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ISSUE 968
529 LESSON PLAN: HIGH SCORES FOR 529 PLANS Looking for a tax-advantaged college savings plan that has no age restrictions and no income phaseout limits — and one you can use to pay for more than just tuition? Consider 529 savings plans, a popular way to save for higher-education expenses. Named after the section of the tax code that authorized them, 529 plans (also known as qualified tuition plans) are now offered in almost every state. You may find that 529 plans make saving for college a little easier than before. There are two types of 529 plans. The original form of 529, the state-operated prepaid tuition plan, allows you to purchase units of future tuition at today's rates, with the plan assuming the responsibility of investing the funds to keep pace with inflation. Many state governments guarantee that the cost of an equal number of units of education in the sponsoring state will be covered, regardless of investment performance or the rate of tuition increase. Of course, each state plan has a different mix of rules and restrictions. Prepaid tuition programs typically will pay future college tuition at any of the sponsoring state's eligible colleges and universities (and some will pay an equal amount to private and out-of-state institutions). The second type of 529 is the savings plan. It's similar to an investment account, but the funds accumulate tax deferred. Withdrawals from state-sponsored 529 plans are free of federal income tax as long as they are used for qualified college expenses. Many states also exempt withdrawals from state income tax for qualified higher education expenses. Unlike the case with prepaid tuition plans, contributions can be used for all qualified higher-education expenses (tuition, fees, books, equipment and supplies, room and board), and the funds usually can be used at all accredited post-secondary schools in the United States. The risk with these plans is that investments may lose money or may not perform well enough to cover college costs as anticipated. In most cases, 529 savings plans place investment dollars in a mix of funds based on the age of the beneficiary, with account allocations becoming more conservative as the time for college draws closer. Many states have contracted professional money managers — many well-known investment firms — to actively manage and market their plans, so a growing number of investors can customize their asset allocations. Some states enable account owners to qualify for a deduction on their state tax returns or receive a small match on the money invested. Earnings from 529 plans are not taxed when used to pay for eligible college expenses. And there are even consumer-friendly reward programs that allow people who purchase certain products and services to receive rebate dollars that go into state-sponsored college savings accounts. Funds contributed to a 529 plan are considered to be gifts to the beneficiary, so anyone — even non-relatives — can contribute up to $16,000 per year in 2022 per beneficiary without incurring gift tax consequences. Contributions can be made in one lump sum or in monthly installments. And assets contributed to a 529 plan are not considered part of the account owner's estate, therefore avoiding estate taxes upon the owner's death. MAJOR BENEFITS 529 savings plans generally allow people of any income level to contribute, and there are no age limits for the student. The account owner can maintain control of the account until funds are withdrawn — and, if desired, can even change the beneficiary as long as he or she is within the immediate family of the original beneficiary. A 529 plan is also extremely simple when it comes to tax reporting — the sponsoring state, not you, is responsible for all income tax record keeping. At the end of the year when the withdrawal is made for college, you will receive Form 1099 from the state. By comparing different 529 plans, you can determine which plan might be best for you. BENEFITS FOR GRANDPARENTS 529 savings plans can be a great way for grandparents to contribute substantial amounts to a student's college fund. At the same time, grandparents also control the assets and can retain the power to control withdrawals from the account. By accelerating use of the annual gift tax exclusion, a grandparent — as well as anyone, for that matter — could elect to use five years' worth of annual exclusions by making a single contribution of as much as $80,000, or $160,000 for a couple, per beneficiary in 2022 (up from $75,000/$150,000 in 2021), as long as no other contributions are made for that beneficiary for five years. If the account owner dies, the 529 plan balance is not considered part of his or her estate for tax purposes. (However, if the donor makes the five-year election and dies during the five-year calendar period, part of the contribution could revert back to the donor's estate.) As with other investments, there are generally fees and expenses associated with participation in a Section 529 savings plan. In addition, there are no guarantees regarding the performance of the underlying investments in 529 plans. The tax implications of a 529 savings plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also note that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers. These other state benefits may include financial aid, scholarship funds, and protection from creditors. Before investing in a 529 savings plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses — which contain this and other information about the investment options, underlying investments, and investment company — can be obtained by contacting your financial professional. You should read these materials carefully before investing. The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2022 Broadridge Financial Solutions, Inc. ISSUE 970
