Explore the different ways you can help finance the costs of higher education.
How can you help cover your child’s future college costs? Saving early (and often) may be key for most families. Here are some college savings vehicles to consider.
529 college savings plans. Offered by states and some educational institutions, these plans allow you to save up to $15,000 per year for your child’s college costs without having to file an I.R.S. gift tax return. A married couple can contribute up to $30,000 per year. However, an individual or couple’s annual contribution to a 529 plan cannot exceed the yearly gift tax exclusion set by the Internal Revenue Service. You may be able to front-load a 529 plan with up to $75,000 in initial contributions per plan beneficiary—up to five years of gifts in one year—without triggering gift taxes.
Remember, a 529 plan is a college savings play that allows individuals to save for college on a tax-advantaged basis. State tax treatment of 529 plans is only one factor to consider prior to committing to a savings plan. Also, consider the fees and expenses associated with the particular plan. Whether a state tax deduction is available will depend on your state of residence. State tax laws and treatment may vary. State tax laws may be different than federal tax laws. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax.
If your child doesn’t want to go to college, you can change the beneficiary to another child in your family. You can even roll over distributions from a 529 plan into another 529 plan established for the same beneficiary (or another family member) without tax consequences.
Grandparents can also start a 529 plan or other college savings vehicle. In fact, anyone can set up a 529 plan on behalf of anyone. You can even establish one for yourself.
Coverdell ESAs. Single filers with modified adjusted gross incomes (MAGIs) of $95,000 or less and joint filers with MAGIs of $190,000 or less can pour up to $2,000 into these accounts annually. If your income is higher than that, phaseouts apply above those MAGI levels. Money saved and invested in a Coverdell ESA can be used for college or K-12 education expenses.
Contributions to Coverdell ESAs aren’t tax-deductible, but the accounts enjoy tax-deferred growth, and withdrawals are tax-free, so long as they are used for qualified education expenses. Contributions may be made until the account beneficiary turns 18. The money must be withdrawn when the beneficiary turns 30, or taxes and penalties may occur.
UGMA & UTMA accounts. These all-purpose savings and investment accounts are often used to save for college. They take the form of a trust. When you put money in the trust, you are making an irrevocable gift to your child. You manage the trust assets until your child reaches the age when the trust terminates (i.e., adulthood). At that point, your child can use the UGMA or UTMA funds to pay for college; however, once that age is reached, your child can also use the money to pay for anything else.
Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
Imagine your child graduating from college, debt-free. With the right kind of college planning, that may happen. Talk to a financial professional today about these savings methods and others.
In this month's recap: Stocks traded in a narrow range as technology and other high-valuation companies were under selling pressure.
Stocks traded in a narrow range in May, with technology and other high-valuation companies under selling pressure.
The Dow Jones Industrial Average gained 1.93 percent while the Standard & Poor’s 500 Index rose 0.55% percent. The Nasdaq Composite, home for many technology and high-growth companies, dropped 1.53 percent.1
Stock prices moved erratically throughout May as investors digested more solid corporate earnings reports, accelerating inflation and mixed economic signals.
With 95 percent of S&P 500 constituent companies reporting, 86 percent reported positive earnings surprises. The estimated earnings growth rate was 51.9 percent, the highest rate since the first quarter of 2010.2,3
The emerging inflation story, however, dampened investor optimism and weighed on the stock market. The latest Consumer Price Index report was particularly unsettling to investors, as consumer prices rose 0.8 percent in April 2021 and jumped by 4.2 percent year-over-year. A 6.2 percent year-over-year spike in the Producer Price Index followed, representing the most significant jump since 2010.4,5
Any acceleration in inflation fans investors' fears that the Federal Reserve will adjust its monetary policy.
Particularly hard hit during the month were technology and other high-growth stocks. Investors appeared to reduce positions on concerns that higher inflation may lead to higher interest rates, and that combination could reduce the value of future earnings.
The majority of industry sectors were positive in May, with gains in Communication Services (+3.60 percent), Consumer Staples (+2.79 percent), Energy (+7.58 percent), Financials (+5.92 percent), Health Care (+0.47 percent), Industrials (+2.96 percent), Materials (+5.01 percent), and Real Estate (+1.51 percent). Losses were posted in Consumer Discretionary (-2.98 percent), Technology (-3.61 percent), and Utilities (-1.34 percent).6
What Investors May Be Talking About in June
The inflation worries that roiled the stock market in May are likely to persist as investors try to gauge whether inflationary pressures are truly transitory, as the Fed believes, or if they will become a more permanent feature of the economic landscape.7
Investors may expect to keep a close eye on the Consumer Price Index, the Producer Price Index, the Personal Consumption Expenditures Index, and the wage growth component of the monthly employment report that captures job growth and the unemployment rate.
Recent news that some companies have hiked wages to attract workers has intensified concerns that rising wages may spark sustained inflationary pressures. Such costs typically pass on to the consumer.
Before signing on as a franchisee, double-check the amount of cash available to dedicate to the business. If you need financing, look for lenders who understand the business model of the franchise.
