-lifestyle encouragements Crime, high unemployment
2. Alexandria, Louisiana Warm climate and good air quality, solid economy, good tax situation, average home price $148,000 Crime
3. Asheville, North Carolina Good climate, abundant doctors, moderate cost of loving, average home price $198,000 Unemployment Rate
4. Atlanta, Georgia Favorable climate, low cost of living, average home price just $96,000; good tax situation, big volunteer mindset Crime,below average air quality
5. Austin, Texas Growing economy, no state income tax, below average cost of living, average home price $188,000, good weather, outdoor exercise culture Average air quality
6. Bloomington, Indiana Good economic record, average cost of living, average home price $144,000, low crime Cold winters
7. Boise, Idaho Low crime, low cost of living, average home price $118,000, above-average air quality, attractive semi-arid climate Poor economy
8. Cape Coral, Florida Good weather, no state income tax, low cost of living, average home price $108,000, good air quality Bad economy
9. Columbia, Missouri Growing economy, low living costs, average home price $152,000, many doctors per capita Cold winters
10. Columbia, South Carolina Below average cost of living, typical home price $141,000, favorable state tax climate, good weather Poor economy, high crime rate
11. Corpus Christi, Texas Growing economy, low cost of living, average home price $136,000, good weather Crime
12. Fargo, North Dakota Solid economy, low cost of living, average home price $154,000, active-lifestyle encouragements, low crime rate Cold Winters
13. Fort Myers, Florida Good weather, above average air quality, cheap living, average home price $119,000 Poor economy
14. Huntsville, Alabama Good economy, favorable tax climate, low cost of living, average home price $170,000, warm climate Air quality only average
15. Knoxville, Tennessee Good economy, low living costs, average home price $137,000, good medical staffing High Crime
16. Las Cruces, New Mexico Good climate and air quality, good tax climate, below average cost of living, average home price $116,000, low crime Few doctors per capita
17. Lynchburg, Virginia Good economy, cost of living 6% below nation, average home price $134,000, good air quality, low crime So-so tax climate
18. Pensacola, Florida Good weather and air quality, average home price $134,000, living costs mirror nation, above-average doctors per capita Hurricane exposure, high crime
19. Phoenix, Arizona Good tax environment, low cost of living, average home price $119,000, good weather, high doctors per capita Poor economy
20. Pittsburgh, Pennsylvania Decent economy, below average cost of living, average cost of home $121,000, tax breaks for retirees Cold Winters
21. Salt Lake City, Utah Good economy, cheap living costs, average home price $183,000, Low living costs, low taxes, great mountain scenery, bracing but appealing climate, incentives for active retirement Crime Rate
22. San Antonio, Texas Good economy with no state income tax, low cost of living, average home price $150,000, warm climate, many doctors per capita Crime
23. Savannah, Georgia Low cost of living and favorable tax climate, average home price $137,000, good weather, high number of physicians per capita Sluggish economy
24. Tuscon, Arizona Low cost of living and taxes, average home price $131, good weather, encouragements for active retirement, numerous doctors Poor economy
25. Tulsa, Oklahoma Decent economy and tax climate, low cost of living, average home price $129,000, good metrics for active retirement Crime

Your Safe Money KitFinancial planning for retirement is as important and strategic as planning where you will live during retirement. Don’t forget to download your FREE safe money kit. Then, let’s talk about retirement planning 833-313-7233. It’s a free consultation.

August 2nd, 2012 by

Retirement Planning Study - May 2012According to a May 2012  survey by the Transamerica Center for Retirement Studies, Americans are “winging” their retirement planning. They are heading into retirement without a realistic plan and they may out-live their resources.

Here are some points of concern raised by the study:

1. The Rate of Saving Money Remains Very Low
The median contribution level for workers in 401(k) or similar plans is 7%. With diminished expectations for the stock market, and bond yields and savings account interest rates approaching zero, most people are not going to be able to grow their way to adequate funding. Saving more is the only way to make it work.

2. Retirement targets are also too low
The reason savings rates are so low is probably that people are underestimating how much they will need in retirement. According to the Transamerica study, the median savings goal of American workers is $500,000 — but how many younger workers understand that inflation is likely to cut the value of that amount by at least half by the time they retire?

3. Too many people are relying on guesswork
It’s no surprise that savings rates and retirement planning targets seem off-base, because people simply guess at them. The Transamerica Center found that nearly half (47%) of respondents chose a retirement target by guessing.

4. Funding levels are off target
While the median retirement target is $500,000, the survey found that 39% of workers in their 60s had saved less than $250,000. That leaves them with too much ground to make up in too few years.

5. People seem to be betting on good health
The survey found that most Americans plan to retire after age 65, or not at all. Also, most plan to work after retirement. Working longer may be an inevitability for many people, but it is hardly an ideal retirement planning solution. After all, it means staying healthy enough to work productively, and that is no sure thing for people over 65.

6. Many start planning too late
The survey found that people in their 60s are more likely to have a retirement plan and work with a financial planner than people in their 20s. The problem is that by the time you are in your 60s, your options for significantly improving your retirement funding are very limited.

Call Freeman Owen Jr For Retirement Saving AdviceRetirement planning is a very important individual responsibility. Contact me at 833-313-7233 for a free consultation so we can determine your specific needs and plan for your retirement days to be the best years of your life!