My son is in first grade, and he’s already lived in three states.  He was born in New Jersey, but we moved to New York shortly after his first birthday.  New York didn’t work out, so soon after, we moved to Massachusetts.  Here, we plan to stay.

How we acquired so many accounts

In my family, nothing is more important that a good education.  Our son was born near the beautiful (but expensive!) Princeton campus, so we opened up a 529 Qualified Tuition Plan before he learned to sit up.  Ah, such enthusiastic new parents!  Unfortunately, I didn’t take any time to research the issue, and I assumed that you were supposed to invest in the 529 program sponsored by your state of residence, so we invested in New Jersey’s NJBEST College Saving Plan.

By the time we moved to New York, I knew that I could continue investing the New Jersey 529, but New York gave a state tax deduction if you invested in the New York plan, so while we enjoyed the hospitality of the Hudson Valley region, we bought into New York’s 529 College Savings Program Direct Plan.  

When we moved to Massachusetts, I couldn’t bear the thought of opening yet another account.  Massachusetts doesn’t give a tax deduction for 529 contributions (boo! hiss!) — surprising, considering that our state ranks #8 in the number of colleges per capita — so I plunked a couple of years worth of contributions into the New Jersey fund.

My partner and I keep separate accounts, because the Federal Government doesn’t recognize our marriage, I find it’s just simpler to track our finances separately.  Thus we currently have two NJ and two NY accounts.  That seems like a lot of overhead for just one small boy.

Could we simplify?

I would prefer to have fewer accounts and better investments.  It’s time I looked for a really good 529 program. Read the rest of this entry »

Tags: 529 funds, funding college, paying for college

If you’re self-employed, you have several options for a retirement savings plan.  The “best” plan for you depends on how much you want to save and whether your business has employees.  The IRS publishes a pamphlet with a great overview, so I’ll just review the highlights.

Plans for everyone: the IRA and the Roth IRA

Contributions to a traditional or Roth IRA are limited to $5,000/year or to your earned income, whichever is less.   If you’re over 50, you can put in an extra $1,000.   Money put into a Roth IRA is post-tax, but withdrawals after age 59 1/2 are tax-free.  Money put into a traditional IRA can be tax-deferred, subject to income limits, but growth and pre-tax contributions are taxed when withdrawn.

An employer can set up employee IRA accounts which can be funded through payroll deduction.

Best Reference:  IRS Publication 590 — Individual Retirement Arrangements

SEP’s and SIMPLE’s

The Simplified Employee Pension (SEP) allows the self-employed person to sock away more money — 25% of net earnings, up to a maximum contribution of $49,000.  An employer can also contribute directly to a SEP for employees.

Read the rest of this entry »

Tags: 401(k), IRA, retirement, self-employed, SEP, SIMPLE

My partner and I are accustomed to filling out forms that don’t reflect our family structure. We regularly scratch out “Father” and “Mother,” usually writing in “Parent” and “Parent”. We’ve trained our son’s school pretty well, and halfway through our first year with them, most of the forms we receive are addressed to the “Parents”.  Now that wasn’t hard, was it?

College and the FAFSA

Even though our son is only in first grade, it’s never too early to worry about how we’re going to afford his college education. (After all, it’s a mother’s prerogative to worry). The Free Application for Federal Student Aid (FAFSA) is used by most colleges and universities to determine how much a student should pay towards the cost of his/her education. Many, if not most, middle- and even upper-income families receive some sort of financial aid.

It occurred to me today that since my marriage isn’t recognized by the Federal Government, could I legitimately include just one parent’s income on the form? I’m not trying to cheat, but I do believe that Uncle Sam can’t have it both ways. If they choose not to recognize my marriage (which will (hopefully) be in its 28th year by the time my son starts college) then they have chosen not to recognize my marriage.

Read the rest of this entry »

Tags: FAFSA, gay taxes, LGBT personal finance, paying for college

I recently bought a Volkswagen Golf after my Mitsubishi Eclipse was crushed by an inattentive teenager driver.  Thankfully, I was able to pay cash for it using my “sinking car fund.”

