5 Critical Money Moves to Make Before Your 40s Are Over

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For many people, hitting the big 4-0 can actually be quite freeing.

You’re in or approaching your peak earning years, and your home may even be close to being paid off. The kids are out of that house — or nearly so — and you’re enjoying more of the other things life has to offer: hobbies, travel, restaurants that don’t serve french fries.

To be sure, the 40s are tough for some people, especially if they are unemployed or underemployed. But whatever your situation, it’s not too late to make the most of your financial future. To do that, cross off the following five tasks from your must-do list before your 40s are over.

1. Save to avoid a retirement emergency

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Whether you’re riding high or barely making it, you should be saving for retirement. Fail to plan now, and you might find yourself scrambling to fund retirement later.

Ideally, you would have been saving for years. If not, enroll right now in any company retirement plan at work. Then save at least enough money in the account to get your employer’s entire matching contribution — that’s free money.

If there’s no match or even a company plan, start your own individual retirement account (IRA) with a company like Vanguard Group or Fidelity Investments. For more, check out “7 Keys to Stress-Free Retirement Investing.”

2. Prioritize retirement over college

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How lovely would it be to have both a healthy retirement fund and a 529 plan or other means of saving for your child’s college education?

If that’s not possible, you must prioritize your own retirement. The reality is that you can finance an education, but you can’t finance the last few decades of your life.

Be upfront with your kids so they can choose colleges accordingly. If you can offer little to no help, then it’s up to them to apply for scholarships and select affordable schools.

3. Prepare for the worst

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If you have dependents, a spouse or anyone else who would struggle financially if you died, consider buying life insurance to cover their needs in the event of your death. You can cancel the policy once your dependents become financially independent.

Can’t afford life insurance? If your household income makes you eligible, you might be able to get free coverage through MassMutual’s LifeBridge program. It pays $50,000 toward your child’s educational expenses if you die before they finish school.

Another option to consider is long-term care insurance. This is coverage designed to cover the cost of daily support — helping you with things like bathing, dressing and eating — in the event that you become incapable of doing these things independently.

Some say you shouldn’t be without it; others are willing to roll the dice.

Money Talks News founder Stacy Johnson decided to go without long-term care insurance. However, he stresses the importance of educating yourself on the ins and outs and considering your own situation very carefully before deciding.

4. Invest, even if you think you can’t

Jars of change with plants sprouting.
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Finding money to put away is a challenge, but it’s almost always doable. Not necessarily fun, but possible.

Start by tracking your spending, either on paper or with an online tool like You Need a Budget, aka YNAB. Once you find your money leaks, start plugging them. Every dollar you don’t let trickle pointlessly away is a dollar that can go toward your retirement plan.

Being careful with your money does not mean you can’t enjoy life. You just need to get creative with fun as well as your funds.

5. Think — and talk — about the end of life

Man talking with elderly father.
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If you’re in your 40s, your parents are likely approaching retirement or have already stopped working. That means it’s time to have what may be the most uncomfortable chat you’ll ever have with Mom and Dad.

Yes, it’s worse than the facts-of-life talk. This time you’re discussing things like money, health care directives, power of attorney, wills and where your parents will live out their final years.

Awkward! They — or you — might want to put this talk off indefinitely. Don’t. Trying to figure out what your parents would want after they become ill or are injured is not the way to go about this. You need to know if they have plans in place.

Also, if you haven’t made your own will, do it now. Your loved ones will be traumatized by your death. Don’t make it worse by leaving zero instructions about who should get what and who should be in charge of distributing your worldly goods.

People with minor children must designate legal guardians for those kids in their wills. So, figure out who you’d want those people to be and to ask them if they’d be willing to do it.

For more details, read “8 Documents That Are Essential to Planning Your Estate.”

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

5 Ways to Prepare for Higher Taxes Under President Biden

Even if you think your taxes are too high, you might be enjoying relatively low taxes right now. If you are watching the news and hearing about government COVID-19 relief spending and President Biden’s tax plan, you may be wondering if your tax burden will grow.