IS A HOME EQUITY LOAN OR LINE OF CREDIT RIGHT FOR ME? Home equity financing uses the equity in your home to secure a loan. For this reason, lenders typically offer better interest rates for this type of financing than they do for other, unsecured types of personal loans. The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspended from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan. Under the new law, for example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. As under prior law, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements. A home equity loan (often referred to as a second mortgage) is a loan for a fixed amount of money that must be repaid over a fixed term. Generally, a home equity loan:
Some HELOCs may cap the monthly payment amount that you are required to make, but not the interest adjustment. With these plans, it's important to note that payment caps can result in negative amortization during periods of rising interest rates. If your monthly payment would be less than the interest accrued that month, the unpaid interest would be added to you principal and your outstanding balance would actually increase, even though you continued to make your required monthly payments. The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2022 Broadridge Financial Solutions, Inc. ISSUE 971
WHAT DOES MEDICARE COVER? Medicare is the federal health insurance program for persons age 65 and older as well as certain disabled individuals. In 1965, Medicare was enacted to provide a “safety net” of health-care coverage for qualifying individuals. Medicare is packaged in two major parts. Part A is hospital insurance protection. It covers hospitalization, some hospice care, and a limited amount of post-hospital skilled nursing and home health care. Part B, which is medical insurance, helps cover physicians’ services, outpatient hospital care, physical therapy, diagnostic tests, and a variety of other services. More recently, Medicare added Part D, prescription drug coverage. At first glance, it appears that Uncle Sam has everything covered. But unfortunately, there are many limitations. Medicare Costs Every time you go to the hospital, you have to pay a certain amount of your hospitalization costs, unless your visits are separated by fewer than 60 days. If that’s the case, you pay the deductible only the first time. If you stay in the hospital longer than 60 days, you will be required to pay a copayment every day for days 61 through 90. You also have a lifetime reserve of 60 days that can be used in conjunction with more than one extended stay. These days also have an associated copayment. Medicare won’t cover any stays longer than 90 days once you have depleted your 60-day reserve. Will Medicare Pay for Skilled Nursing Care? Medicare will pay for the first 20 days of skilled nursing care, but only after you’ve been in the hospital for three days. This means you’ll have paid at least the deductible for that three-day stay. From the 21st day through the 100th day, Medicare will cover some of the costs of skilled nursing care, but you still have a copayment. After 100 days, Medicare will not pay for skilled nursing care, and you must bear the full cost. The 100 days are per benefit period. What About Medigap? Medicare supplemental insurance, or “Medigap,” is designed to pick up where Medicare stops. As such, it usually pays the deductibles and copayments required by Medicare. Coverage will vary according to the benefits outlined in each specific policy. Medigap insurance may not pay for any additional procedures that aren’t specifically addressed by Medicare. Most policies will only help to cover the deductibles and copayments imposed by Medicare. What About Long-Term Care? Medicare provides only limited coverage for skilled nursing care and pays for only up to 100 days of care following a three-day hospital stay. Medigap doesn’t fill the gaps in this coverage. If you are concerned about meeting your potential long-term-care needs, you should look into additional insurance to help fill in the gaps. In many cases, it may be best to consider purchasing a private long-term-care insurance policy to help protect against these potentially devastating costs. The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2022 Broadridge Financial Solutions, Inc. ISSUE 972
WHAT IS ASSET ALLOCATION? Lewis Carroll, the author of Alice’s Adventures in Wonderland, once said, “If you don’t know where you’re going, any road will get you there.” This is certainly true when it comes to investing: If you don’t know where you’re headed financially, then it is not as vital which investments make up your portfolio. If you do have a monetary destination in mind, then asset allocation becomes very important. The term “asset allocation” is often tossed around in discussions of investing. But what exactly is it? Simply put, asset allocation is about not putting all your eggs in one basket. More formally, it is a systematic approach to diversification that may help you determine the most efficient mix of assets based on your risk tolerance and time horizon. Asset allocation seeks to manage investment risk by diversifying