A pick-up in vaccination efforts in Europe led to broad global gains, with the MSCI-EAFE Index picking up 2.50 percent in May.8
European markets led the gains in overseas markets. France rose 2.83 percent, Germany added 1.88, and the United Kingdom tacked on 0.76 percent.9
Pacific Rim stocks joined the rally. Australia gained 1.93 percent while Japan edged higher, adding 0.16 percent. Argentina’s volatile Merval index jumped 20.82 percent.10
Gross Domestic Product: The second estimate of the first quarter’s GDP growth remained unchanged at 6.4 percent.11
Employment: Employers added just 266,000 jobs in April, a figure well below expectations. The unemployment rate ticked higher to 6.1 percent.12
Retail Sales: Retail sales were flat in April, following stimulus check-funded increases in the previous month.13
Industrial Production: Industrial output rose 0.7 percent, despite a substantial decline in auto production due to a chip shortage.14
Housing: Housing starts declined 1.5 percent. Year-over-year, housing starts were 39.2 percent higher.15
Existing home sales fell 2.7 percent as rising prices and declining inventory continued to crimp sales.16
Sales of new homes dropped 5.9 percent as the median price surged by 20.1 percent from a year earlier.17
Consumer Price Index: The prices of consumer goods surged in April, jumping 0.8 percent month-over-month and posting a 4.2 percent increase over last April's prices. Strong consumer demand, supply chain kinks, and comparisons to the previous year's pandemic-induced price declines contributed to the spike in prices.18
Durable Goods Orders: Durable goods orders fell 1.3 percent, registering the first monthly decline in 11 months. The shortage of semiconductor chips weighed on auto production, which contributed to April’s decline.19
“We all have ability. The difference is how we use it.”
The Federal Open Market Committee (FOMC) released the minutes of its two-day April 2021 meeting.
The minutes showed that a number of committee participants had raised the idea that—if the economy continues to make progress—it might be appropriate to adjust the pace of the Fed’s monthly bond purchase program. But for now, there was no change in the purchase program.20
“In addition, the Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage‑backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals,” Fed officials said in a prepared statement.21
“These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”21
Sources: Yahoo Finance, May 31, 2021
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. U.S. Treasury Notes are guaranteed by the federal government as to the timely payment of principal and interest. However, if you sell a Treasury Note prior to maturity, it may be worth more or less than the original price paid.
Gary G. Blom CRPC | Financial Advisor
Michael Howell MBA | Financial Advisor
Address: 3340 Tully Rd. Ste B4, Modesto, CA 95350
Office: (209) 857-5207 | Fax: (209) 857-5098
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. Established in January 1980, the All Ordinaries is the oldest index of shares in Australia. It is made up of the share prices for 500 of the largest companies listed on the Australian Securities Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE TWSE Taiwan 50 Index is a capitalization-weighted index of stocks comprising 50 companies listed on the Taiwan Stock Exchange developed by Taiwan Stock Exchange in collaboration with FTSE. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The U.S. Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability, and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
1. The Wall Street Journal, May 31, 2021
2. FactSet.com, May 21. 2021
3. FactSet.com, May 21, 2021. The estimated, or blended, figure combines actual results for companies that have reported and estimated results for companies that have yet to report.
4. CNBC.com, May 12, 2021
5. CNBC.com, May 13, 2021
6. Sectorspdr.com, May 31, 2021
7. CNBC.com, April 28, 2021
8. MSCI.com, May 31, 2021
9. MSCI.com, May 31, 2021
10. MSCI.com, May 31, 2021
11. BEA.gov, May 27, 2021
12. The Wall Street Journal, May 7, 20201
13. The Wall Street Journal, May 14, 2021
14. MarketWatch, May 14, 2021
15. CNBC.com, May 18, 2021
16. CNBC.com, May 21, 2021
17. Reuters.com, May 27, 2021
18. The Wall Street Journal, May 13, 2021
19. FoxBusiness.com, May 27, 2021
20. CNBC.com, May 19, 2021
21. FederalReserve.gov, May 19, 2021
A deep dive into workers' expectations in retirement versus actual income sources.
Will your retirement dreams match your reality?
That's perhaps the most critical question to ask people who are currently retired. Was your retirement what you expected, or was it something else?
For more than 30 years, the Employee Benefit Research Institute (EBRI) has conducted the Retirement Confidence Survey, which gauges the views and attitudes of working-age and retired Americans regarding retirement and their preparations for retirement.
Part of the survey takes a deep dive into workers' expectations for sources of income in retirement versus retirees' actual income sources.
Here’s a couple of highlights of the 2021 survey.
Only 33% of workers expect Social Security to be a significant source of retirement income. In reality, 62% of retirees say it's a major source.
Further, more than 50% of workers believe that workplace retirement savings plans will be a significant source of retirement income. But the 2021 survey found that workplace plans are a major source for only 20% of retirees.
Surprised? We’re not. These numbers are consistent year after year. Here’s another nugget to consider: 26% of workers plan to work for pay in retirement. In reality, only 7% of retirees do.
For most, retirement is the “next chapter” in life. It’s critical that your finances support your retirement vision, so there are no surprises when it's your turn.
Let us know if there's a change in your retirement dream. We'd welcome the chance to hear what prompted the difference, and we'll be sure to make any needed adjustments in your financial strategy.