There are several reasons to think you might be affected, especially if you are a high earner or have a significant amount saved in a tax-deferred retirement account, such as a 401(k). One, is that our national debt is growing as a response to the pandemic, just as it did during World War II. Following the war, income tax rates for high earners remained significantly higher than they are today for decades, with the top federal income tax rate at 91% for most of the 1950s. If history repeats itself, Americans may have to pay later for the debt that is accumulating now through higher taxes in the future.

The other reason to think taxes might be higher in the future is that President Biden and his vice president, Kamala Harris, are in favor of several tax-increasing measures. These include:

  • Taxing long-term capital gains on incomes above $1 million at ordinary income rates instead of the current rates.
  • Eliminating the step-up in basis that allows heirs to minimize taxes on inherited assets.
  • Imposing the Social Security payroll tax on wages above $400,000.
  • Limiting the value of itemized deductions to 28% for those with incomes above $400,000.

It has also been said that he would like to repeal the Tax Cuts and Jobs Act before it expires at the end of 2025. So, with all that in mind, what can you do to help reduce your tax burden?

1. Take Advantage of Tax-Advantaged Investments

Most people know about the benefits of contributing to a 401(k) or IRA: Many workplaces offer 401(k) plans, and if someone does not have access to one, they can contribute to an IRA. 401(k) contributions are not taxed, and the money grows tax-deferred until it is withdrawn. However, those who contribute to a tax-deferred retirement account should consider their tax burden in the future, especially when they turn 72 and must take Required Minimum Distributions.

Considering this, to potentially reduce your future tax bill, you may want to consider adding other investments with potential for tax-advantages: Cash value life insurance, when funded with post-tax funds, can possibly offer some tax benefits. Funds inside of a cash value policy usually grow tax-free and if structured correctly, these funds can be withdrawn tax-free, and the death benefits can be paid to beneficiaries tax-free as well, potentially making it a valuable accumulation and estate-planning tool for some.

2. Use Tax Credits

While tax deductions reduce a person’s taxable income, tax credits reduce the actual amount of tax owed. Tax planning can help you take full advantage of the tax credits that are available to you, including the Dependent Care Tax Credit, the child tax credit, and the American Opportunity Tax Credit for education.                                                                                          

3. Contribute or Convert to a Roth IRA

One long-term tax-minimization strategy is to use a Roth IRA, where contributions are taxed, and qualified distributions are not. However, there are income limits preventing many people from investing in a Roth directly. For 2021, if someone is over the income limits of $140,000 for single filers or $208,000 for married couples, they can still do a Roth conversion. Anyone can convert funds from a 401(k) or traditional IRA into a Roth IRA by paying tax on the amount converted. From there, it can grow in the Roth account and be withdrawn tax-free later on.

4. Consider Municipal Bonds

Municipal bonds are investments that also come with tax advantages. Most are exempt from federal taxes, and some are exempt from state and local taxes. Many are also exempt from the Alternative Minimum Tax (AMT). High earners can benefit, since interest is not calculated as part of net investment income, which can affect everything from their tax burdens to their Medicare premiums and tax on Social Security benefits.

5. Income Splitting

Income splitting involves moving some of your income to family members who are in a lower tax bracket. This doesn’t simply mean handing out cash to all your trusted family members. It is a series of financial planning moves to make the most of your family’s wealth. This can include setting up a spousal IRA. Married couples with one spouse who does not earn income may be able to benefit from this strategy. The working spouse may be able to contribute to a Roth IRA on behalf of their non-working spouse if they file taxes jointly. Spousal IRAs are not joint accounts, they are two separate Roth IRAs set up in the names of each spouse. Note that spousal IRAs are still subject to the regular Roth IRA income limits.

