Saving for College With a 529 Plan

529 Plan Basics

A 529 plan is similar to a Roth IRA in that you contribute after-tax dollars that grow tax free. Earnings from the plan can be withdrawn free of federal taxes for qualified college expenses.

Each state has its own plan, but you are not required to use the 529 offered by your state of residence. You can open a 529 account in any state. However, this does not mean the student (beneficiary) must choose a college in the state where the 529 was established. For example, a plan owner can live in Illinois, open a 529 account in Missouri and use the account to pay for the expenses of a private college on the East Coast.

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Wait and You’ll Likely Miss Out

With all the warnings about excessively high valuations investors have been getting from gurus and the financial media, it’s not a surprise that a frequent conversation I’ve been having with investors starts out something like this: I’ve got cash to invest, but the market is at such a high level I think I should wait for a market correction before putting it to work. What should I do?

To address that question, I begin by first noting that, while U.S. equity valuations are at historically high levels, this is neither the case for non-U.S. developed markets or emerging markets.

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The Hazards Of Individual Stocks

In a recent article that highlighted the perils of owning individual stocks, I offered the historical evidence demonstrating how only a small percentage of stocks have accounted for all the gains provided by the market—with the vast majority earning a big, fat zero in aggregate cumulative returns, even before considering the impact of inflation or taxes.

The article included a study by Longboard Asset Management called “The Capitalism Distribution,” which covered the period 1983 through 2006. Longboard recently updated the study, so I thought I would share its findings, which serve to reinforce the risky nature of owning individual stocks.

The new study covers the period 1989 through 2015 and a total of 14,500 stocks. Over this period, the S&P 500 Index returned 10.0% and provided a cumulative return of 1,324%. The broader Russell 3000 Index produced almost identical results. It returned 10.1% per year and provided a cumulative return of 1,341%.

Key Findings

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The High Cost of Bad Advice

When you interview potential advisors, you should look for the advisor who gives the best advice and is the best fit for you. The best advisors begin earning their fee from the day they are hired by helping you determine your most appropriate asset allocation, according to your unique ability, willingness and need to take risk. This is what we do with every single investor who becomes a client.

In determining your need to take risk, we will typically run retirement projections. This can be a particularly eye-opening experience if your portfolio is much more aggressive than needed.

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Social Security, and Getting Your Fair Share, with Steve Weiss and Manisha Thakor

Manisha Thakor brings the BAM Alliance’s Steve Weiss on the MoneyZen Podcast to discuss some of the ins and outs of Social Security, including strategies for claiming benefits and optimizing them to fit your life and financial situation.

As the Director of Wealth Strategies for Women at the BAM ALLIANCE, Manisha is an ardent advocate of financial literacy for women. She is passionate about providing the financial wisdom that women and families need to redefine their relationship with money, helping them create lives aligned with their values and goals through a program of integrated, holistic financial life planning and evidence-based investment management.

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The opinions expressed by featured authors are their own and may not accurately reflect those of Beacon Hill Private Wealth LLC or the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2017, The BAM ALLIANCE