Last-minute Gifts That Save Money All Year

Sure, you’ve heard the warnings about shopping early because of supply chain issues this year, but chances are there are still some folks on your gift list who you haven’t yet figured out what to get. Have no fear. Even in the 11th hour of the holiday season, you can pull a great idea out of your Santa hat. Plus, you can give the gift of purchasing power in a way that’s more fun, thoughtful (and prudent) than a stocking full of cash.

Most of the items on our annual list of personal gifts will save the recipients money in the long run—either by eliminating some of their recurring expenses or boosting their earning power. Your friends and family will be sure to remember your generosity all year long as the savings keep rolling in.

But even at Kiplinger, we know that saving money isn’t the only thing in life. COVID-19 has inspired us to include some ideas that are just plain fun and activities that can be done at home. 

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Stocks, Funds and More

Photo of a row of Christmas stockings hanging from a mantelPhoto of a row of Christmas stockings hanging from a mantel

Stocks as stocking stuffers couldn’t be easier with gift cards from Stockpile, a self-directed online brokerage. You pick a company like Google (GOOGL) or Netflix (NFLX)  to purchase a gift card that can be redeemed for its stock. You can choose from hundreds of stocks, or give a multi-company card that comes with a list of picks available to the recipient and let your recipient build a portfolio. Cards for exchange-traded funds are another option. Or you can just gift an amount of money and let the recipient do the picking. 

To redeem the card, the gift card recipient must open a free Stockpile brokerage account online. She can choose to invest in the company you picked or select another. If she redeems the gift for stock by 3:00 p.m. (Eastern) on a regular trading day, she gets the shares at that day’s closing price. After that time or on a day the market is closed, the trade will be executed at the closing price on the next day the market is open. Depending on the value of the card and the stock, she may wind up with fractional shares.

But you don’t have to use Stockpile to give stocks or funds. If your recipient already has their own brokerage account, you can buy for them directly—or directly gift them your own shares—if you have the account information. 

Cost

At Stockpile, gift cards can be found in denominations of $1 to $1,000 and can be sent via email or text on a specified delivery date at a designated time. They can also be printed out with a redeemable QR code.

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Master Class from a Master

Photo of Itzhak Perlman playing violinPhoto of Itzhak Perlman playing violin

How would the recipient of your present like to learn about science from Bill Nye, the Science Guy, or about cooking from tv chef Gordon Ramsay? How about chess lessons from Gary Kasparov or writing guidance from Margaret Atwood? Alicia Keys teaches songwriting and Herbie Hancock teaches jazz. My goodness, Itzhak Perlman gives violin lessons. And Hillary Rodham Clinton teaches a class called “The Power of Resilience.”

Perhaps more on-brand for our readers, they can learn business leadership lessons from Disney’s Bob Iger or former Starbucks CEO Howard Schultz or economics from Nobel Prize winner Paul Krugman. All this and much more is available through Master Class, an online platform that sells video lessons from some of the most well-known subject experts in the country.

Cost

The cost starts at $15 a month, billed annually.

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Herb Garden

Photo of a row of herbs in terra cotta potsPhoto of a row of herbs in terra cotta pots

You can freshen up a loved one’s living space while trimming their grocery costs by giving her a kitchen herb garden. Your gift recipient doesn’t need a particularly green thumb in order to grow herbs. But you may want to consider the amount of sun exposure the garden’s new home might get in order to pick the right herbs. For example, basil, rosemary and sage need six hours or more of full sun each day to thrive, according to Home and Garden America. Chives, coriander and mint are less demanding.

Cost

Again, prices vary. You can get a window starter kit at Amazon for about $30. 

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Celebrity Video Messages

Photo of Kenny G playing a saxophonePhoto of Kenny G playing a saxophone

If your gift recipient likes a particular celebrity, you might pay that star to record a personalised video through Cameo. Celebrity options range from Thomas the Tank Engine to Pee-wee Herman and include athletes like Olympic gymnast Gabby Douglas and football legend Joe Montana. There are also musicians like Gloria Estefan and Kenny G, some astronauts and even some political figures like Anthony Scaramucci or Donald Trump Jr. You can even get a video from Iron Chef Jose Garces for the reality show foodie in your life. Or, for those who believe, how about a phone call from Santa Claus?