Some other income-splitting options are establishing a 529 plan for your children, grandchildren, nieces or nephews. Once you contribute to a 529 plan, the funds can grow and be withdrawn tax-free for educational costs. Some states will give you a tax credit for putting money into a 529, and most states offer a tax deduction if you contribute to a 529 provided by that state. You can now use a total of $10,000 from a 529 plan account towards private elementary and secondary school tuition, as well as college tuition and student loan repayments.  Even if you don’t have grandchildren yet, you can name your son or daughter as the account beneficiary. Then, if grandchildren come along later, you can name them the beneficiaries instead.

The Right Strategies Depend on Your Individual Situation

While there are many tax-minimization strategies available, it is not always clear which ones are right for someone and how exactly they should be used. We might see major changes to the tax code in the coming years, and it is important for taxpayers to understand how they may be affected and seek out professionals who stay on top of these changes. Equally as important is going to a professional who understands your family’s situation and who you can trust. As tax planning gets more complex, a one-size-fits-all approach will not serve people as well as tailored approaches that take into account family dynamics and financial goals.

Advisory services offered through Moore’s Wealth Advisory, A Member of Advisory Services Network, LLC.  Insurance products and services offered through Moore’s Wealth Management.  Advisory Services Network, LLC and Moore’s Wealth Management are not affiliated.
Advisory Services Network, LLC does not provide tax advice. Federal and state laws are complex and constantly changing. Consult your own legal or tax professional for information concerning your situation.

Founder and President, Moore’s Wealth Management

For the past 30 years, it has been M. Scott Moore’s goal, as founder and president of Moore’s Wealth Management, to help pre- and post-retirees in the Southeast United States properly prepare for and protect their retirement assets. Scott is well established in the financial industry, where he has received several top honors in his field, including being honored as a distinguished “Advisor of the Year.” The firm and its advisers continue to be recognized for their impact in North Georgia.

Source: kiplinger.com

529 Plans: A Complete Guide to Funding Future Education

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Do you have kids? Are there children in your life? Were you once a child? If you plan on helping pay for a child’s future education, then you’ll benefit from this complete guide to 529 plans. We’ll cover every detail of 529 plans, from the what/when/why basics to the more complex tax implications and investing ideas.

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This article was 100% inspired by my Patrons. Between Jack, Nathan, Remi, other kiddos in my life (and a few buns in the oven), there are a lot of young Best Interest readers out there. And one day, they’ll probably have some education expenses. That’s why their parents asked me to write about 529 plans this week.

What is a 529 Plan?

The 529 college savings plan is a tax-advantaged investment account meant specifically for education expenses. As of the passage of the Tax Cuts and Jobs Act (in 2017), 529 plans can be used for college costs, K-12 public school costs, or private and/or religious school tuition. If you will ever need to pay for your children’s education, then 529 plans are for you.

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529 plans are named in a similar fashion as the famous 401(k). That is, the name comes from the specific U.S. tax code where the plan was written into law. It’s in Section 529 of Internal Revenue Code 26. Wow—that’s boring!

But it turns out that 529 plans are strange amalgam of federal rules and state rules. Let’s start breaking that down.

Tax Advantages

Taxes are important! 529 college savings plans provide tax advantages in a manner similar to Roth accounts (i.e. different than traditional 401(k) accounts). In a 529 plan, you pay all your normal taxes today. Your contributions to the 529 plan, therefore, are made with after-tax dollars.

Any investment you make within your 529 plan is then allowed to grow tax-free. Future withdrawals—used for qualified education expenses—are also tax-free. Pay now, save later.

But wait! Those are just the federal income tax benefits. Many individual states offer state tax benefits to people participating in 529 plans. As of this writing, 34 states and Washington D.C. offer these benefits. Of the 16 states not participating, nine of those don’t have any state income tax. The seven remaining states—California, Delaware, Hawaii, Kentucky, Maine, New Jersey, and North Carolina—all have state income taxes, yet do not offer income tax benefits to their 529 plan participants. Boo!

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This makes 529 plans an oddity. There’s a Federal-level tax advantage that applies to everyone. And then there might be a state-level tax advantage depending on which state you use to setup your plan.

Two Types of 529 Plans

The most common 529 plan is the college savings program. The less common 529 is the prepaid tuition program.