a portfolio among the major asset classes, such as stocks, bonds, and cash alternatives. Each asset class has a different level of risk and potential return. At any given time, while one asset category may be increasing in value, another may be decreasing in value. Diversification is a method to help manage investment risk. Asset allocation and diversification do not guarantee a profit or protect against loss. So if the value of one asset class or security drops, the other asset classes or securities may help cushion the blow. Dividing your investments in this way may help you ride out market fluctuations and protect your portfolio from a major loss in any one asset class. Of course, it is also important to understand the risk versus return tradeoff. Generally, the greater the potential return of an investment, the greater the risk. As a result, the makeup of a portfolio should be based on your risk tolerance. Generally, you should not place all your assets in those categories that have the highest potential for gain if you are concerned about the prospect of a loss. It is essential to find a balance of asset classes with the highest potential return for your risk profile. Other factors that are important to developing an asset allocation strategy are your investment goals and time horizon. When you are considering how to diversify your portfolio, ask yourself what you want to accomplish with your investments. Are you planning to buy a new car or house soon? Do you aspire to pay for your children’s college education? When retirement rolls around, would you like to travel and buy a vacation home? These factors should all be considered when outlining an asset allocation strategy. If you require a specific amount of money at a point in the near future, you might want to consider a strategy that involves less risk. On the other hand, if you are saving for retirement and have several years until you will need the funds, you might be able to invest for greater growth potential, although this will also involve greater risks. Whichever asset allocation scenario you decide on, it’s important to remember that there is no one strategy that fits every type of investor. Your specific situation calls for a specific approach with which you are comfortable and one that could help you pursue your investment goals. The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2022 Broadridge Financial Solutions, Inc. ISSUE 973
WHAT IS DOLLAR- COST AVERAGING? Every investor dreams of buying into the market at a low point, just before it hits an upswing, and garnering a large profit from selling at the market’s peak. But trying to predict market highs and lows is a feat no one has ever fully mastered, despite the claims by some that they have just the right strategy that enables them to buy and sell at the most opportune times. Attempting to predict which direction the market will go or investing merely on intuition can get you in trouble, or at the very least may cause you a great deal of frustration. One strategy that may help you navigate these investing pitfalls is dollar-cost averaging. Dollar-cost averaging involves investing a set amount of money in an investment vehicle at regular intervals for an extended period of time, regardless of the price. Let’s say you have $6,000 to invest. Instead of investing it all at once, you decide to use a dollar-cost averaging strategy and contribute $500 each month, regardless of share price, until your money is completely invested. You would end up purchasing more shares when prices are low and fewer shares when prices are high. For example, you might end up buying 20 shares when the price is low, but only 10 when the price is higher. This strategy has the potential to reduce the risk of investing a large amount in a single investment when the cost per share is inflated. It may also help reduce the risk for an investor who tends to pull out of the market when it takes a dip, potentially causing an inopportune loss in profit. The average cost per share may also be reduced, which has the possibility to help you gain better overall profits from the market. Utilizing a dollar-cost averaging program, the bottom line is that the average share price has the potential to be higher than your average share cost. This occurs because you purchased fewer shares when the stock was priced high and more shares when the price was low. Dollar-cost averaging can also help you to avoid the annoyance and stress of continually monitoring the market in an attempt to buy and sell at “fortuitous” moments. Dollar-cost averaging is a long-range plan, as implied by the word “averaging.” In other words, the technique’s best use comes only after you’ve stuck with it for a while, despite any nerve-racking swings in the market. When other panicky investors are scrambling to get out of the market because it has declined and to get back into it when the market has risen, you’ll keep investing a specific amount based on the interval you’ve set. Dollar-cost averaging does not ensure a profit in rising markets or protect against a loss in declining markets. This type of investment program involves continuous investment in securities regardless of the fluctuating price levels of such securities. Investors should consider their financial ability to continue making purchases through periods of low and high price levels. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2022 Broadridge Financial Solutions, Inc. ISSUE 974