Cost

Prices range all over the map from $2 for a video from stuntman/actor Preston Corbell to $10 for a conversation with Santa to starting at $2,500 for a video from Caitlyn Jenner.  

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Streaming TV Subscription

Photo of popcorn, a soft drink and an electronic tabletPhoto of popcorn, a soft drink and an electronic tablet

According to JD Power, the average U.S. household spent $55 a month on streaming tv services, up from $47 just six months before and double the amount spent last year. With so many new options becoming available and prices being hiked all the time as more people stay home for entertainment during the pandemic, it’s easy to see how the cost of entertainment can drag down a family budget. 

You can help your tv-watching friends and family with those costs by footing the cost of a subscription to Netflix, Apple TV, HBO Max, Hulu, Amazon Prime, Disney Plus or one of any other of the constantly emerging streaming services.

Gift cards for streaming service are available at participating retailers, including Walmart, Target and Best Buy. You can also buy them online through Amazon.com, Target.com and Walmart.com. The gift-card recipient can use it to create a new subscription or add the value of the card to his existing account.

Cost

Physical Netflix gift cards are available for $30, $60 or $100. You’re free to select the amount for electronic gift cards. (Subscriptions start at $8.99 a month.)

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Coffee Maker

Photo of a woman's hands holding a coffee cup surrounded by holiday lightsPhoto of a woman's hands holding a coffee cup surrounded by holiday lights

You know that trope about how daily lattes from the coffee shop are the impediment to wealth? It’s more complicated than that. But, if you’d like to press the point, give your favorite coffee lover the means to make the caffeine she craves on her own. Depending on her tastes, you could get her a French press, a drip pot, a single server or an espresso maker. If your budget allows, you might also throw into her stocking your (or her) favorite brand of joe.

Cost

Prices vary. The popular single-serving Keurig machines cost from about $55 to about $200. Tom’s Guide says the best coffee makers can run $300, but you can get a really good one for much less. Tom’s top overall pick, for example, a Braun BrewSense was on sale recently at Best Buy for $76, marked down from $95.

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Educational Software

Photo of a man looking at a laptop computer and writing on a notepadPhoto of a man looking at a laptop computer and writing on a notepad

The gift of wisdom can pay off for a lifetime. Fortunately, you can buy some online. Educational software, such as Rosetta Stone for languages or The Great Courses for a variety of subjects including sciences and the fine arts, can be a great gift for your favorite knowledge-seeker. Fun and functional, educational applications can help her brush up on her French before a trip to Paris or add some highly desirable skills to her resume.

If your loved one would prefer learning in an actual classroom, consider getting her a gift card for a local community college. Many can be used for books and merchandise, as well as credit hours.

Cost

You can give a Rosetta Stone eGift instantly—perfect for procrastinators. The Spanish subscriptions range from $36 for three months to $179 for a lifetime subscription.

How much you spend on a community college gift card is up to you and should be based on the college’s cost per credit hour.

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Cooking Classes

Photo of vegetables on a cutting board being prepared by handsPhoto of vegetables on a cutting board being prepared by hands

Cooking classes can be a great way to cut your recipient’s restaurant costs. Check community calendars for seminars, or look to chains, such as Williams-Sonoma and Sur La Table.

For example, in a number of Sur La Table locations across the country, you can find a holiday cookie decorating class—giving your gift recipients both a cooking lesson and a fun activity to entertain their kids for a couple of hours during the school break.

Cost

Prices at Sur La Table vary, depending on the type of class and location. The holiday cookie decorating class for kids costs $59 per person in stores around the country. Sur La Table also offers online courses recognized by the American Culinary Institute for $59 to $1,500.

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Small Kitchen Appliances

Photo of a small kitchen appliance with a red bowPhoto of a small kitchen appliance with a red bow

Giving an appliance as a present is a bit fraught, but there are plenty of buzzy gadgets that might improve the prospect of more cooking from home. Consider an Entera slow cooker or an Instant Pot or an air fryer. These practical gifts can help the recipient easily prep meals for each week and save on restaurant and take-out bills all year long.