The savings program can be thought of as a parallel to common retirement investing accounts. A person can put money into their 529 plan today. They can invest that money in a few different ways (details further in the article). At a later date, they can then use the full value of their account at any eligible institution—in state or out of state. The value of their 529 plan will be dependent on their investing choices and how those investments perform.

The prepaid program is a little different. This plan is only offered by certain states (currently only 10 are accepting new applicants) and even by some individual colleges/universities. The prepaid program permits citizens to buy tuition credits at today’s tuition rates. Those credits can then be used in the future at in-state universities. However, using these credits outside of the state they were bought in can result in not getting full value.

You don’t choose investments in the prepaid program. You just buy credit’s today that can be redeemed in the future.

The savings program is universal, flexible, and grows based on your investments.

The prepaid program is not offered everywhere, works best at in-state universities, and grows based on how quickly tuition is changing (i.e. the difference between today’s tuition rate and the future tuition rate when you use the credit.)

Example: a prepaid credit would have cost ~$13,000 for one year of tuition in 2000. That credit would have been worth ~$24,000 of value if used in 2018. (Source)

What are “Qualified Education Expenses?”

You can only spend your 529 plan dollars on “qualified education expenses.” Turns out, just about anything associated with education costs can be paid for using 529 plan funds. Qualified education expenses include:

  • Tuition
  • Fees
  • Books
  • Supplies
  • Room and board (as long as the beneficiary attends school at least half-time). Off-campus housing is even covered, as long as it’s less than on-campus housing.

Student loans and student loan interest were added to this list in 2019, but there’s a lifetime limit of $10,000 per person.

How Do You “Invest” Your 529 Plan Funds?

529 savings plans do more than save. Their real power is as a college investment plan. So, how can you “invest” this tax-advantaged money?

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There’s a two-part answer to how your 529 plan funds are invested. The first part is that only savings plans can be invested, not prepaid plans. The second part is that it depends on what state you’re in.

For example, let’s look at my state: New York. It offers both age-based options and individual portfolios.

The age-based option places your 529 plan on one of three tracks: aggressive, moderate, or conservative. As your child ages, the portfolio will automatically re-balance based on the track you’ve chosen.

The aggressive option will hold more stocks for longer into your child’s life—higher risk, higher rewards. The conservative option will skew towards bonds and short-term reserves. In all cases, the goal is to provide some level of growth in early years, and some level of stability in later years.

The individual portfolios are similar to the age-based option, but do not automatically re-balance. There are aggressive and conservative and middle-ground choices. Thankfully, you can move funds from one portfolio to another up to twice per year. This allowed rebalancing is how you can achieve the correct risk posture.

Advantages & Disadvantages of Using a 529 Plan

The advantages of using the 529 as a college investing plan are clear. First, there’s the tax-advantaged nature of it, likely saving you tens of thousands of dollars. Another benefit is the aforementioned ease of investing using a low-maintenance, age-based investing accounts. Most states offer them.

Other advantages include the high maximum contribution limit (ranging by state, from a low of $235K to a high of $529K), the reasonable financial aid treatment, and, of course, the flexibility.

If your child doesn’t end up using their 529 plan, you can transfer it to another relative. If you don’t like your state’s 529 offering, you can open an account in a different state. You can even use your 529 plan to pay for primary education at a private school or a religious school.

But the 529 plan isn’t perfect. There are disadvantages too.

For example, the prepaid 529 plan involves a considerable up-front cost—in the realm of $100,000 over four years. That’s a lot of money. Also, your proactive saving today ends up affecting your child’s financial aid package in the future. It feels a bit like a punishment for being responsible. That ain’t right!

Of course, a 529 plan is not a normal investing account. If you don’t use the money for educational purposes, you will face a penalty. And if you want to hand-pick your 529 investments? Well, you can’t do that. Similar to many 401(k) programs, your state’s 529 program probably only offers a few different fund choices.

529 Plan FAQ

Here are some of the most common questions about 529 education savings plans. And I even provide answers!

How do I open a 529 plan?

