After a few real-life conversations and my running the math, I’ve decided that a “50/50” rule for college saving achieves the best of both worlds.
The rule is:
~50% of your college savings goals should be saved via a 529 plan.
The other ~50% should be saved via a taxable brokerage account.
Why is that the case? Let’s discuss what we do and don’t want from our college savings plan.
PS – if you want further background reading on 529 plans, here are some other useful articles…
What We Do and Don’t Want from College Savings
We do want to save for college. Ground-breaking stuff.
We do want to reduce our income taxes.
We do want our investments to grow tax-free.
We do want flexibility while we save, in case life throws us a curveball.
We don’t want to end up with permanently frozen assets. We don’t want “leftover” 529 dollars.
529 College Savings Plans offer some of these ideals. But not all.
In fact, 529 plans are terrible at achieving some of the abovementioned goals.
Reducing Income Taxes
Many states offer income tax deductions on 529 contributions. In New York, for example, the first $10,000 contributed to 529s per year is exempt from state tax. That’s a ~$600 annual savings (depending on tax bracket).
Tax-Free Growth
529 investments grow tax-free, just like 401(k) or IRA assets. There’s no annual tax on dividends and interest. This leaves more dollars behind to compound.
Let’s Measure That Tax Savings
If we apply these two tax advantages to a reasonable scenario**, it’s realistic to expect a 529 account to result in 15-20% more dollars for college than a taxable brokerage account.
**see this Google sheet for detail.
But taxable brokerage accounts have distinct advantages on our other ideals.
Flexibility & “Frozen” Assets
Taxable accounts are very flexible. You can withdraw from them anytime (e.g. during an unexpected emergency). 529 dollars, on the other hand, must be spent on educational expenses and cannot be withdrawn for other reasons.
What if your kid decides to skip college? Unused funds in a 529 can be impossible to withdraw without taxes and penalties. Taxable accounts avoid this situation.
What’s the 529 Withdrawal Penalty?
Every 529 withdrawal—whether for education purposes or not—is made pro rata between your contributions and your earnings. The contributions are never taxed and never penalized, but the earnings can be if your withdrawal is not for a qualified educational expense.
For example:
Your 529 plan has $100,000 of contributions and $50,000 of earnings. (Two-thirds and one-third)
You make a $30,000 withdrawal. You have no choice in that $20,000 will come from contributions and $10,000 will come from earnings (Two-thirds and one-third)
If your withdrawal is not for qualified education expenses, the $10,000 earnings portion will be taxed as income (more marginal tax dollars, ouch!) and will suffer a 10% penalty.
If you run the math, you’ll see this penalty eats away at all the 529’s tax benefits. You do not want to suffer this penalty.
Finding Balance Between 529 and Taxable
The question is how to balance these various pros and cons. The 50/50 Rule does so!
Let’s say you aim to gift your children $100,000 over their four years of college. How generous! I submit you should aim to have:
$50,000 of that gift coming from a 529
And $50,000 from a taxable brokerage
You know it won’t be a perfectly ideal scenario. Whatever reality throws at you, you’ll wish you had decided to go all-in on the 529 or all-in on the taxable.
But you don’t know the future! This fact – that we’re more mortals without a crystal ball – is one of the fundamental frustrations in financial planning. If we knew the future, we could make a perfect financial plan. But we don’t, so we can’t. Our best solutions, therefore, involve hedging our bets. We’d rather know we’re 50% correct than be surprised later we’re 100% wrong.
The 50/50 Rule guarantees a middle-of-the-road solution. You’ll capture tax benefits and retain flexibility.
If Johnny gets a little scholarship and only needs 70% of your saved money, great! Use the 529 dollars completely. Dip into the taxable account when needed, and keep the remaining taxable dollars for other goals in life. You’ll be confident your 529 account will be completely drained, avoiding frustrating taxes and penalties.
Does It Have to Be 50/50?
I’ll admit: dividing the two accounts down the middle, 50/50, is an easy shorthand. You can choose a different fraction. But when thinking it through, my primary concerns are:
You need to be confident you’ll drain the 529s. If Johnny’s college will cost $200,000 and you aim to have all $200,000 in a 529, I don’t like that. There’s no margin for error.
You want to have a large enough portion in the taxable account to provide “just in case” flexibility.
Maybe 75/25 makes more sense for you. I can get on board with that. But I wouldn’t go much higher than 75% from the 529.
Working Backward
You can work backward from your future goal to discover what today’s saving rates need to be. In our hypothetical scenario of $50K in a 529 and $50K in a taxable (for college in ~15 years, we’ll say), a reasonable starting point is to put $2000 per year (or ~$170 per month) into each account. That’s how the math shakes out.
Depending on your timeline and assumed rate of compound growth, a simple spreadsheet or question to your financial planner will inform what your savings plan should be.
Thank you for reading! If you enjoyed this article, join 8000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
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The Consumer Financial Protection Bureau issued a rule Tuesday to slash credit card late fees in a move the agency says should save millions of credit card users an average of $220 per year. The decision drew immediate objection from banking trade groups.
The government agency reduced the typical credit card late fee from $32 to $8, which should translate to more than $10 billion in annual savings among the roughly 45 million consumers who are charged late fees.
“For over a decade, credit card giants have been exploiting a loophole to harvest billions of dollars in junk fees from American consumers,” said CFPB Director Rohit Chopra in a statement, asserting that the new rule will end these practices.
The lower fees are expected to take effect within three months, which would give card issuers time to update their disclosures and systems. It’s unclear how possible challenges to the rule could affect the timing.
Rule halts late fees’ steady climb since 2010
The rule, which was proposed in 2023, closes a loophole in the Credit Card Accountability Responsibility and Disclosure Act of 2009.
The CARD Act banned credit card companies from charging higher late fees than needed to cover the companies’ costs associated with the late payment. But in 2010, the Federal Reserve Board of Governors voted to include a provision in the CARD Act that allowed banks to charge no more than $25 for the first late payment and $35 for subsequent late payments, with both of those figures being adjusted for inflation each year.
Today, those figures have swelled to $30 and $41, respectively, despite credit card companies having adopted cheaper business practices in recent years, the CFPB said in a statement. The average credit card late fee was $32 in 2022, up from $23 in 2010.
“Almost all of the credit card giants have been hiking these fees every year using automatic inflation adjustments as an excuse,” Chopra said in a call Monday announcing the CFPB’s new rule. “Today, the credit card industry hauls in more than $14 billion in late fee revenue, which our research shows is more than five times the companies’ associated costs.”
The rule applies to large credit card companies with more than 1 million open accounts. These companies hold more than 95% of open credit card balances, the CFPB said in the statement.
Find the right credit card for your wallet
Check out NerdWallet’s picks for the best credit cards across categories such as travel, cash back, and 0 APR.
Industry trade groups speak out against the rule
Banking industry executives slammed the new rule. Rob Nichols, president and CEO of the American Bankers Association (ABA) said in a statement that the new CFPB rule “relied on flawed assumptions and a mischaracterization of the important role late fees play in promoting responsible consumer behavior.”
Adding that the ABA will try to challenge the new policy, Nichols said, “This rule should not be allowed to go into effect.”
Lindsey Johnson, president and CEO of the Consumer Bankers Association, said in a statement that the new rule is “normalizing being late on credit card payments” and ultimately puts consumers’ financial health at risk.