Other kitchen-appliance gift ideas that might encourage more eating in: a standing mixer, pizza stone, countertop convection ovens.popcorn makers, grills, pots and pans and other specialty items.

 Cost

Pizza stones are available on Amazon from about $12, while the costs of other kitchen appliances can range into the hundreds of dollars. 

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Warehouse Club Membership

Photo of woman with shopping cart in front of shelves of paper productsPhoto of woman with shopping cart in front of shelves of paper products

A couple of years ago, the idea of a year’s supply of toilet paper as a gift would sound like a bad joke. Now, it might be appreciated. Better yet, though, is to give your recipient access to pallets of TP with a membership to a big-box store such as BJ’s, Costco or Sam’s Club. You’ll give the recipient the opportunity to buy in bulk and save money on groceries, electronics, household wares and other items year-round. 

Cost

Annual memberships for Sam’s Club, BJ’s and Costco range from $45 to $120 and can include discounts or gift cards as part of the membership.

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Car Wash

Photo of a car going through the giant brushes of a car washPhoto of a car going through the giant brushes of a car wash

Your gift recipient might not ever get rich at the car wash, but helping him with routine car maintenance can sure help save money. And in these times of ever-rising gas prices, every bit of savings helps.

Gift cards to the local car wash would not only foot that bill; keeping an auto fresh and clean can help maximize its life, too. Some locations might even offer unlimited washes for a monthly pass.

You could also put together a gift basket of car-cleaning supplies. Encouraging your loved one to do the dirty work can give them a chance to catch and fix any small issues and prevent any future costly repairs.

Other car-related gift ideas are a membership in AAA or a gift card for car service at a local shop or someplace like Jiffy Lube.

Cost

You’re in the driver’s seat—pick your gift amount. If you want to go the gift basket route, you can order a pre-assembled one on Etsy for about $50

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Appointment With a Financial Planner

Photo of a couple talking to a professional with her back to the cameraPhoto of a couple talking to a professional with her back to the camera

Make room under the tree for your financial planner. A few hours of consultation would be the perfect gift to steer anyone down the right financial path, especially any beloved college kids home for winter break. 

Your best bet to give a financial planner’s services for the holidays is to ask your own planner if she’s open to it. You already know and trust her services and won’t have to worry about giving your loved ones a dud gift. If you don’t have a planner to call your own, you can find one at the website of the National Association of Personal Financial Advisors. But be sure to vet the planner properly.

Cost

According to SmartAsset.com, a financial advisor generally charges from $1,500 to $2,500 to create a full financial plan, but if that’s too rich for your budget, you can check to see if the advisor can provide a few hours of consultation or a less detailed plan at a lower cost.. 

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College Fund Donation

Photo of Ben Franklin on currency with a graduation capPhoto of Ben Franklin on currency with a graduation cap

For even your littlest loved one, there’s no better present than an investment in her future. Get her started saving for college by opening a 529 account for her. Or if she already has a college fund, you can simply make a contribution for the holidays. To ensure your generosity is earmarked for a college degree, you can make a direct payment to a 529 plan—you’ll just need to know the account holder’s name and address, as well as the account number. Or you can maintain the element of surprise by giving your future scholar a Gift of College gift card, which can be used to fund any 529 plan.

Cost

You can give however much you’d like. If you go the gift-card route, you’ll have to pay some fees, too.

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Toolkit

Photo of various tools around a tool containerPhoto of various tools around a tool container

This handy gift can encourage its recipient to get their hands dirty and keep maintenance costs down by learning to DIY (you might be surprised to see how much you can tackle thanks to YouTube videos). It can be especially useful for anyone in your life who just moved out on their own or bought a new home and recently reached a new level of adulting.

For beginners, some toolbox necessities include a screwdriver set, tape measure, claw hammer, flashlight, pliers and other items, according to This Old House.

Cost

You can build your own kit and control the costs. Ready-made sets start at about $15 at Lowe’s and Home Depot.