Virtually all states now have online portals that allow you to open 529 plans from the comfort of your home. A few online forms and email messages is all it takes.

Can I contribute to someone else’s 529?

You sure can! If you have a niece or nephew or grandchild or simply a friend, you can make a third-party contribution to their 529 plan. You don’t have to be their parent, their relative, or the person who opened the account.

Investing in someone else’s knowledge is a terrific gift.

Does a 529 plan affect financial aid?

Short answer: yes, but it’s better than how many other assets affect financial aid.

Longer answer: yes, having a 529 plan will likely reduce the amount of financial aid a student receives. The first $10,000 in a 529 plan is not part of the Expected Family Contribution (EFC) equation. It’s not “counted against you.” After that $10,000, remaining 529 plan funds are counted in the EFC equation, but cap at 5.46% of the parental assets (many other assets are capped higher, e.g. at 20%).

Similarly, 529 plan distributions are not included in the “base year income” calculations in the FAFSA application. This is another benefit in terms of financial aid.

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Finally, 529 plan funds owned by non-parents (e.g. grandparents) are not part of the FAFSA EFC equation. This is great! The downside occurs when the non-parent actually withdraws the funds on behalf of the student. At that time, 50% of those funds count as “student income,” thus lowering the student’s eligibility for aid.

Are there contribution limits?

Kinda sorta. It’s a little complicated.

There is no official annual contribution limit into a 529 plan. But, you should know that 529 contributions are considered “completed gifts” in federal tax law, and that those gifts are capped at $15,000 per year in 2020 and 2021.

After $15,000 of contributions in one year, the remainder must be reported to the IRS against the taxpayer’s (not the student’s) lifetime estate and gift tax exemption.

Additionally, each state has the option of limiting the total 529 plan balances for a particular beneficiary. My state (NY) caps this limit at $520,000. That’s easily high enough to pay for 4 years of college at current prices.

Another state-based limit involves how much income tax savings a contributor can claim per year. In New York, for example, only the first $5,000 (or $10,000 if a married couple) are eligible for income tax savings.

Can I use my state’s 529 plan in another state? Do I need to create 529 plans in multiple states?

Yes, you can use your state’s 529 plan in another state. And mostly likely no, you do not need to create 529 plans in multiple states.

First, I recommend scrolling up to the savings program vs. prepaid program description. Savings programs are universal and transferrable. My 529 savings plan could pay for tuition in any other state, and even some other countries.

But prepaid tuition accounts typically have limitations in how they transfer. Prepaid accounts typically apply in full to in-state, state-sponsored schools. They might not apply in full to out-of-state and/or private schools.

What if my kid is Lebron James and doesn’t go to college? Can I get my money back?

It’s a great question. And the answer is yes, there are multiple ways to recoup your money if the beneficiary doesn’t end up using it for education savings.

First, you can avoid all penalties by changing the beneficiary of the funds. You can switch to another qualifying family member. Instead of paying for Lebron’s college, you can switch those funds to his siblings, to a future grandchild, or even to yourself (if you wanted to go back to school).

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What if you just want you money back? The contributions that you initially made come back to you tax-free and penalty-free. After all, you already paid taxes on those. Any earnings you’ve made on those contributions are subject to normal income tax, and then a 10% federal penalty tax.

The 10% penalty is waived in certain situations, such as the beneficiary receiving a tax-free scholarship or attending a U.S. military academy.

And remember those state income tax breaks we discussed earlier? Those tax breaks might get recaptured (oh no!) if you end up taking non-qualified distributions from your 529 plan.

Long story short: try to the keep the funds in a 529 plan, especially is someone in your family might benefit from them someday. Otherwise, you’ll pay some taxes and penalties.


It’s time to don my robe and give a speech. Keep on learning, you readers, for:

An investment in knowledge pays the best interest

-Ben Franklin

Oh snap! Yes, that is how the blog got its name. Giving others the gift of education is a wonderful thing, and 529 plans are one way the U.S. government allows you to do so.

If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

This article—just like every other—is supported by readers like you.

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