A crackdown on junk fees
The CFPB’s latest announcement follows a similar move earlier in the year on overdraft fees, signaling a concerted crackdown on junk fees from federal officials and regulators.
In January, the agency proposed restrictions that could lower the average overdraft fee from $35 to $3 per transaction. Banking industry advocates spoke out fiercely against this proposal too. The restriction is currently expected to go into effect in October 2025.
The Biden administration will soon announce a “strike force” intended to “hold companies accountable when they engage in unfair and illegal practices that keep prices high,” Lael Brainard, director of the National Economic Council, said on the Monday call with Chopra.
The force is part of the administration’s efforts to lower the cost of groceries, prescription drugs and health care, banking, housing, airfare and basic utilities. It’ll be jointly led by the Federal Trade Commission and the Department of Justice.
In conjunction with those efforts, the Federal Communications Commission will also tackle “bulk billing,” in which people living or working in a building are charged by landlords or building owners for internet, cable or satellite service, whether they want the service or not.
Let’s discuss the proper way to account for inflation in retirement and FIRE planning.
I lurk in some online personal finance forums, and what I see scares me. I see “the blind leading the blind” discussing how to account for inflation as part of your retirement or financial independence plan.
These mistakes can be gut-wrenching. If you double-count inflation, you’ll assume a worse-than-real future and mistakenly believe retirement is impossible. But if you improperly discount inflation, you’ll assume a better-than-real future and torpedo your retirement with false hopes.
We’re going to fix that today.
What’s the Problem in the First Place?
The problem is that it’s challenging to understand if/when/how to apply inflation. It’s entirely understandable. Inflation is a weird phenomenon and the math isn’t intuitive.
Should you inflate your current salary into the future? What about your current spending? What about investment returns? You’ve probably heard of the 4% Rule; but how does inflation affect its usage?
All great questions. We’ll answer them all today.
The True World vs. The Convenient World
I’ve heard intelligent people tackle this concept before. It’s tough. Lots of numbers are involved. There are mysterious rules about when to apply those numbers and when not to. My friends Cody Garrett and Brad Barrett expertly tackled this topic on a recent episode of ChooseFI. :
As I listened to Cody and Brad, I thought: a few visual aids and analogies might help here.
My preferred analogy is what I call “The True World” vs. “The Convenient World.”
“The True World” involves numbers as they actuallyexist in our society and economy.
“The Convenient World” involves shortcuts that financial experts frequently use.
I’ll explain both worlds below.
Good news: you can do math in either world and get correct answers for your life. Hooray! This is wonderful. It shows the power of smart mathematics.
Bad news: you cannot flip-flop between worlds. You must do all your math in “The True World” or do all your math in “The Convenient World.”
The problems I see every week arise when DIYers flip-flop between worlds. So I say again: you cannot flip-flop between worlds!
Let’s describe these worlds.
The True World
Let’s talk about The True World a.k.a. our actual society and economy.
Inflation: inflation exists in the True World, typically varying between 2% and 4% per year. We don’t know what future inflation will look like. But it’s reasonable to use a benchmark like 3% per year.
Stock returns: stock returns vary in the True World and can do so by significant amounts. Still, a pattern emerges when we zoom out to large time scales (20+ years). On average, a diversified stock portfolio has returned ~10% per year over long periods. It’s reasonable to use that 10% benchmark for the future. $100 this year turns into $110 next year.
Bond returns: bond returns also vary in the True World, though typically by smaller amounts than stocks. Over the past 100 years, intermediate-term, high-grade bonds have returned ~5% per year. It’s reasonable to use that 5% benchmark for the future. $100 this year turns into $105 next year.
In the three bullets above, I made an interesting assumption: that the future will closely resemble the past. You’re allowed to disagree with me and say, for example, that you want to assume inflation will be 4% ongoing and stock returns will be 8% ongoing. That’s fine.
The critical point is that all your numbers occur here in the True World. Inflation is above zero. Stocks and bond returns are measured using the actual amount of dollars. When we combine these factors, we conclude:
Your future income will be higher than your current one, increasing with inflation.
Your future raises will be greater than current, increasing with inflation
Your future spending will be higher than current, increasing with inflation.
Your future annual savings will be higher than current, increasing with inflation.
Your future nest egg will grow by some mix of true-world return percentages (assuming you build a diversified portfolio).
Keep those four components in mind: income, raises, savings & spending, and investment growth.
If you do all of your future planning using “True World” numbers, your analysis results will show reality as it is. That’s the goal.
The Convenient World
In the True World, as we’ve seen, it seems everything gets adjusted up by inflation. Lame! And also a bit tedious. Can’t we just do a mathematical trick to remove inflation from the equation entirely?
Yes. That’s exactly right. Some intelligent people wanted to make The True World more convenient for us. We’re here today (discussing a confusing financial planning topic) because of that desire for convenience.
…which, in my opinion, is a great idea! Unfortunately, those good intentions paved the road to our present confusing situation. Those intelligent people said,
“Three of our four main components (income, raises, spending & saving) are adjusted by annual inflation. To make the math easier, let’s remove inflation. No more adjustments! But to even out all facets of the equation, we must also decrease the investment growth by the inflation rate.”
The Convenient World contains no inflation! Here in the Convenient World, our four components are:
Your future income will equal your current income (assuming no merit-based raises).
There are no raises (at least, no “cost of living” or “COLA” raises)
Your future annual spending & saving will equal your current values.
Your investments will grow by a mix of true-world return percentages minus the annual inflation rate.
There’s no inflation in any of the four factors. While we’ve decreased our future spending needs, we also decrease the amount we save in the future and the rate at which our investments grow. Everything is a bit muted in The Convenient World.
But because we’ve discounted inflation in both positive ways (less future spending) and negative ways (less investment growth), you can do future planning using these “Convenient World” numbers and your results will show reality as it is.
Don’t Believe Me?
“But Jesse! How can the math work if we remove inflation in retirement and FIRE planning?! We’re ignoring a very real phenomenon!”
Trust me. Trust the math. Take a look at this simple spreadsheet.
The True World tab uses true world data. The Convenient World tab removes inflation entirely as I’ve described above.
Both tabs yield the same exact retirement savings results (Column I).
What About “The 4% Rule?”
The famous 4% rule throws an important question at us.
As my 4% rule explainer article details, the 4% rule builds inflation into its math. The creators of the 4% rule told us, “Hey future retiree – don’t you worry about inflation in retirement, we’ve already built it into our mathematical construct. All you need to worry about is hitting your 4% or 25x nest egg goal at your retirement date.”
What’s that sound like? What world washes inflation away? The Convenient World!
Now, the 4% Rule applies starting Day 1 of Retirement and extends until the day you meet Charlie Munger (RIP). That stretch of time is covered by the 4% rule (or whatever retirement rule/simulation you choose to utilize).
How should you get from today to Day 1 of Retirement? I recommend continuing to do all of your math in The Convenient World. Remove inflation from your numbers altogether.
Can you mix and match? While dangerous, the answer is technically yes!
To get from Today to Your Retirement Date, you can either:
Do all your math in The Convenient World, where both your future annual spending AND your future nest egg need will be muted values, but the ratio of those two will be 4% or 25x.
Do all your math in The True World, where both your future annual spending AND your future nest egg will reflect reality, and the ratio of those two will be 4% or 25x.