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A Book About Investing

Photo of several books and a jar with paper currency Photo of several books and a jar with paper currency

Learning the ropes of investing can be intimidating. Kiplinger has put together a list of the 13 best books for beginning investors to take away the mystery and empower people with knowledge about their finances on their own time at their own pace. There’s a book by women for women and one written by a millennial and even one by Warren Buffett. 

Cost

The range in costs is free (downloadable e-book) to about $40 for the top-end hardcover

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Restaurant Gift Card

Photo of a table full of food with hands helping themselvesPhoto of a table full of food with hands helping themselves

The restaurant industry has been hit particularly hard during the pandemic. One way to support local businesses and give your friend or loved one a night off from cooking is to buy them a gift card from a local restaurant.

If your friend just prefers to do their own cooking, you could also get them a gift certificate to a grocery store or a local specialty food store.

Cost

That’s entirely up to you. Check your local restaurants and see what they’re offering. Maybe check the menu and make sure to cover the cost of your recipient’s favorite food, plus a tip and enough to cover at least one other diner. 

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Kiplinger’s Personal Finance Magazine

Image of the top of a cover of Kiplinger's Personal Finance magazineImage of the top of a cover of Kiplinger's Personal Finance magazine

Personal-finance wisdom, actionable advice and clear explanations—these are a few of our favorite things. And, hey, we’re proud of what we do. A year’s subscription to Kiplinger’s for your friends and family members will give them both money-saving and money-making strategies.

Cost

A holiday subscription starts in January and can be had for just $19.95 for 12 monthly issues.

Source: kiplinger.com

Utah 529 Plan for College Savings

You don’t even need to mention it to the IRS on your federal taxes.
Contribution options include online payments, checks, money orders, income tax refunds, payroll, bank transfers and rollover funds from other accounts.
Want to move the needle as soon as you launch your college savings investment plan? Give your Utah Educational Savings Plan a boost from this introductory offer from the Upromise Mastercard, backed by Barclays Bank, FDIC insured.

What Is a 529 Savings Plan?

Get the rundown on Utah’s 529 plan for college savings, find out how rewards programs like Upromise can help you grow funds even faster.

While you can’t skirt payroll taxes to contribute to them, the money generated from a 529 plan is generally tax-free if used for qualified expenses.
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These plans typically generate money for college through mutual funds, a shared portfolio of investments, but they can use individual funds too. Unlike retirement accounts, you can’t make pre-tax contributions to them.

Taxed deferred

You can claim a 529 plan tax deduction on your income taxes, a tax credit that enables you to contribute even more. The State of Utah offers a 5% tax credit of up to ,070 for single filers, ,140 for married couples in 2021.

Tax deductions 

Here’s a rundown of some of the top benefits of 529 plans and the ways they can grow your college savings:

No federal taxes

Need to step on the gas to grow your savings faster? Enabling the Mastercard’s roundup feature will make it easier to corral and nurture those extra dollars and cents, by rounding up charges for each purchase you make with the card.

Account holder control

You must be at least 18 years old to open a Utah 529 plan.

Accessible

Link your 529 account with Upromise to get rewarded for savings. You’ll get .29 just for joining the program and if you link your account.

Flexible

0,000 total per beneficiary ― but you can contribute to someone else’s fund.

Ground Rules on Utah 529 Plan Withdrawals, Beneficiaries and More

The beneficiary has no control over when or how much money is withdrawn from the account, or any say on investment options. The account holder has to request a withdrawal for qualified expenses or pay a penalty for a non-qualifying disbursement. So no, your student can’t blow your savings on digital currency for Fortnite or Roblox.
Conventional 529 plans let you choose the investment vehicle you feel will serve your needs best, but prepaid plans leave the investing to the state.

Who can benefit:

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Account holder requirements:

529 plans are tax-advantaged investment accounts used to grow money for education expenses. They come in two forms: the widely used education savings plan and the dwindling prepaid tuition plan, which is only accepted at a handful of Utah colleges.