If I hadn’t had the cash on hand, I would have considered three options to finance the new car:  an auto loan, a home equity loan, or a home equity line of credit.

I compiled the rates offered for the three types of loans by four local banks, as listed in the table below.

Auto Loan

An auto loan is likely the most common way to finance the purchase of a new car.  It tends to have the highest rate, but if you don’t own a home, it might be your only option.  The good news about an auto loan is that there are usually no closing costs and the paperwork is straightforward.  The bad news is that the interest paid isn’t tax deductible.

Read the rest of this entry »

Tags: cars, financing a new car, home equity line of credit, home equity loan

I’ve always wanted to own a piece of Warren Buffett’s magic, but at $111,111/share, Berkshire Hathaway (BRK.A) has been way too spendy for me. I’ve had to be content to watch from the sidelines. Smart investors bought 10 shares when it was outrageously priced at $10,000/share (circa 1992).

B-shares (BRK.B) were created for the common man, but even they were quite expensive at more than $3,000/share. On January 21, 2010, BRK.B split 50:1, bringing the share price down to a very reasonable $60-70. Now, Buffett can be bought by the unwashed masses.

Read the rest of this entry »

Tags: Berkshire Hathaway, BRK, BRK.A, BRK.B, Warren Buffett

While preparing to review “Saving Money,” a children’s primer, I noticed that the book’s frontispiece indicated it was purchased by the Donald E. Garrant Foundation.  Curious, I Googled the name to find that it is a corporate philanthropy dedicated to financial literacy.  They don’t have a website, but the tax returns of 501(c)(3) organizations are public, and it was easy to find it through the National Center for Charitable Statistics.

The Donald E. Garrant Foundation of Wakefield, MA

In 2007, the Donald E. Garrant Foundation funded:

• $3,608 to the Galvin Middle School for a school program on financial literacy
• $1,000 to the Foundation for the Advancement of Malden Education to purchase supplies
• $622 to the Wakefield High School to purchase Intuit software
• $766 to the Action for Boston Community Development to purchase financial literacy materials
• $5,860 to the Wilmington High School to purchase supplies for library books

None of the six officers of corporation received any compensation for their work.  The foundation’s only other expense was $1,250 in accounting fees.  Their total disbursements were $13,141 which is 6% of the funds’ total assets of $218,065.

Read the rest of this entry »

Tags: financial literacy, private foundations, teaching kids about money, The Donald E. Garrant Foundation

Recently I was at our town library with my six-year old son. I saw a copy of “Saving Money,” a slim easy-to-read book that I thought might make for an interesting review on the blog. Assuring my son that it wouldn’t count against his book limit of five, we checked it out and brought it home.

It’s never too early to teach the principles of financial literacy to children.  However, this book doesn’t cut it, and here are four reasons why:

Read the rest of this entry »

Tags: book review, financial literacy, Mary Firestone, saving money, teaching children financial responsibility

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Plot spoiler: LGBT couples are treated differently than heterosexual marriages when it comes to inheriting IRA’s.  Here’s how to avoid having disapproving Aunt Sally end up with your dough.

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The US federal government doesn’t recognize the marriages of gay and lesbian couples. Consequently, LGBT folks have to take extra steps to make sure that, in the event of their death, their assets are distributed in accordance with your wishes.

A. What Happens When You Die

Not to get morbid or anything, but some folks die prematurely. Best to plan now (just in case) rather than later. A last will and testament delivered via Ouiji board will not be admissible in most courts of law.

In the event of your death, the assets in your 401(k) will be transferred into a traditional IRA.  If you had a Roth 401(k) it will be transferred into a Roth IRA.  Everything in this post that refers to an “IRA” also refers to a “401(k).”

B. The Beneficiary Form

The best and simplest way to transfer your IRA assets to your intended heir, is to name him/her/them on the IRA’s beneficiary form.  Keep it updated, and keep a copy.