You can technically use True World math to get from Today to Your Retirement Date, and then let the 4% Rule (which is Convenient World math) take over from there.
But you CANNOT mix-and-match True World and Convenient World math when determining how to get from Today to Your Retirement Date.
In this example, both True and Convenient math get us to a place we can start using the 4% Rule.
But – Those Future Nest Egg Amounts Are Different?!
We’re sitting here in 2024. The True World tells us we’ll need $3.75M to retire in 2040. The Convenient World tells us we’ll need $1.875M. Those two numbers are vastly different…so which one is right?
The way to think about that is:
We’ll need $1.875M to retire as measured in 2024 dollars
We’ll need $3.75M to retire as measured in 2040 dollars
Either way, the most important takeaway from these types of planning analyses is to understand what we need to do right nowin 2024 to hit these future goals. Then we can revisit in 2025, 2026, etc.
Thankfully, both True and Convenient math will inform us precisely what we need to do here in 2024. Both methods would tell us, for example, “You need to save $30,000 in 2024 to stay on track for your retirement goal.”
What About “Real” vs. “Nominal” Returns
You might have heard of “real returns” and “nominal returns” before. I use those terms regularly here on The Best Interest, but I’ve intentionally excluded them so far in our discussion of inflation in retirement and FIRE planning.
The reason is that “real returns” confuses my analogy of “The True World.” Ugh.
Investment professionals use the term “nominal returns” to describe the actual dollar amounts that investments are increasing/decreasing by. If $100 turns into $110, the nominal return is 10%. In other words, nominal returns exist in The True World.
Investment pros use “real returns” to describe whether investments increase your purchasing power. In other words, have the investments outperformed inflation? If $100 turns into $110 but there was also 4% inflation, the real return is ~5.77%. “Real returns” exist in The Convenient World.
Yes, it’s confusing. You’ve been warned. Good luck.
Lessons and Takeaways
What have we learned?
Inflation in retirement and FIRE planning is a touchy topic. It’s not intuitive or easy. In fact, it requires great attention to detail.
You can use True World numbers and get all the answers you need.
You can use Convenient World math that excludes inflation, and you’ll also get the answers you need.
I recommend against mixing and matching. That said, if you’re very comfortable with the math, you can mix-and-match and end up fine.
You don’t want to mess this up. Misapplying inflation (a ~3% annual mistake) compounded over decades will lead you to a dark place.
Talk to an expert if you need to. CFP financial planners know how to handle this. Modern financial planning software takes care of the math for you.
Go get ’em!
PS: Here’s a straightforward financial independence and 4% rule calculator where you can input your own data.
PPS – you’ll notice my calculator does all its math in The Convenient World!
Thank you for reading! If you enjoyed this article, join 7500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
Want to learn more about The Best Interest’s back story? Read here.
Looking for a great personal finance book, podcast, or other recommendation? Check out my favorites.
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Citi said today that it plans to reduce its residential mortgage assets by a whopping $45 billion within the next 12 months while cutting the amount of new loans to be held in its portfolio by more than 50 percent.
The flagging bank also plans to integrate virtually all aspects of its U.S. mortgage operations under the CitiMortgage brand, moves the company believes will lead to roughly $200 million in annual savings to free up much needed capital.
CitiMortgage, Citi Home Equity and Citi Residential Lending will all fall under this umbrella, offering a single set of loan programs and “staffing levels that reflect market and economic realities.”
Not sure how many layoffs that equates to, but it’s sure to be several hundred if not more given the sheer size of their operations.
“Consistent with the key priorities of Citi Chief Executive Vikram Pandit, this end-to-end realignment will create a simplified and streamlined organization that is more sharply focused on clients and able to direct resources to the business lines and customer segments with the highest growth potential,” said Bill Beckmann, President of CitiMortgage Inc., in a statement.
“At the same time, these changes will enable us to manage the business unit’s capital for enhanced returns.”
Additionally, the New York-based bank and mortgage lender said it would cut back on portfolio lending dramatically, with plans to increase agency-backed lending to 90 percent of production by the third quarter, up from 65 percent in 2007.
Citi also intends to make sure its capital markets unit Citi Markets & Banking has a large hand in determining which products and pricing are available to consumers, perhaps to avoid any snafus this time around.
To that effect, the loan origination process will also be revamped to ensure higher loan quality, with pullbacks in areas like second mortgage lending, higher fico score requirements, lower maximum loan-to-value ratios, and more direct-to-consumer lending (bye mortgage brokers).
CitiMortgage already reduced third party second-lien lending by more than 90 percent from a year ago, and said it will only work with top quality (profitable) brokers.
The mortgage unit has also stamped out loans on 3-4 unit investment properties, eliminated short-term adjustable-rate mortgages, and ditched home equity loans for borrowers with poor credit.
Shares of Citi fell 98 cents, or 4.42 percent, to $21.17, hitting a fresh 52-week low during the session.
Betterment and Betterment are not only two of the most popular robo advisors in the industry, but they may very well be the most innovative in the field. Though they represent two of the first robo advisors, both have built out their platforms and now offer robust portfolio options and other services to their clients.
Though they each have their own nuances–and specializations–you really can’t go wrong with either platform. Each will take complete control of your portfolio, managing every aspect of it for a very low annual fee. When you sign up with either service, your only responsibility will be to fund your account on a regular basis.
But what if you’re either new to robo advisors or you’re considering a switch from another one? If you’re researching robo advisors, the information will inevitably lead to Betterment and Wealthfront. So let’s take a look at the two heavyweights in the robo advisor space and see which might be a better fit for your portfolio. Listen to the Podcast of this Article
About Betterment
Betterment is not only the original robo advisor, but its also the largest independent robo (along with Wealthfront), with $21 billion in assets under management. The company is based in New York City and began operations in 2008.
As a robo advisor, Betterment is an automated, online investment platform that handles all aspects of investment management for you. When you sign up for the service, you complete a questionnaire that will help determine your investment goals, time horizon, and investment risk tolerance. From that information, Betterment creates a portfolio of stocks and bonds to meet your investor profile.
They dont actually invest your money in individual securities, but instead through exchange-traded funds (ETFs), each representing a specific asset class. They can build an entire portfolio for you through about a dozen funds that will give you exposure to the entire global financial markets.
All this is done for a low annual management fee. Your only responsibility will be to fund that your account on a regular basis and let Betterment handle all the management details for you.
Better Business Bureau rates Betterment as A+, which is the highest rating in a range from A+ to F. The company also scores 4.8 stars out of 5 by more than 20,000 users on the App Store, and 4.5 stars out of 5 by more than 4,500 users on Google Play.
About Wealthfront
Wealthfront is, with Betterment, the largest independent robo advisor, and Betterment’s primary competitor. In fact, with over $24 billion in assets under management, its now slightly larger than Betterment. The company is based in Redwood City, California, and launched operations in 2011.
As a robo advisor, it works much the same as Betterment, creating a portfolio for you based on your answers to a questionnaire when you open your account. Wealthfront will also manage your account using a small number of ETFs spread across various asset classes. But on larger accounts, they’ll also add individual stocks to get greater benefit from tax-loss harvesting.
Like Betterment and virtually all robo advisors, Wealthfronts basic investment strategy is based on Modern Portfolio Theory (MPT), which emphasizes asset allocation over individual security selection.
Similar to Betterment, and really all robo advisors, your account will receive full investment management for a very low annual fee. Your only responsibility will be to fund your account on a regular basis.