WHAT ARE THE PITFALLS OF PROBATE? Every investor dreams of buying into the market at a low point, just before it hits an upswing, and garnering a large profit from selling at the market’s peak. But trying to predict market highs and lows is a feat no one has ever fully mastered, despite the claims by some that they have just the right strategy that enables them to buy and sell at the most opportune times. Attempting to predict which direction the market will go or investing merely on intuition can get you in trouble, or at the very least may cause you a great deal of frustration. One strategy that may help you navigate these investing pitfalls is dollar-cost averaging. Dollar-cost averaging involves investing a set amount of money in an investment vehicle at regular intervals for an extended period of time, regardless of the price. Let’s say you have $6,000 to invest. Instead of investing it all at once, you decide to use a dollar-cost averaging strategy and contribute $500 each month, regardless of share price, until your money is completely invested. You would end up purchasing more shares when prices are low and fewer shares when prices are high. For example, you might end up buying 20 shares when the price is low, but only 10 when the price is higher. This strategy has the potential to reduce the risk of investing a large amount in a single investment when the cost per share is inflated. It may also help reduce the risk for an investor who tends to pull out of the market when it takes a dip, potentially causing an inopportune loss in profit. The average cost per share may also be reduced, which has the possibility to help you gain better overall profits from the market. Utilizing a dollar-cost averaging program, the bottom line is that the average share price has the potential to be higher than your average share cost. This occurs because you purchased fewer shares when the stock was priced high and more shares when the price was low. Dollar-cost averaging can also help you to avoid the annoyance and stress of continually monitoring the market in an attempt to buy and sell at “fortuitous” moments. Dollar-cost averaging is a long-range plan, as implied by the word “averaging.” In other words, the technique’s best use comes only after you’ve stuck with it for a while, despite any nerve-racking swings in the market. When other panicky investors are scrambling to get out of the market because it has declined and to get back into it when the market has risen, you’ll keep investing a specific amount based on the interval you’ve set. Dollar-cost averaging does not ensure a profit in rising markets or protect against a loss in declining markets. This type of investment program involves continuous investment in securities regardless of the fluctuating price levels of such securities. Investors should consider their financial ability to continue making purchases through periods of low and high price levels. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2022 Broadridge Financial Solutions, Inc. ISSUE 975
WHAT ARE SOME TIPS FOR MANAGING MY MONEY? As with virtually all financial matters, the easiest way to be successful with a cash management program is to develop a systematic and disciplined approach. Spending a few minutes each week to maintain your cash management program, can help you keep track of how you spend your money and pursue your financial goals. Any good cash management system revolves around the four A’s — Accounting, Analysis, Allocation, and Adjustment. Accounting... quite simply involves gathering all your relevant financial information together and keeping it close at hand for future reference. Gathering all your financial information — such as income and expenses — and listing it systematically will give you a clear picture of your financial situation. Analysis... boils down to reviewing your financial situation once you have accounted for all your income and expenses. You will almost invariably find yourself with either a shortfall or a surplus. Ideally, you should be spending less than you earn. One of the key elements in analyzing your financial situation is to look for ways to reduce your expenses. This can help to free up cash that can either be invested for the long term or used to pay off fixed debt. For example, if you were to reduce restaurant expenses or spending on non-essential personal items by $100 per month, you could use this extra money to prepay the principal on your mortgage. On a $130,000 30-year mortgage, this extra $100 per month could enable you to pay it off 10 years early and potentially save you thousands of dollars in interest payments. Allocation... involves determining your financial commitments and priorities and distributing your income accordingly. One of the most important factors in allocation is to distinguish between your real needs and your wants. If you need to reduce your expenses, you may want to start out by cutting back on your discretionary spending. This can help free up cash that can either be invested for the long term or used to pay off fixed debt. Adjustment... involves reviewing your income and expenses periodically and making changes when necessary. Above all, be flexible. Any budget that is too rigid is likely to fail. Using the four A’s is an excellent way to monitor your financial situation to help ensure that you are on the right track to meet your financial goals. The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2023 Broadridge Financial Solutions, Inc. |
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