Who can contribute:

Knowing what it takes to start and maintain a 529 college savings plan is one thing. Making the most of it is another. But there are services that can help you maximize your investments and hit your goals. Upromise is a rewards program that offers tools and advice to help you hit your savings goals, maximize your plan’s benefits and find additional ways to save along the way.

Ways to contribute:

As flexible as 529 plans are, there are still rules regulating them.

Age-based limits:

Neither you nor your beneficiary has to live in Utah to qualify for a 529 plan in the state. Yes, you can start a Utah educational savings plan and use it for qualified expenses in another state. However, your account will still be subject to Utah’s rules.

Annual contribution caps:

Anyone with a Social Security number or tax identification number can be a beneficiary.

Lifetime contribution caps:

Anyone can contribute: family, friends, acquaintances — though only the account holder can claim the tax deduction.

Qualified expenses:

529 plans may impact need-based financial aid. If one of the beneficiary’s parents is the account holder, needs-based financial aid could be decreased by up to 5.64%. If you’re both the beneficiary and account holder, that deduction could climb up to 20%.

Non-qualified withdrawals:

For non-qualified expenses, money generated from 529 investments is subject to state income tax and a 10% penalty.

More Frequently Asked Questions about 529 College Savings Plans 

Upromise also offers a Mastercard, an optional debit card you can use to earn cashback on purchases, such as groceries and household items, and apply those funds to your Utah 529. It’s a force multiplier for saving for college.

How Do 529 College Savings Plans and Prepaid Tuition Compare?

You don’t have to be an experienced investor to generate money from your 529 plan. But you’ll likely have general options for how aggressively or conservatively your account targets growth. The closer to college a student is, the more you’ll likely want to ease off the gas and target safer investment options.
,000 per beneficiary ― you can contribute more, but you’ll be hit with a gift tax.

How will a 529 Plan Impact Financial Aid?

Still got a few “what abouts” lingering in your mind? As simple as it is to set up and maintain a 529 college savings plan, you’ll probably want to make sure you’re maximizing this long-term investment in higher education. Here are some more frequently asked questions:

What happens to unused money in a 529 plan?

Both are technically 529 plans. But while conventional 529 plans are becoming more popular, prepaid tuition plans are dwindling. Prepaid tuition plans are more rigid. They’re only accepted at participating schools, down to just eight institutions in Utah, and any money generated from them is only used to lock in the current rate of tuition.

  • Roll over the money into another beneficiary’s account, including K-12 tuition.
  • If the beneficiary decides not to go to college, other forms of training, such as vocational school or apprenticeships may qualify.
  • Pay taxes on it and take the 10% penalty to use the funds on something other than education. You might break even or still come out ahead.

How to Start a 529 Plan

Source: thepennyhoarder.com
Ready to stop worrying about money?
Plans can also generate money through 529 rewards programs that help grow savings accounts through cashback programs.
If there’s a theme here, it’s that 529 plans are flexible. You have plenty of options for unused money in a college savings plan:
Eligible expenses include tuition, books, fees, supplies, computer equipment, certain software, education loan repayment and room and board when enrolled in enough credit hours to be considered a part-time student. Other higher education expenses may qualify.
529 plans are tax-advantaged investment accounts that allow you to invest and grow your money to use on qualified education expenses. And the state of Utah happens to offer some of the best 529 college savings plans in the country — and it’s not just for Utah residents. <!–

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Beyond the requirement for the account holder, there are no age-based limits on Utah’s 529 plan. The student doesn’t have to use the funds in the Utah 529 plan by a certain age or before a certain amount of time has passed.

Thoughts Before Funding a 529 College Savings Plan

College costs have outpaced inflation. Looking back at the last decade, the 10-year historical rate of increase has been approximately 5% per year, according to The College Board. Luckily, there’s a tax-advantaged way to save for these growing college expenses: the 529 college savings plan.

