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529 Coverdell plans

Many people are unaware of the potentially useful benefits of a 529 investment plan sometimes referred to as a Coverdell account.  
Primarily used as an investment vehicle for college or higher education expenses, the plan has many attributes that make it very useful for planning purposes beyond the college bound funding it was set up to enable. 
The 529 Plan as a retirement vehicle is often overlooked with so many chances to fit where many other financial plans may not.
These are a very good way to avoid trusts that can be very limited and sometimes final in the way there scope is allocated. Below are just a few of the benefits a 529 Plan could offer, 

  • Estate planning solutions are one topic to review with a 529 Plan, as contributions made to a 529 plan are removed from your estate.

  •  The 529 Plan provides one of the lowest cost estate planning vehicles available with the ability to change plan beneficiaries and investments yearly.

  • $65,000 contribution limits for individuals or up to 130,000 for couples to contribute along with the ability to donate to an unlimited amount of beneficiaries can make this a very useful estate planning tool.

  • The 529 plan has the ability to grow tax free and offer a lower cost alternative to withdrawing money in retirement with a 10% tax penalty after potential decades of growth on the principal.

Now that you know there are more advantages doesn't it make sense to call and make an appointment with an expert to see how a 529 may provide a financial planning solution for your needs?

COVERDELL ACCOUNTS E.S.A.

A Coverdell or Educational Savings Account is a type of account that can be opened to fund educational expenses for schooling. These accounts are still available yet rarely used since a 529 account has more advantageous benefits in most instances.Callus to learn about the differences and which might be a better solution for you.


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What is a 529 plan? 

The following definition of a 529 plan was taken directly from the American Funds website:

“Named after Section 529 of the Internal Revenue Code, 529 savings plans provide a tax-advantaged way to save for qualified higher education expenses. These plans are generally sponsored by individual states, while plan assets are professionally managed by independent investment firms or state government agencies.”

529 plans: key features and benefits

  • Save for anyone: With a 529 plan, investors can save for anyone — their child or grandchild, niece or nephew, friend, or even themself.

  • Tax advantages: Earnings in 529 accounts can grow free from federal tax, and withdrawals for qualified higher education expenses are free from federal tax, and some states also allow for a deduction (or credit against) contributions.

  • Contribution limits: Investors can contribute up to $14,000 ($28,000 for married couples) annually without gift-tax consequences. Under a special election, you can invest up to $70,000 ($140,000 for married couples) at one time by accelerating five years’ worth of investments.

  • Income limits: There are no income limits, so investors can contribute regardless of how much income they earn.

  • Investment flexibility and options: Though plans are administered by individual states, investors can choose among many types of investment options, regardless of where they live. These investment options can also be changed, but investment allocation changes can only be done at certain number times and dates on an annual basis.

  • Control: The investor, as the account owner rather than the beneficiary, maintains full control of all account assets and determines the timing and amount of distributions.

  • Beneficiary options: Investors can change beneficiaries, without penalty, provided the new beneficiary is a member of the previous beneficiary’s family.

Although rarely discussed as the ideal college savings plan, a solid argument can be made for using whole life insurance versus a 529 plan. So for illustrative purposes, I will refer to the whole life insurance option as a whole life plan.

Wait a minute. Did I just say that whole life insurance can be a better college savings plan than a 529 plan? Yes, I absolutely did. Far too many financial professionals, families and investors get caught up in focusing on the name of their plans and investments.

For example, it is traditionally common, popular and acceptable for a retiree to mention that their retirement savings plan is a 401(k) or an IRA, but not so much to say a variable annuity plan. Likewise, it is traditionally common, popular and acceptable for parents and grandparents to say their college savings plan is a 529 plan, but not so much to say a whole life plan.

Therefore, rather than focusing on the name of the college savings plan of choice, the right thing to do is compare and contrast these two options, focusing solely on the facts, features and benefits.

Whole life plans: key features and benefits

  • Save for anyone: Investors in whole life plans can also save for anyone — their child or grandchild, niece or nephew, friend or even themselves. However, a whole life plan offers the ability to save for any person, regardless of their relationship to you, as well as save for any company, institution, or charity an investor may choose.

  • Tax advantages: Whole life plan cash value earnings also accumulate on a tax-deferred basis and, if managed properly (via withdrawals and/or loans), can be also be withdrawn on a 100 percent tax-free basis.

  • Contributions limits: Similar to 529 plans, whole life plans have certain contribution limits, particularly within the first seven years. However, most whole life plan contribution limits can be structured to exceed the limits of a 529 plans, and they are also not limited to the $350,000 lifetime limit of a 529 plan.

  • Income limits: Just like 529 plans, there no income limits, so any investor can contribute, regardless of how much income they earn.

  • Investment flexibility and options: Although whole life plans cannot offer investment upside potential, they do offer no downside investment risk. For many investors, the peace of mind associated with safety and guarantees are far more attractive, particularly when saving for a specific time frame and/or goal (such as retirement or college savings). In addition, whole life plans cash values offer more competitive “safe money” interest rates versus alternative fixed-interest rate vehicles (which are contractually guaranteed), as well the potential for annual dividends.

  • Control: The investor, as the account owner, rather than the beneficiary, maintains full control of whole life plan cash value and determines the timing and amount of distributions.

