John Drevon/Financial Consultant

05/10/2023

National College Savings Plan Day
05.10.2023

May 29 is National 529 Day. The intent of National 529 Day is to raise awareness and encourage individuals and families to consider investing in a 529 plan to focus on the success of future generations. College is expensive, and starting to save early with a 529 plan or similar college savings vehicle can help you get a jump on accumulating funds for college for children or grandchildren.

What is a 529 Plan?

A 529 is a college savings plan offered by various states. Contributions are made on an after-tax basis, though some states may offer a tax deduction for state residents who contribute to the plan. Contributions to the plan can be invested and the money inside of the plan grows tax-free.

Withdrawals are tax-free if they are used for qualified higher educational expenses, or expenses for K-12 education within the rules. Beyond basic 529 plans, some states offer prepaid tuition plans that allow parents to pre-pay the tuition at designated institutions.

Jeff Spencer, Vice President of Investments of the Wedbush Securities Traverse City office says, “There are a lot of myths out there about 529 plans – mainly that they lack flexibility and that the hassle isn’t worth the benefit. I could not disagree more. Not only have we used 529s to pay for traditional higher education, but we frequently use them to pay for community colleges and trade schools.”

Spencer adds, “In fact, we’ve had students pay for tools for mechanical school using 529 funds. In addition, we see a tremendous value not just in the tax deferral, but also in the ability to use 529s as an estate planning tool, as grandparents can give intra-family gifts to grandchildren – reducing the size of their estate and keeping wealth in the family for a valuable need. Even better, funds can be moved tax-free between immediate family members, or even be passed on to their children if gone unused.”

Benefits of a 529 Plan

A 529 offers a number of benefits for parents trying to save for their children’s education.

Spencer says, “For families that have a goal for saving for college for their children or grandchildren, we feel 529s provide an excellent, tax efficient vehicle to invest funds for educational needs. While all 529 accounts grow tax-deferred and can be withdrawn tax-free for higher educational needs (i.e. tuition, room and board, books, even a laptop for school purposes), many states also offer a state tax deduction for annual contributions as well (up to $10,000 annual contribution deduction here in our state of Michigan, for example).”

He adds, “Even further, many of the perceived limitations of 529 accounts have been addressed over the past few years through updated rules that allow for funds to be used for K-12 private school tuition, as well as very recent changes that will allow for up to $35,000 of unused 529 funds to be rolled over tax-free into a Roth IRA for a student that ends up not needing the balance for an educational need.”

In addition, recent changes in the rules now allow a portion of any money left over in a 529 account to be used to pay off a portion of the beneficiary’s student loan debt, if applicable. A portion can also be used to pay down the student loan debt of the beneficiary’s siblings as well.

How to celebrate 529 Day

One great way to celebrate is to open a 529 account for your child, grandchild or even for yourself if some sort of higher education is in your future. Many 529 providers are offering promotions this month. Definitely speak with your financial advisor to discuss the best option, including the two main types of college savings plan options.

Consider adding to an existing 529 either as a one-time payment or start making regular automatic payments. Whether for your own children or another friend or relative, a contribution to a 529 is a great way to support their educational ambitions.

Other college savings options

Beyond a 529 plan, there are a number of other ways to save money for college.

A custodial account is an account opened and administered by an adult for the benefit of a minor. The rules for custodial accounts vary a bit by state, but one thing to remember is that these accounts are irrevocable and control of the account reverts to the beneficiary once they reach the age of majority in their state. Once they have control of the account, they are not obligated to use the money for educational expenses.

A Roth IRA can also be used as a college savings account. If the child beneficiary works and has earned income, the account can be opened in their name. Whether your Roth IRA or theirs, withdrawals of money contributed can always be withdrawn tax or penalty free. If you are under age 59 ½, withdrawals of earnings in the account can be taken penalty free, but they could be taxed. If you are over age 59 ½ and have met the five-year rule, all withdrawals are tax and penalty free.

You can also use a savings account. Money in the account is liquid, safe and readily available. Perhaps the downside is the returns may lag an investment account such as a 529 or a taxable brokerage account.

Make sure to reach out to your Wedbush financial advisor to discuss your college savings goals for your children, grandchildren or others. They can help you establish the best type of account and formulate a plan to achieve your goals in this area.



Disclosure

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.

04/20/2023

Great insight regarding investor behavior and facts during recessions

04/20/2023

https://assets.contentstack.io/v3/assets/blt176b02314f42bff1/blt336b2da96145a505/6417c3b782bb06103fe54f20/RecessionWhitepaper-V1.2_(1).pdf

04/15/2023

For investors who are concerned about the environmental impact from global growth companies, please read this article. I would love to provide you with a list of companies and investments which meet the criteria ESG investing.