Unfortunately, Wealthfront has a Better Business Bureau rating of F, due to unanswered complaints. However, the company gets 4.9 stars out of 5 from more than 9,000 users on the App Store, and 4.8 stars out of 5 by more than 2,700 users on Google Play.
Investment Strategies Betterment vs Wealthfront
Betterment Investment Strategy
Betterment offers two plan levels, Digital and Premium. Premium is available for minimum account balances of $100,000, while Digital is open to all account balances. Like many robo advisors, Betterment has evolved past building and managing a basic portfolio comprised of a mix of stocks and bonds.
For example, if you choose the Premium Plan, you’ll have access to live financial advisors. But there are many other services and plans to choose from.
Read More: Betterment Promotions
Basic portfolio mix
Your portfolio will be invested in as many as six stock asset classes/ETFs and eight bond asset classes/EFTs.
Stocks:
US Total Stock Market
US Value Stocks Large Cap
US Value Stocks Mid Cap
US Value Stocks Small Cap
International Developed Markets Stocks
International Emerging Markets Stocks
Bonds:
US High-quality Bonds
US Municipal Bonds
US Inflation-Protected Bonds
US High-Yield Corporate Bonds
US Short-term Treasury Bonds
US Short-term Investment-Grade Bonds
International Developed Markets Bonds
International Emerging Markets Bonds
Use of value stocks
Notice that three of the six stock asset classes involve value stocks. This is a specialization of Betterment and represents a time-honored stock market investment strategy. Value stocks are investments in companies with stock prices that are low in relation to their competitors by various standard measurements. But the companies are deemed to be fundamentally sound, and therefore likely to outperform the general market once the investment community realizes the true value of the stocks.
In this way, Betterment makes an attempt to outperform the general market, such as the S&P 500 or even some broader indices.
Smart Beta
This is another investment strategy Betterment uses with the potential to outperform the general market. This specific portfolio is managed by Goldman Sachs. Smart Beta is a form of active portfolio management, which seeks high-quality companies with low volatility, strong momentum, and good value.
Since its a higher risk/high reward type of investing, it requires a minimum portfolio of $100,000.
Socially responsible investing (SRI)
This is an investment option increasingly being offered by robo advisors. However, with Betterment only a portion of your portfolio will be invested in SRI. They replace the ETFs in the International Emerging Market Stocks and US Value Stocks Large Cap with ETFs that specialize in socially responsible investing in those sectors.
Learn More: The Pros and Cons of Socially Responsible Investing
Flexible Portfolios
If you want more control over your investment portfolio, you can choose this option. It allows you to adjust the individual asset class weights in your portfolio allocation. Its also designed for more advanced investors and gives you an opportunity to increase allocations in asset classes you believe are likely to outperform the market.
BlackRock Target Income
For investors looking for income and safety of principal, Betterment offers this portfolio, which consists of 100% of bonds. There is some risk of principal in this portfolio but it’s designed to be minimal. You can even choose the level of risk and return you want. It won’t provide the type of long-term gains you’ll get from a stock portfolio, but it will offer the kind of steady income that will work especially well for retirees.
Tax-loss Harvesting
Tax-loss harvesting is a year-end strategy in which asset classes with losses are sold (and later replaced with comparable ones) to offset gains in winning asset classes. The strategy helps to defer taxable capital gains on growing asset classes.
Betterment makes this strategy available on all account balances. However, it’s only offered on taxable accounts since it’s completely unnecessary for tax-sheltered retirement plans.
Betterment Everyday Cash Reserve
If you’re looking to add a cash option to your investment portfolio, you can do it through Betterment Cash Reserve. The account is eligible for FDIC insurance up to $1 million. The minimum deposit is $10, and offers unlimited transfers, both in and out of your account.
Betterment Checking
The Betterment Checking account gives you the flexibility to manage your money in a way that best fits your financial goals. You’ll get this account with a debit card and you can use it to pay in person or online. You’ll also get FDIC insurance on your money.
The Betterment Checking account is an innovative way to manage your money. It’s faster, more secure, and requires zero minimum balance requirements. You can now deposit checks using their streamlined mobile app. Just take a picture and deposit checks will be there for you on the other side.
Wealthfront Investment Strategy
Unlike Betterment, Wealthfront has a single plan for all investors, with an annual management fee of 0.25% on all account balances. And like Betterment, Wealthfront has expanded its investment options menu in many different directions.
Basic Portfolio Mix
Wealthfront uses 11 asset classes in the construction of its portfolios, including four stock funds, five bond funds, plus real estate and natural resources.
The allocation looks like this:
Stocks:
US Stocks
Foreign Stocks
Emerging Market Stocks
Dividend Stocks
Bonds:
Treasury Inflation-Protected Securities (TIPS)
Municipal Bonds (on taxable investment accounts only)
Corporate Bonds
U.S. Government Bonds
Emerging Market Bonds
Alternatives:
Real Estate
Natural Resources
Use of Alternative Investments
Wealthfront includes real estate and natural resources in its portfolio composition. The real estate sector invests in companies that provide exposure to commercial property, apartment complexes, and retail space. Natural resources are held in ETFs representing that sector.
The combination of the two offers a stronger diversification away from a portfolio comprised entirely of stocks and bonds, largely because they offer protection in an inflationary environment. It’s possible for these sectors to perform well when the general financial markets are not.
Smart Beta
The Smart Beta option attempts to outperform the general financial markets. The strategy deemphasizes market capitalization in the creation of a portfolio. For example, rather than using the capitalization allocations of certain companies within the S&P 500, the strategy might increase some allocations and decrease others. It’s more of an active investment strategy and requires a minimum investment portfolio of $500,000.
Wealthfront Risk Parity
This is another investment strategy for investors with larger accounts and a greater appetite for risk. Its been shown to provide higher long-term returns, but it may use leverage to increase those returns.
Stock-level Tax-loss Harvesting
Tax-loss harvesting is available on all taxable investment accounts. But Stock-level Tax-loss Harvesting is available to larger accounts to provide more aggressive tax deferral.
This is a fairly complex investment strategy, but it involves the use of individual stocks to take greater advantage of tax-loss harvesting. The use of individual stocks will make it easier to buy and sell securities to minimize capital gains taxes. Depending on the specific plan, the required minimum investment ranges between $100,000 and $500,000.
Wealthfront Path
This is a software-based financial advisory, providing you with financial planning tools. They can help you plan for retirement or saving for the down payment on a house or a college education for one or more of your children. The apps run what-if scenarios, that can make projections based on various savings levels for each of your specific goals.
Though it doesn’t offer live financial advice, the service is free to use.
Wealthfront Cash
You can open an interest-bearing cash account with Wealthfront Cash Account with just $1. There’s no market risk, no fees, unlimited free transfers, and your account is FDIC insured for up to $5 million. The account currently pays 4.30% APY and provides a safe, cash investment to go with your stock portfolios.
And now, Wealthfront Cash allows you to get your paycheck up to two days early when you set up a direct deposit. They’ve also implemented the ability for you to invest directly into the market within minutes, straight from your Wealthfront Cash account. That means you can get paid early and immediately invest – giving you about extra days of investing each year.
Read more: Wealthfront Cash Account review
Wealthfront Portfolio Line of Credit
Much like a home equity line of credit, the Wealthfront Portfolio Line of Credit is secured by your investment account. You can borrow up to 30% of the value of your account for any purpose. There’s no prequalification since the line of credit is completely secured by your investment account.