529 basics

When it comes to saving for college, opening a regular savings account/custodial account for your child is an option, but you’d miss out on the benefits of a 529 plan, such as the tax-free growth on earnings if the funds are used for qualified college expenses. Deposits to a 529 plan up to $15,000 per individual per year ($30,000 for married couples filing jointly) will qualify for the annual gift tax exclusion (for 2021). You can also front-load your investment in a 529 plan with $75,000 ($150,000 if joint with your spouse) and use this toward your gift tax exemption for five years, providing there have been no other gifts to that child. This is something that is not possible for a regular savings/custodial account for your child (you would only be able to gift $30K jointly). By adding a large amount up front, you allow the lump sum to grow over a longer time horizon vs. making smaller contributions over time. Contributions to a 529 plan do not have to be reported on your federal tax return.

Contributions to a 529 plan are not tax deductible (although some states do offer tax benefits), but the earnings grow tax free and are not taxed if used to pay for education. Another advantage compared to a custodial account is control; the named beneficiary has no legal rights to the funds, so you can ensure the money will be used for education.

Also on the plus side, a 529 account owned by someone other than the parent (such as a grandparent) is not considered an asset for financial aid purposes. In addition, the value of a 529 account is removed from your taxable estate, yet you retain full control over the account.

How to choose a 529 plan?

Research the underlying expenses of the mutual funds and review the investment options available compared to other plans. The age-based models may be the easiest to manage, as the plan shifts to more conservative investments as the student gets closer to college age. You can choose any state plan no matter where you live, but if you reside in a state that provides tax breaks for using your state plan, you would likely want to start there. For example, New York residents get tax benefits for using their state plan. Keep in mind that you have the ability to move your 529 to another provider, but only one rollover is permitted per 12-month period.

How much to fund?

The amount to contribute to a 529 plan depends on several assumptions, such as whether you expect your child will attend a public college or a private college, the returns during the investment time horizon, and future college inflation. Funding goals vary widely depending on what you would like to achieve and the assumptions involved — and of course there is no right answer.

 If the beneficiary does not go to college, you can transfer the 529 plan to a sibling in the future or to another family member, such as a cousin or grandchild. If you don’t have any eligible family members, the worst-case scenario is that you would have to pay tax and a 10% penalty on the earnings to take the money out for another purpose. Withdrawals from a 529 plan that are not used for the beneficiary’s qualified education expenses are taxed and penalized (subject to a 10% federal penalty and taxed at the income tax rate of the person who receives the withdrawal). If the beneficiary gets a scholarship, then the penalty is waived.

Considerations if you have more than one child

If you have several children, it may make sense to fully fund the first plan for the oldest child, and if the funds are not used, they can be transferred to the next child in line. You probably want to avoid fully funding all the plans in the event one child does not end up going to college, gets a scholarship, or starts a business. Some schools and some trade schools/programs do not qualify for 529 funds (for example, if a grandchild wants to go to a specific acting or cooking school). You can find out if your school qualifies by using this link: http://www.savingforcollege.com/eligible_institutions/.

Avoiding tax penalties on 529 Plan funds – not all expenses are qualified

Avoid overfunding the 529 if possible, as “qualified education expenses” do not cover all expenses related to college. Qualified expenses include:

  • Tuition and fees.
  • On-campus room and board.
  • Books and supplies.
  • Computers and related equipment.

On the other hand, several costs related to college aren’t considered qualified expenses. These costs can easily add up, so it may make sense to save outside of a 529 plan to help cover them. Funds from a 529 plan cannot be used for:

  • The purchase of a car, fuel costs or public transportation costs to and from school. 
  • Any insurance (car, health etc.) cannot be paid with 529 funds either.
  • If your child is a member of a school club or involved in a sports activity, any related fees and costs are also not qualified.
  •  It might seem intuitive that, if you have a student loan, you can use funds from a 529 to pay off the balance, but this is also not permitted.

If your child is planning to live off-campus, in housing not owned or operated by the college, you are unable to claim expenses in excess of the school’s estimates for room and board for attendance. It is important to confirm room and board costs with the school’s financial aid office, in advance, so you know what to expect. Also, keep in mind that, in order for room and board to qualify, your child must be enrolled half time or more.

Finally, if your child is studying abroad, check with the school to find out if the study abroad program qualifies for 529 funds.