Not only does the beneficiary form make it clear who gets the money, assets transferred through a beneficiary designation don’t go through probate– they are available immediately to the recipient.  If you don’t fill out the beneficiary form (and if you don’t have a will), your assets are transferred “by law” which usually means that the heirs will be your parents and/or siblings — perhaps not what you had in mind.

C.  Rich Straight People Really Are Different

When a federally-recognized spouse inherits an IRA, he/she can usually just roll the assets over into his/her own IRA account.  The assets grow tax-free until funds are withdrawn in retirement (or until the heir reaches the age of required minimum distributions, 70 1/2).

Read the rest of this entry »

Tags: gay taxes, IRA inheritance, marriage inequality

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Plot spoiler:  Even if you can afford the higher monthly payment of a 15-year mortgage, consider getting a 30-year term, instead.  Invest the difference, and in 15 years (with a 6% return) you’ll have enough to pay off the mortgage, and you’re not locked in to the higher payment

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If you’ve had your current mortgage for more than about two years, now might be a good time to refinance.

This assumes, of course, that you’re planning to own your home for several more years and that you have positive equity (the value of house is more than the amount of the loan that you would be seeking).   Interest rates are being held down by the Fed in an effort to get the economy going again, so it’s a good bet that they’ll stay low at least for the next few months.

I made a few calls and found that going rate for a fixed-rate 15-year term loan is about 4.65%, and the similar rate for a 30-year loan is 5.25%.  If you’re only going to be in your house for a few years, then you can save a few pennies with an adjustable rate loan, but with fixed rates so low, you don’t really save much.

Example:  A $200,000 loan

If you need to finance $200,000, the monthly payment for the 4.65% 15-year loan is $1,545.  The monthly payment for the 5.25% 30-year loan would be $1,104 which is $441/month less.  Over the life of the 15-year loan, you would pay a total of $278,165.  Alternatively, if you chose the 30-year loan, you would pay a total of $397,587  – almost twice the amount borrowed.   You might think that if you can swing the higher payment, you’re better off paying it off quickly.  After all, who wouldn’t want to save $119,422?

However, there are some advantges to paying off your mortgage at the slower rate:

• You have less of your money tied up in a house, and
• If you lose your job, you’ll be grateful that you have a lower monthly payment.

Read the rest of this entry »

Tags: 15-year vs. 30-year mortgage, effect of inflation on mortgage payment, mortgage, mortgage interest tax deduction

I recently posted about a flaw in the Morningstar website.   In general, Morningstar has a great site — one of the best on the web, so I was disappointed to find an error in the way that it graphs the return of exchange-traded funds (ETF’s).

If you click on the “ETF” tab of the Morningstar site and create a graph comparing the return of an ETF to a mutual fund, you’ll see that the value graphed for the mutual fund includes the distributed capital gains and dividends (as if they were reinvested).  This is the true return on investment, recognizing both realized and unrealized gains.  However, the graph of the ETF does not include the distributed returns and falls precipitously at the end of every year (when capital gains are typically distributed).

However, if you go to the “Mutual Fund” section of Morningstar and compare the same mutual fund and ETF, the graph correctly displays the value of both the ETF and mutual fund.

Three days after I posted, I received a nice note from Shawn Malayter, Director of Media Relations for Morningstar’s Software Division:

Helen,

I’m writing in response to your recent blog post on the Morningstar.com ETF chart. The issue seems to be that ETFs, because of the need for intraday charting, are using a stock-style chart that does not calculate total return in the way that you would for a mutual fund. Our software team is aware of the issue and has been working on modifying our ETF charts so that they provide total returns that are inclusive of any payouts. The changes should be completed soon.

Thank you for raising the issue, and we hope you continue to visit the site often.

Best regards,

-Shawn

My faith in Morningstar is restored. I’m impressed that they took the time to write.  I’m also happy that they’re working on the fix.  And, yes, Shawn, I certainly will return to the Morningstar site often.

Disclaimer: I am a customer of Morningstar as I do subscribe to their Premium services.  I was not asked to write this post nor did I receive any compensation.

Tags: comparing ETF to mutual fund, graphing ETF return, graphing mutual fund return, Morningstar