The line of credit is automatic if you have a non-retirement account balance of at least $25,000. You can request funds against the line on your smartphone and receive them in as little as one business day.
Current interest rates paid on the line range between 2.45% and 3.70% APR, depending on the size of your account.
Retirement Planning Betterment vs. Wealthfront
One of the most common uses of robo advisors is the management of retirement accounts. Both Betterment and Wealthfront can manage all types of IRA accounts, similar to the way they do with taxable accounts. But each also offers some level of retirement planning.
Read More: Best Robo Advisors Find out which one matches your investment needs.
Betterment Retirement Planning
Betterment is strong in this category because in addition to their regular portfolios, they also offer income-specific investment options, like their BlackRock Target Income and Everyday Cash Reserve. The Target Income option in particular focuses on maximizing interest income, which is exactly what most people are looking for in retirement.
One of the advantages Betterment offers is that you can connect your 401(k) with your investment account. Betterment cant manage the 401(k) (unless chosen to do so by your employer through their 401(k) management plan), but they can coordinate your Betterment retirement account(s) with the activity in your employer plan.
And of course, if you have at least $100,000 in your Betterment account, you can enroll in the Premium plan and have access to live financial advisors.
But Betterment also offers its Retirement Savings Calculator to help you know if you’re on track for your retirement. By answering just four questions, they’ll be able to determine if your current retirement plan will provide the income you’ll need in retirement, taking your projected Social Security income into consideration. If it isn’t, it’ll let you know how much more you need to invest on a regular basis.
Wealthfront Retirement Planning
You can take advantage of Wealthfront Path to help you with retirement planning. You’ll start by linking your financial accounts so the program can get a better understanding of your finances. Recommendations to help you reach your goals are made based on the amount of regular contributions you’re making and the income you will need in retirement.
Path will analyze your spending patterns, your average annual savings rate, the interest you’re earning on those savings, as well as your investment and retirement contributions. It will also analyze the fees you’re paying on your investment and retirement accounts. Loan accounts are analyzed as well.
The information is assembled, and future projections are made. You’ll be given advice on any needed increases in savings for retirement contributions, as well as asset allocations. And perhaps best of all, since all your financial accounts are linked to the service, it will provide continuous updates on your progress toward your retirement goals.
Betterment Pros & Cons
No minimum initial investment or account balance requirement.
Reduced fee structure on larger account balances.
Use of value stocks seeks to outperform the general market.
Unlimited access to certified financial planners on account balances over $100,000.
Comprehensive retirement planning package.
Limited investment diversification, excluding alternative asset classes, like real estate and natural resources.
The annual management fee rises from 0.25% to 0.40% if you select the Premium plan.
The reduced fee structure on large account balances doesn’t kick in until you reach a minimum of $2 million.
Wealthfront Pros & Cons
Your account includes alternative investments, like real estate and natural resources. This offers greater diversification than a portfolio invested only in stocks and bonds.
The minimum initial investment is just $500. That’s not zero, but it’s an amount most small investors can comfortably start with.
Flat-rate fee of 0.25% on all account balances.
Larger accounts get the benefit of more efficient tax-loss harvesting strategies through Wealthfront Risk Parity.
The Wealthfront Portfolio Line of Credit lets you borrow up to 30% of the value of your non-retirement accounts at very low interest and with no credit check.
There’s no reduced management fee for larger account balances.
The retirement planning tool (Path) is an automated system and does not provide advice from live financial advisors.
Poor rating from the Better Business Bureau.
Bottom Line
We’ve covered a lot of territory and details in this side-by-side comparison of Betterment vs Wealthfront. The summary table below should help you to be able to compare the various services each offers with a quick glance.
Category
Betterment
Wealthfront
Minimum initial investment
Digital: $0 Premium: $100,000
$500
Promotions
Up To 1 Year Free
First $5,000 Managed Free
Management fees
Digital: 0.25% up to $2 million, then 0.15% above Premium: 0.40% to $2 million, then 0.30%
0.25%
Available accounts
Individual and joint taxable accounts; traditional, Roth, rollover and SEP IRAs; trusts and nonprofit accounts
Individual and joint taxable accounts; traditional, Roth, rollover and SEP IRAs; trusts and 529 accounts
Rebalancing
Yes
Yes
Dividend reinvestment
Yes
Yes
Tax-loss harvesting – on taxable accounts only
Yes
Yes
Socially-responsible investing
Yes
Available through Smart Beta ($500,000 minimum) and Stock-level Tax-Loss Harvesting ($100,000 minimum)
Smart Beta investing
Yes
Yes, minimum $500,000
Interest bearing cash account
Yes
Yes
Line of credit
No
Yes
Financial advice
Yes, on Premium Plan only
Automated only
Mobile app
Yes
Yes
Customer service
Phone and email, Monday through Friday, 9:00 am to 6:00 pm Eastern time
Phone and email, Monday through Friday, 10:00 am to 8:00 pm Eastern time
You’ve probably already guessed were not declaring a winner between these two popular roboadvisors. Both are first rate and you can’t go wrong with either. More than anything, your decision will likely come down to specific details–what features and benefits one offers that better suits your own personal preferences and investment style.
But one advantage that’s undeniable with both Betterment and Wealthfront is that not only is each a first-rate service, but they provide enough investment options and related services that they can accommodate your growing financial capabilities and needs well into the future.
For example, while you may start out with a basic managed portfolio, you’ll eventually want to get into higher risk/higher reward options as your wealth grows. As well, you’ll like the flexibility of having high-interest cash investment options, as well as low-cost or free financial or retirement advice.
We like both these services and are certain you can’t go wrong with whichever one you choose.
Betterment Cash Reserve Disclosure – Betterment Cash Reserve (“Cash Reserve”) is offered by Betterment LLC. Clients of Betterment LLC participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, clients’ funds are deposited into one or more banks (“Program Banks“) where the funds earn a variable interest rate and are eligible for FDIC insurance. Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities through Betterment LLC and Betterment Securities. Cash Reserve should not be viewed as a long-term investment option.
Funds held in your brokerage accounts are not FDIC‐insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC‐insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details. Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 (or $2,000,000.00 for joint accounts) of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 for each insurable capacity—e.g., individual or joint—at up to four Program Banks). Even if there are more than four Program Banks, clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000.00 (or $2,000,000.00 for joint accounts). The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured. For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC’s Form ADV Part II.
DoughRoller receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. DoughRoller is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.
After a few great years, refinance activity has taken a bit of a dive.
Ironically, the recent decline is directly attributable to the refinance boom lenders experienced just months before.
One of the major problems with the current situation is that 30-year fixed mortgage rates have remained below 5% for much of the past four years.
And they increased about a percentage point from their lowest levels last seen in late 2012.
In other words, pretty much everyone who was able to refinance already did. And there hasn’t been much incentive to refinance again, seeing that rates have just increased over the past year or so.
Nowadays Most Refinances Involve Much Older Loans
During the fourth quarter, the median age of the original loan before refinance was a whopping seven years, the oldest in Freddie Mac’s history, which dates back to 1985.
Just to give you an idea of what the median age of such loans looked like in the recent past, we’ll look at the Los Angeles metro area.