Earth Day in 2023 will be celebrated on Saturday, April 22. This year’s theme is “Invest in our Planet.” ESG and green investing are two investing approaches that not only help promote a sustainable environment, but they can also prove profitable for investors.

04/12/2023

https://www.google.com/search?q=avellanas+costa+rica&ie=UTF-8&oe=UTF-8&hl=en-us&client=safari

04/12/2023

Enjoying the beautiful sunset in Playa Avellanas, Guanacaste Costa Rica, with the family

03/30/2023

https://drnewsemails.com/retirement-age-increase-or-higher-taxes-what-you-need-to-know-about-the-reform-of-social-security/?utm_source=pb_drnews

US lawmakers are advocating for a higher retirement age as part of a package of changes to federal and state entitlement programs.

03/28/2023

Secure 2.0: How the new legislation will impact retirement savings for all generation
02.08.2023
compass
The Secure Act was passed at the end of 2019 and took effect in 2020. The legislation contained a number of important provisions. Perhaps the most notable was the provision that raised the age to commence required minimum distributions from IRAs and other retirement accounts from 70 ½ to 72.

The other highly publicized change arising from the original Secure Act legislation was the elimination of the “stretch IRA” for many beneficiaries of inherited IRAs.

The recently passed Secure Act 2.0 legislation will bring a number of new changes for retirement savers that will impact current and future retirees.

Changes the Secure Act 2.0 will Bring to Retirement

Here is a look at some of the changes that will come about as part of Secure 2.0.

Required minimum distributions

In 2023, the age to commence RMDs increases to age 73 for those who were born in the years 1951 through 1959. Starting in 2033, the age to commence RMDs increases to 75. This will impact those born in 1960 or later.

There are a number of potential planning implications related to this change. It provides those saving for retirement a longer period of time to allow their retirement savings to grow tax deferred. A negative cited by some is that this will compress the time that many people have to take their RMDs, resulting in larger distributions and larger potential tax bills.

There are a number of planning options to avoid these larger RMDs, including Roth IRA conversions in the years leading up to your required beginning date for RMDs. For those who are charitably inclined and who can afford to forgo some of the income from their RMDs, qualified charitable deductions (QCDs) might be an option to reduce future RMDs as well.

Catch-up Contributions

Secure Act 2.0 made several changes to the catch-up contributions for those age 50 or over in terms of both employer-sponsored retirement plans such as a 401(k), as well as for IRA accounts.

Currently those who are age 50 or over can make a catch-up contribution of $7,500 to their 401(k), 403(b) or other employer-sponsored retirement plan in 2023. This is in addition to the annual limit of $22,500 in place for 2023. Beginning in 2025, the qualified plan catch-up contribution level for those aged 60 to 63 will increase to $10,000.

Beginning in 2024, the catch-up level for those who are 50 or over will be indexed for inflation from the current $1,000 level for IRA accounts.

Another change also commencing in 2024 pertains to taxpayers with incomes of $145,000 or higher. These taxpayers will be required to make their catch-up contributions to a designated Roth account inside of the plan – regardless of whether or not their other contributions are made to a Roth option.

As a whole, the increased catch-up limits are a positive for those saving for retirement. The Roth restriction for higher earners in a 401(k) plan could increase their taxable income as these catch-up contributions would be pre-tax. This would impact those planning to contribute to a traditional IRA.

Another impact of the mandated Roth catch-up contributions is that if the plan does not allow these employees to make catch-up contributions to a Roth account, then this could limit the ability of all employees to make a catch-up contribution even if they earn less than the $145,000 limit.

Roth 401(k) matching

Currently, all employer matches must be made into a pre-tax traditional 401(k) account. This applies to 403(b) plans and other qualified plans as well. This is the case even if the employee makes some or all of their salary deferral contributions to a Roth account.

Effective immediately, employers are permitted to make matching contributions to a Roth account for these employees. As a practical matter, it may take some plan sponsors and administrators a bit of time to revise their systems and plans to accommodate this.

This is in line with a number of other provisions in the legislation that offer added ways for those saving for retirement to increase their balances in Roth accounts. One potential downside here: these matching contributions to a Roth account would be taxable to the employee.

Emergency 401(k) and IRA Withdrawals

Beginning in 2024, one emergency withdrawal of $1,000 per year can be taken from a 401(k) or similar plan, or from an IRA account. Taxpayers would self-certify that they are taking the distribution for a hardship situation; there is no proof required. The 10% penalty on early withdrawals would be waived.