  • Beneficiary options: Similar to a 529 plan, investors can change whole life plan beneficiaries without penalty, at any time, and for any reason. However, unlike the family beneficiary restrictions of a 529 plan, a whole life plan allows you to change the beneficiary to any person, institution and/or charity, as well as choose as many beneficiaries to receive whatever percentage they deem appropriate.

  • Guaranteed completion: Arguably the biggest advantage of a whole life plan is the ability to guarantee that an investor’s college savings plan will self-complete under all circumstances.

  • Death: With a 529 plan, in the event of a premature death or unexpected disability, an investor’s college savings plan can only offer whatever money has accumulated up that point. However, whole life plans carry have contractual life insurance guarantees which provide large amounts of wealth to be used for college savings (or any other purpose) in the event of a premature death.

  • Disability: In the event of an unexpected disability, an investor is very likely to lose their ability to temporarily or permanently continue funding their 529 plan. However, whole life plans offer the option to add an affordable disability rider which contractual guarantees that, in the event of an unexpected disability, the policy premiums will be made by the insurance company and the cash value will continue to accumulate. (Note: This rider carries a small additional cost as well as age restrictions.)

  • Unlimited money options: If you withdraw money from a 529 plan for reasons other than specifically for qualified higher educational purposes, your earnings will be subject to federal income tax and possibly a 10 percent federal tax penalty. However, the cash value in a whole life plans can be used for any purpose whatsoever, whether related to education or not. (For example, joining a fraternity or sorority, buying a car, food, clothing, spending money, etc.) In other words, a whole life plan can essentially be used as “your own bank account”.

  • No taxes or penalties: There are many instances where college saving plans are simply not be needed, wanted, or utilized. For example, children or grandchildren may receive college scholarships, join the military, or simply choose not attend college. Whole life plan cash values provide important access and flexibility to change your plans for your college savings at any time, for any reason.

  • No financial aid restrictions: A robust 529 plan can negatively impact a student's chances of tapping into various sources of financial aid. However, another important advantage of a whole life plan is the ability to shelter funds from the federal financial aid methodology via the cash value.

  • Ownership change permitted: Unlike 529 plans, a whole life plan offers the ability to change the ownership of the policy at any time for any reason. Changing the ownership in a whole life plan changes both the accumulated cash value as well as the death benefit.

When choosing a college savings plan, our job as financial professionals is to provide education, personalization and customization. Both 529 plans and whole life plans are excellent college savings plans, and clearly, neither is the best option for every client.  There are also other college savings options to review and consider such as a Uniform Gift to Minors Account (UGMA), Uniform Trust to Minors Account (UTMA), Coverdell Education Savings Accounts, and regular investment accounts. 

Today's environment for wealth accumulation is far different than one which was the norm for many decades prior to the internet era. Automated trading, algorithms along with the internet have created access to an investing environment which is available instantaneously to everyone who may have a internet connection to a trading account and the same news you and I do. How do you take advantage of this new type of a level playing field you may ask? Through joining the Wealth Planning Center, The 401K Mans  private wealth group. We are an investment group that focuses on returns above the average rate with a minimal risk.

There are no real advantages to having many of the traditional wealth accumulation methods that once existed back then. In order to stay a step ahead of everyone and possibly get in with an growing opportunity is more important than ever nowadays. This is the reason for the Wealth Planning Center. Something that we feel here at The401Kman which must be said first and strongly is to avoid the daily financial news (nonsense) that is to readily available to listen to or view. “Those people who can sit quietly for decades when they own a farm or apartment house only too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of, ‘Don’t just sit there. Do something.’ We are a family wealth management organization by invitation for those who are not looking to act on the latest news and realize the news like the markets will only continue to change daily.  

We would like to to introduce our style of investment and planning management somewhat akin to the "Oracle of Omaha" but updated for today's world of volatility and risk. The401Kman has been helping people with financial decisions for decades and seen many turns in the market as well. Nowhere near as many as Mr Buffett but I am very respectful of his acumen and insight.

We feel Warren Buffett said it best back in 2001 with his normal wit, "Investing is somewhat akin to being on a roller coaster in the dark without being able to determine what direction is next, a drop, or an uptick? How long will it last, how fast will it be?"  Volatility is simply the norm for the stock market overall. From 1980 to 2017, calendar-year returns for the S&P 500 Index ranged from a plus 34% gain all the way to a harrowing -38% on the downside. Taking into a longer period will simply yield similar results. Warren Buffett understands extreme short-term volatility is not only normal; it’s necessary for generating great long-term returns. In a 2001 interview in Fortune, Buffett said,“This is the one thing I can never understand. To refer to a personal taste of mine, I’m going to be buying hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up, we weep.”“For most people, it’s the same way with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.”Further, as Buffett said in Berkshire Hathaway’s 2013 annual shareholder letter, “It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings — and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his — and those prices varied widely over short periods of time depending on his mental state — how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming.

​“Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits—and, worse yet, important to consider acting upon their comments".

“For these investors, liquidity is transformed from the unqualified benefit it should be to a curse. A ‘flash crash’ or some other extreme market fluctuation can’t hurt an investor any more than an erratic and mouthy neighbor can hurt my farm investment. Indeed, tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values. A climate of fear is your friend when investing; a euphoric world is your enemy.”

Focus on what you can control and try not to fret about what you can’t. Extreme short-term volatility can be a gift to long-term investors, if you let it. The last couple of months have been scary, and I have no idea where stocks will be a year from now. But history suggests investors with the courage to stay the course will be rewarded over the next 10 years..  

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