Back in 2003 and 2004, the median age of a loan refinanced there was just 1.7 years. These were the days of the serial refinance, when borrowers used their homes as ATM machines.
Many homeowners had contacts at major lenders like Countrywide, and would often be advised to refinance over and over again, often pulling out wads of cash along the way.
This is exactly how we got into trouble to begin with; most of these loans were ARMs, in many cases option ARMs. They were held just long enough to convince the appraiser to tack on another 10-20% in home value.
Before long, these homeowners ran out of options and were holding the proverbial hot potato, otherwise known as an underwater mortgage and an exploding ARM.
Fast forward to 2013, and the median age of a refinanced loan in Los Angeles stood at 5.3 years.
I can’t see it go anywhere but up as time goes on, especially seeing how mortgage rates drifted so very low thanks to the Fed’s successful, but problematic QE3.
It certainly doesn’t set the stage for a subsequent refinance boom anytime soon, which could eventually translate to questionable lending in the near future.
Things that come to mind are the refinancing of previously modified loans, or lowering standards on new purchase loans to drum up business.
Of course, there will still be opportunities for lenders with cash-out refinancing eventually becoming popular again as home prices rise. And there’s always the opportunity to refinance a loan with mortgage insurance.
Still, it could be tough going for a while in the mortgage industry.
Homeowners Are Still Saving a Lot of Money by Refinancing
While my assessment is full of doom and gloom, there are still plenty of homeowners saving a ton of money by refinancing.
During the fourth quarter, the average interest rate reduction was a healthy 1.5%, or a savings of roughly 25%. On a $200,000 loan, that’s an annual savings of about $3,000.
And homeowners who refinanced via HARP saved even more money, with the average interest rate reduction 1.7%. That translates to about $3,300 in annual savings, or $275 a month.
Freddie noted that homeowners who refinanced last year would save approximately $21 billion in interest over the next year.
Borrowers continued to shorten their loan terms, with 39% doing so during the fourth quarter, up two percent from the third quarter and the highest level since 1992. Only five percent chose to increase their loan term.
More than 95% of borrowers chose a fixed-rate loan, with the 30-year fixed far and away the most popular.
Freddie Mac projects the refinance share of mortgage originations to be just 38% in 2014.
If you’re struggling to save up for a down payment on your first home, you could do a lot worse than move to Chicago, where it’s possible to do so within just three years, according to a new analysis from RealEstate.com.
The property listings site analyzed industry data to come up with the top ten metros where first-time buyers should find it easier to save for their first home, and also ten metros where it would probably be the most difficult.
The analysis found that in Chicago, a first-time buyer would only need around three years to save for a 20 percent down payment on a typical starter home, which is the fastest time in all 35 metros analyzed. Other metros, including Dallas, Detroit and Baltimore, take an average of just four years saving time.
Realestate.com factored into its equations the median household income for millennials (aged 24 to 36 years), then estimated how much their annual savings would be in order to determine how long it would take to save for a down payment on a starter home, or one that’s priced within the bottom third of the market.
The company says the study is relevant because almost half of all first-time buyers move outside of their current city when buying their first property.
In contrast to Chicago, the estimated time it would take to save for a down payment on a home in Portland, Oregon, is a staggering 13 years. That’s because the estimated annual savings for a millennial household in Portland are just $5,288 (compared to $10,821 in Chicago) and home values are much higher.
Those living in cities including Denver, and San Jose and Riverside in California, would also take more than ten years of saving to afford a down payment.
“Contrary to popular belief, millennials want to buy homes, but high home prices, low inventory and stagnant wage growth are some of the many factors that may be driving would-be buyers into delaying homeownership,” said Justin LaJoie, RealEstate.com General Manager. “However, in certain U.S. housing markets first-time buyers can find some relief; they just need to know where to look.”
To help first-time buyers better understand the total cost of homeownership, RealEstate.com allows home shoppers to search based on homes’ “All-In Monthly Price,” which includes estimates for costs such as mortgage, property tax and utilities, giving them a more accurate picture of the cost of homeownership.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
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Updated: September 1, 2022
1 Min Read
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GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.
These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.
Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.
Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.
With all the recent talk about health care policy reform, it’s no surprise that many Americans feel the strain that their health insurance premiums put on their wallets. Many families struggle month to month trying to cover the costs of skyrocketing health insurance that many choose to roll the dice and have no insurance coverage. Studies show that approximately 18 percent of the U.S. population (over 46 million Americans) under the age of 65, simply have no coverage at all. If you are one with no coverage or are looking for a way to find a cheaper health insurance solution, here are three ways to lower your health insurance premiums.
1. Raise Your Deductible
One quick and easy way to lower your health insurance premium is to raise your deductible. One study showed that by raising the deductible from $2500 to $5000, the premium decreased by 25% ( 35-40% in some areas in the country). You don’t necessarily have to double your deductible to see a significant change.
Even lower increases can make a significant difference. If you raise to $1150 or $2300 for a family policy, you can open a Health Savings Account (HSA) which lets you contribute tax-deductible money and you can use tax-free money for medical expenses in any year. This can help you stretch your money that much further.
Let’s look at an example of increasing your deductible. For a family of 3 living in a major metropolitan area:
Deductible
Premium
Annual Cost
$500
$484/mo
$5,808
$5000
$247/mo
$2,964
Obviously, you can see the instant savings. By opting for a higher deductible, that’s an annual savings of $2,844 per year. But what happens if you have to go to the hospital, does the high deductible plans really work? If you look at the overall picture and you and your family are generally in good health, the HDHP plan could make sense. Keep in mind that many of these policies will allow you to have 1 to 2 preventative visits a year. Be sure to check with your health plan provider to make sure.
Using my own family as an example, we currently pay $244 per month for a high deductible plan that covers the three of us and we each have a $1500 deductible. Compare that to a $300 deductible and our monthly premium would jump 56% to $382 per month. Wow! Annually, we save about $1,656 by using this method which we contribute to a HSA.
2. Shop Health Insurance Coverage Rates
When looking for cheaper health insurance options, be sure to check several providers to make sure you’re getting the best deal that fits your family’s needs. Ehealthinsurance.com is one of the top leaders of online health insurance issuers. They were one of the first company’s to sell health insurance policies online.
EHealthInsurance has developed partnerships with more than 180 health insurance companies, including the big boys of Aetna, Blue Cross and Humana, Blue Shield, AARP, Coventry Health, and Kaiser Permanente. Here’s some info from their website:
eHealth, Inc. is the parent company of eHealthInsurance Services Inc., the one of the best online source of health insurance for individuals, families and small businesses. eHealthInsurance presents complex health insurance information in an objective, user-friendly format, enabling the research, analysis, comparison and purchase of health insurance products that best meet consumers’ needs.
Licensed to market and sell health insurance in all 50 states and the District of Columbia, eHealthInsurance has developed partnerships with more than 180 health insurance companies, offering more than 10,000 health insurance products online.
The company’s technology platform is able to communicate electronically with insurance carrier partners, which enables a simpler, more streamlined health insurance application process. This technical connection with the back-office processes of health insurance companies can facilitate rapid approval of applications and real-time communication between carrier and consumer throughout the process.
3. Have Separate Coverage For the Family
During open enrollment this fall you may notice a few changes in your health care coverage as it pertains to the rest of your family. One trend that is expected is to see a decrease in the subsidy that is allowed to pay for the family’s coverage in employer health plans. With the sudden spike in cost, it could make sense to keep only yourself on your policy and your employer and put your spouse and kids on their own policy.