Plans cannot allow participants to take an additional emergency withdrawal until the earliest of:

Repayment of prior distributions
Since the emergency withdrawal, regular deferrals and employee contributions to the plan total at least as much as the emergency withdrawal
At least three years have elapsed since the prior emergency withdrawal
While the ability to take an emergency withdrawal penalty free prior to age 59 ½ is a good thing, the low limit on the amount of the withdrawal will mean that most participants who find themselves in an emergency situation will need to tap other sources as well to meet their needs.

401(k) Automatic Enrollment

Currently employers have the option to auto enroll employees into their 401(k), 403(b) or similar retirement plans. Beginning in 2025, automatic enrollment of all employees into the plan will be required of most plan sponsors.

The deferral amount can range from 3% to 10% of the employee’s income. Employees who wish to opt out may do so. Companies with 10 or fewer workers and those who have been in business for less than three years are among those who will be exempt from this requirement.

Auto-enrollment has helped increase the participation rate in workplace qualified plans and the hope is that these added requirements will further increase retirement savings among workers.

Student Loan Payment Match

Beginning in 2024, a provision of Secure 2.0 allows employers to make matching contributions into the accounts of employees who are making student loan payments up to the amount of their annual student loan payments. This can be done even if the employee is not contributing to the plan on their own.

This is an excellent benefit for employees, often younger employees, who are bogged down in student debt and who cannot afford to contribute to their own retirement. This can help them get started and can serve as a good way for employers to attract and retain workers.

Rollover 529 Funds

Under the current rules, if any leftover funds in a 529 plan remain unused, a distribution for non-educational expenses would be subject to taxes. Beginning in 2024, a provision of Secure 2.0 allows the beneficiary of the plan to roll up to $35,000 of the unused balance to a Roth IRA in their name. This is a lifetime limit and any contributions to the 529 made in the past five years, and the earnings attributable to those contributions, are not eligible for this rollover.

Besides the tax savings, this feature can help the plan beneficiaries get a jump on their retirement savings. Additionally, this can serve to ease the concerns of parents or others contributing to a 529 regarding overfunding the account.

National 401(k) Registry

Secure 2.0 has a provision establishing a searchable online national database that will allow employers to locate former 401(k) plan participants and also allow those who formerly worked for an employer to locate old accounts. This includes surviving spouses and other heirs.

This is a much-needed feature as many old 401(k) and other retirement plan accounts end up abandoned; this will allow the former account holders or their heirs to utilize this money as intended.

Beyond the items discussed above there are a number of other provisions in this wide-ranging piece of legislation.

What stays the same?

Perhaps the most notable feature that remains the same is the age at which holders of traditional IRA accounts can commence making qualified charitable distributions (QCDs). The beginning age remains at 70 ½. For investors who are charitably inclined and who do not need some or all of the funds from the RMDs, this is an excellent way to give money to charity while making a tax-free withdrawal from their IRA.

This can be a vehicle to reduce the impact of future RMDs and can be used to take some of all of their RMDs once they reach the required beginning date. QCDs are tax-free, though there are no tax deductions for the charitable contributions.

One note on QCDs: there is a provision to index the current $100,000 annual limit for inflation. There is another change allowing for a one-time $50,000 QCD to be diverted to a charitable split-interest vehicle such as a charitable annuity or charitable remainder trust.

What are the goals of this new Act? What does this mean for retirement readiness?

Much of Secure 2.0 centers around enhancing the ability to save for retirement and the ability to utilize Roth accounts. Here are some potential benefits of the legislation:

Increased participation in retirement accounts through various features and incentives in the act.
Incentives for small businesses to establish retirement plans for their employees.
Encouraging individuals to save for retirement through various features.
Helping military spouses gain access to retirement plans through a tax credit for small businesses that allow them to enroll.
Overall, Secure 2.0 offers a number of incentives for retirement savers and employers to help employees save for retirement.

Be sure to consult with your Wedbush financial advisor as to how you or your company might benefit from the provisions of Secure 2.0.



Disclosure

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.

02/10/2023

Check out LPL Financial Research's Weekly Commentary on the market: “Brightening Outlook For International Equities".

02/09/2023

Check out the LPL's Market Signals Podcast "January Stock Market Trifecta, the Fed, and More:.

LPL Research discusses the latest economic data, earnings season, and the market’s January trifecta, plus a preview of the Fed’s policy meeting. Learn more.