If you inadvertently use funds for the wrong expenses, you will end up being taxed on the earnings, as well as face a 10% penalty on that amount.  Although 529 plan accounting tends to operate on the honor system, as you have to track your own expenses, using funds for the wrong items could have consequences in the event of an IRS audit.

Paying for college is a large expense for many families. 529 plans are a tax-advantaged way to save for college, but they come with some complex rules and restrictions — so understanding how these accounts operate before investing could save you from incurring unexpected tax penalties in the future.

Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management

Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.

Source: kiplinger.com

Why You Should Save For Your Retirement Before For Your Kids’ College

Choosing where to put your savings is a question that does not have a simple answer that works for everyone. Deciding how much of your discretionary dollars to put towards retirement savings, college expenses, life insurance, an emergency fund and other buckets of money will vary depending on your unique financial situation. Here are a few arguments for prioritizing saving for retirement ahead of saving for your kids’ college expenses.

Saving as a part of your budget

The first thing that you will want to do is make sure that you’ve got a budget for your household expenses. Your budget can be simple or complex, but it’s important to have a written recording of your cash flow. Living within your means (spending less than you earn) is the number one indicator for a healthy financial situation.

Another great tip is to pay yourself first. Without a written budget, you tend to just save whatever money is leftover at the end of the month. But somehow, no matter how much money you make or how much you try to cut down on spending, there never seems to be very much left at the end of the month. If this has happened to you, transfer a set amount to a separate account right when you get paid. Many have found that when they do this, they have sufficient money to pay their expenses and are able to save more.

Saving for retirement

In addition to budgeting for your ongoing expenses, it’s a good idea to start saving for your future. Depending on where you are, you may have various medium and long-term savings goals. One common goal is saving for future retirement.

There are a variety of different vehicles for saving for retirement. With the decline in employers that offer defined-benefit pensions, a 401(k) plan is a common way to save for retirement. Many employers offer 401(k) plans, and many also offer matching funds as an incentive to contribute to them. Traditional and Roth Individual Retirement Accounts (IRAs) are another great way to save for retirement.

Saving for college

If you have children, you may also be concerned with the rising cost of higher education, and wanting to save for college. Higher education costs are currently rising higher than the rate of inflation, and more and more jobs require higher education. It’s only natural that parents want to do everything they can to help make college more manageable for their kids.

Like with retirement, there are a variety of different ways to save for college. One popular way is through what is called a 529 plan. States set these up as a way to save for college. Generally, you don’t have to be a resident of the state in question to participate in its 529 plan. Although it’s common for states to offer state tax breaks for contributing to their own 529 plan.

Another way to save for educational or other expenses is through UGMA/UTMA accounts. UGMA stands for the Uniform Gifts to Minors Act and UTMA stands for Uniform Transfers to Minors Act. The person that sets up the account (typically but not always a parent) is considered a “custodian.” They may transfer money into the account to benefit the minor, but the money is managed by the custodian.

Why you should save for your retirement first

While the exact way that you allocate your savings depends on your specific situation, here are a few suggestions for why you should save for your retirement first. 

The main reason is flexibility — you can always reallocate retirement money towards higher education. If you’ve contributed to a Roth IRA, you can withdraw your contributions tax and penalty-free at any time. While many early withdrawals receive a penalty, qualified education expenses are an exception. On the contrary, you can’t easily transfer money in 529 plans to retirement savings if you end up not needing it for educational expenses.

You find another reason when considering the alternatives. If you fully save for your own retirement but don’t save much for your children’s higher education expenses, there are several different options (loans, grants, scholarships) that may be available to help pay for college. It’s also possible that federal legislation may be passed that reduces the cost for some forms of higher education. 

On the other hand, if you save and pay for a significant portion of your children’s college expenses, but skimp on your own retirement savings, there will not be as many options available for you. Relying on Social Security alone is unlikely to be sufficient for many people’s retirement. Hopefully your kids got a great college education as they may be providing a good chunk of your support in your retirement!

While every situation is different, these can make for a compelling argument to focus on your own retirement saving first, and only THEN start saving for college expenses.

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