I have many married friends that are both employed and have adopted this strategy. I wish I had some more specific numbers to share on their money saving tips, but it obviously made sense because they are doing it.
When you open enrollment period rolls around, don’t take it for granted. This may be an easy opportunity to save your family thousands of dollars in insurance premiums for the year.
About the Author
Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion – educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel.
Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University – Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® – Accredited Asset Management Specialist – and CRPC® – Chartered Retirement Planning Counselor.
While a practicing financial advisor, Jeff was named to Investopedia’s distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC’s Digital Advisory Council.
Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.
Well that didn’t take very long. Just a week into 2015 and HUD is planning to lower mortgage insurance premiums on FHA loans.
In case you missed it, this was one of my 10 predictions for mortgage and real estate in 2015. I just didn’t expect it to come this soon. I’m still taking the ornaments off the tree…
Technically, the news isn’t official yet, but every major media outlet is reporting it thanks to “people with direct knowledge” of the initiative.
For the record, the FHA has been raising mortgage insurance premiums for years now to shore up capital reserves after losing its shirt on high-risk loans during the mortgage crisis.
It’s still not fully healed, but this move seems to be the direct result of pressure from politicians and industry trade groups to make FHA loans more affordable.
After all, some 375,000 prospective home buyers might be shut out at the moment.
FHA Annual Premiums Dropping to 0.85%
Update: Pictured above is the new annual mortgage insurance structure, as outlined by HUD. Notice that the premiums for 15-year loans are unchanged. It will go into effect on January 26th, 2015.
If you already have an active FHA Case Number, the FHA will temporarily approve cancellations within 30 days of the effective date of mortgagee letter (2015-01).
Also note that this change does not apply to streamline refinances of FHA loans that were endorsed on or before May 31, 2009.
What we know so far is that the annual MIP on FHA loans currently set at 1.35% will drop a half percentage point to 0.85%.
By the way, it’s not 1.35% for all borrowers, and that’s where some of the uncertainty in this change lies.
Only FHA borrowers with LTV ratios above 95% and loan terms greater than 15 years are currently paying 1.35% in annual mortgage insurance premiums.
Borrowers with higher loan amounts are paying as much as 1.55%, while borrowers with 15-year fixed loans are paying as little as 0.45%.
That being said, I don’t think the .50% reduction in MIP will apply to all FHA borrowers. My guess is that it only applies to those borrowing more than 95% of a home’s value.
More details are supposed to be revealed during a speech by President Obama in Phoenix tomorrow.
In the meantime, prospective FHA borrowers can anticipate saving a little bit of money each month thanks to the lower premiums.
On a $250,000 loan, the monthly MIP fee at 1.35% is currently $281.25. If the fee drops to 0.85%, the monthly MIP would be only $177. That’s an annual savings of $1,250.
It might not seem like a lot, but every little bit helps. And the lower fees could even make qualifying easier with strict DTI ratios now in place.
The lower fees also mean the FHA will be able to compete with conventional lending, which has become a lot more popular thanks to all those premium increases in recent years.
The FHA was at great risk of losing even more market share thanks to a recent policy change at Fannie and Freddie to allow 97 LTV lending again.
So perhaps this is a defensive move to maintain market share at the FHA. The bad news is that the annual mortgage insurance premiums will still remain in place for the life of the loan.
This was perhaps the worst change in recent history, and the lower premiums won’t change that. Yes, the fee reduction will lead to a lower monthly mortgage payment, but it won’t change the fact that FHA borrowers pay it for 30 years in many cases.
I’ll provide updates once the official news is released tomorrow. Overall this is great for borrowers who need FHA financing, especially with mortgage rates so low at the moment.
Update: The announcement is now official, though it’s still unclear if premiums at levels other than 1.35% will be lowered as well. And if so, by how much. We now know…and it’s pictured above.
If you’re a resident of the Beehive State, you know how quickly Utah has grown and changed. According to the U.S. Census Bureau, Utah was the fastest-growing state from 2010 to 2020, reaching a population of 3.27 million people.
For families with children thinking about college, Utah has several well-known schools, including the University of Utah and Brigham Young University.
Whether you’re new to the state or have lived there all your life, you may be pleasantly surprised by the cost of higher education in Utah. And with the state’s financial aid programs, you may be able to reduce your expenses even more.
The cost of education in Utah
Despite its rapid growth, Utah is still a relatively small state in terms of population and has a smaller number of colleges and universities than states with similar populations such as Arkansas, Kansas and Iowa. There are 22 public and private non-profit institutions in the state that issue two- or four-year degrees.
Generally, the cost of attending a four-year college in Utah is significantly cheaper than it is in other states. Here’s the total average cost of attendance in 2020-21 — including tuition, fees and room and board — for different education options in the state:
Public four-year school: The average cost for in-state residents at Utah’s public four-year schools was $14,653, about 31% less than the national average of $21,337.
Private non-profit: The average cost of attendance at private four-year schools in Utah was $15,911, about 65% less than the national average of $46,313.
Community college (in-state): The average cost of attendance — not including room and board — at community colleges for Utah residents was $3,989, about 14% higher than the national average.
Why are four-year schools, especially private colleges and universities, so inexpensive in Utah? Part of the reason is that the state offers several substantial financial aid programs that can make the cost more manageable, and the state’s higher ed funding hasn’t decreased as significantly over the years as it has in other places.
Another contributing factor is the state’s large Mormon population; 55% of the adults in Utah are members of The Church of Jesus Christ of Latter-day Saints. Some of the private schools in the state, such as Brigham Young University and Ensign College, are affiliated with the Mormon church, and charge members half the tuition rate that non-members pay.
Financial aid options in Utah
To be eligible for in-state tuition rates and state-based financial aid, you must be a qualifying resident living in the state for at least 12 months before registering as an in-state student. You can prove residency with one of the following items:
Attended a Utah high school for the past 12 months.
Utah voter registration dated before the college application date.
A driver’s license or identification card issued several months prior to the application date.
Vehicle registration prior to the application date.
Evidence of employment in the state prior to the application date.
Proof of payment of Utah state income taxes for the previous year.
A rental agreement showing the student’s name and Utah address for at least 12 months prior to their application date.
Utility bills showing the student’s name and Utah address for at least 12 months prior to their application date.
In Utah, undocumented students, including Deferred Action for Childhood Arrivals (DACA) students, are eligible for in-state tuition and state financial aid programs if they meet the other residency requirements. Students must also sign an affidavit stating that they will file an application to legalize their immigration status or be willing to file when they’re eligible.
🤓Nerdy Tip
Laws, requirements and financial aid programs can change. Visit the Utah System of Higher Education website or contact your college’s financial aid department for the most up-to-date details.
Utah does operate a number of programs that could make postsecondary education more affordable, including:
529 plans.
Scholarships.
Tuition waivers.
Other financial aid programs.
Student loan repayment assistance.
529 plans
Although Utah doesn’t offer a prepaid tuition plan, it does have a 529 option called my529. With a 529, you can open an account on behalf of a child and invest your contributions. The account grows tax-deferred and, if the withdrawals are used for qualifying education expenses, the withdrawals are also tax-free.
As an added benefit, Utah also allows residents to deduct a portion of their 529 contributions on their state income taxes as long as the account was set up before the beneficiary turned 19.
Utah’s my529 is attractive for those that live outside the state, too. Morningstar, an investment research company, issued Utah’s my529 a “gold distinction.” Utah’s my529 is one of just two 529 plans to earn this distinction in 2022, and it is the only plan that has held that distinction every year since Morningstar introduced its rating system in 2012. The gold rating highlights the quality of the plan’s investment options and low fees.
In-state tuition
Public schools are usually less expensive than private colleges. Nine schools are part of the Utah System of Higher Education (USHE):
Salt Lake Community College.
Snow College.
Southern Utah University.
University of Utah.
University of Utah Eastern.
Utah State University.
Utah Tech University.
Utah Valley University
Weber State University.
However, students who live in Utah could potentially attend school in another state and qualify for a lower tuition rate. Utah participates in tuition exchange programs through the Western Interstate Commission for Higher Education (WICHE). Through these programs, students can choose from over 160 participating schools in 15 member states plus U.S. Pacific Territories and Freely Associated States and pay no more than 150% of the resident tuition rate. The network is made up of the following places:
California.
New Mexico.
North Dakota.
South Dakota.
Washington.
U.S. Pacific Territories and Freely Associated States (Commonwealth of the Northern Mariana Islands, Guam, Republic of the Marshall Islands, Federated States of Micronesia, and Republic of Palau).
According to WICHE, the average annual savings per student was $11,294 for the 2022-23 academic year.
Utah grants
Grants are a valuable form of financial aid. They’re usually awarded based on the student’s financial need, and as long as the recipient meets the terms of the grant, the award doesn’t need to be repaid. Utah operates four grant programs:
Veterans Tuition Gap Program
The Veterans Tuition Gap Program award is a supplemental award that covers the remaining cost of tuition, fees and textbooks for military veterans who have exhausted federal benefits. To qualify, you must be a Utah resident, a military veteran and enrolled in the final year of your first bachelor’s degree program.
Only students attending one of the following schools can qualify: Salt Lake Community College, Snow College, Southern Utah University, University of Utah, Utah State University, Utah Tech University, Utah Valley University or Weber State University.
Adult Learner Grant Program
For those who didn’t earn a degree right after high school, the Adult Learner Grant is a potential aid option. It provides financial assistance to adults age 26 or older enrolled in online programs in designated areas of need.
The award can be used to cover the cost of attendance at participating public and private colleges. Eligibility is determined by the information included on the Free Application for Federal Student Aid (FAFSA).
Public Safety Officer Career Advancement Reimbursement and Grant Programs
Talent Development Award Program
Recent high school graduates and adults enrolled in eligible programs at participating schools may be eligible for the Talent Development Award Program. This program covers up to the cost of resident tuition, fees and books at select schools, including Salt Lake Community College, Southern Utah University, the University of Utah, Utah State University, Utah Tech University (formerly Dixie State), Utah Valley University and Weber State University.
Eligibility is based on the FAFSA, and the student must intend to work a qualifying job in Utah after graduation.
Utah scholarships
Scholarships, like grants, usually don’t have to be repaid. Some scholarships take students’ finances into consideration, but most scholarships are based on merit. In Utah, there are several scholarships available from the state:
Opportunity Scholarship
Utah’s Opportunity Scholarship encourages high school students to complete advanced courses in core subjects while in high school. Students can apply for the scholarship during their senior year of high school, and selected students can receive up to $1,000 per semester for up to four semesters. Students are chosen based on their grade point averages and their performance in advanced courses.
Utah Promise Scholarship
The Utah Promise Scholarship is based on financial need, and it’s for both recent high school graduates and adult learners. The scholarship covers up to the cost of attendance for up to two years at public schools and select private colleges, including: Brigham Young University (Provo), Ensign College, Western Governors University and Westminster College.
Utah Technical College Scholarship
The Utah Technical College Scholarship is for students enrolled in technical education certificate programs in high-demand areas at select schools. It can help cover the cost of tuition, fees and required textbooks for up to 12 months after a student graduates from high school.
T.H. Bell Education Scholarship
The T.H. Bell Education Scholarship is a program for high school graduates and adult learners at select public and private schools who plan to pursue careers in education. The scholarship can pay for the cost of resident tuition, fees and textbooks for up to four years.
To qualify, students must be enrolled in an approved teaching program or an approved program that prepares students to become speech-language pathologists or other licensed professionals providing services in public schools to students with disabilities.
Students can attend programs at the following schools: Brigham Young University, Rocky Mountain University of Health Professionals, Salt Lake Community College, Snow College, Southern Utah University, University of Utah, Utah State University, Utah Tech University (formerly Dixie State), Utah Valley University, Weber State University, Western Governors University and Westminster College.
Olene S. Walker Transition to Adult Living (TAL) Scholarship
The TAL Scholarship is for students transitioning out of Utah’s foster care system or the unaccompanied refugee minor program to earn a postsecondary degree or credential at a Utah public school. Eligible full-time students can receive up to $5,000 per year.
Tuition waivers in Utah
There is one tuition waiver program in Utah and it’s for National Guard members. If you are a member of Utah’s National Guard, you can qualify for a full tuition waiver at a state college or university for up to two semesters.
Other financial aid programs
Outside of the USHE system, the University of Utah has a valuable program for Native American students.
Utah State University Native American Student Scholarship
This scholarship program for Native American students covers all tuition and school-required fees at any of the 30 Utah State University locations. To qualify, students must be members of a federally recognized tribe in and around Utah and seek a technical certificate, associate or bachelor’s degree.
Student loan repayment programs in Utah
Based on data from the Federal Student Aid office, the average student loan balance per borrower in Utah was $31,861.93 as of 2022 — about 8% less than the national average of $34,577.34.
Even though Utah borrowers tend to owe less money, the state offers three student loan repayment programs that can help graduates accelerate their repayment.
Utah Behavioral Health Workforce Reinvestment Initiative
Behavioral health professionals can qualify for up to $50,000 in loan repayment assistance through the Utah Behavioral Health Workforce Reinvestment Initiative. Participants must serve for at least three years at a qualifying publicly funded site in Utah. Eligible professionals include psychiatrists, psychiatric pharmacists, psychologists, psychiatric/mental health nurse practitioners, clinical social workers, counselors, clinicians, therapists and certified peer specialists.
Rural Physician Loan Repayment Program
Under the guidelines of Utah’s Rural Physician Loan Repayment Program, physicians must enter into a two-year contract committing to working at a rural hospital. In exchange, they can receive up to $120,000 to repay their student loans. Providers must be in primary care, obstetrics and gynecology, general surgeons, orthopedic surgeons, pediatrics or internal medicine.
Veterinary Medicine Loan Repayment Program
How to apply for financial aid in Utah
To apply for Utah’s financial aid programs and institutional aid, follow these steps:
Submit the FAFSA: Many award programs are based on your financial need, so submit the FAFSA as soon as you can after it opens, typically on Oct. 1. You can complete and submit the FAFSA online at FAFSA.gov.
Create a ‘Keys to Success’ account: Keys to Success is a college and career readiness tool backed by the state of Utah. It includes a website and mobile app that students and parents can use to find scholarships and internships and learn about different career paths. The platform can allow you to find state-based financial aid and awards from non-profit organizations and corporations.
Contact the financial aid office: Schools may have their own deadlines and application processes, so reach out to your college’s financial aid office for details on available awards and how to apply.