What is the Utah 529 plan?

You may have noticed an article at cnn.com today titled “Why Financial Planners Hate Utah” The article then explained that the Utah 529 College Savings Plan is a low cost investment that is not Advisor Sold, meaning you avoid the fee’s that a financial planner requires.

(Click Here to Read the Article: http://money.cnn.com/magazines/moneymag/moneymag_archive/2008/03/01/103491792/index.htm?postversion=2008030504 )

I realize that some of us are fairly savvy investors—or at a minimum we are growing savvier with time, however I have also noticed that a very small number of my clients have invested in a 529 plan, which tells me that many individuals are simply not aware of the benefits of such a plan. So, here is a brief overview:

A 529 plan is a tax-advantaged investment vehicle designed to encourage saving for the future higher education expenses of a designated beneficiary. The characteristics and behavior of 529 Plans are determined by the State Legislature, however most plans allow investors from out of state. That being said, there can be significant state tax advantages and other benefits, such as matching grant and scholarship opportunities, protection from creditors and exemption from state financial aid calculations, for investors who invest in 529 plans within their state of residence.

There are 2 main types of 529 plans: Prepaid and Savings. A Prepaid plan allows you to purchase education credits today, at today’s tuition rates, to be utilized later. A Savings plan allows you to invest in market driven vehicles such as mutual funds of CD’s.

Aside from the potential of high fees, as discussed in the cnn.com article, another potential downside to investing in a 529 plan is that any money not used specifically for education will be subject to income tax. In addition, moneys in a 529 plan are considered assets, which may have some effect on the qualification for certain kinds of financial aid programs.

That being said, there are obviously several advantages to investing in a 529 plan. First, everyone is eligible, and essentially any amount is adequate. In addition, the donor remains in control of the funds, in other words, don’t worry about little Jimmy trying to cash in the fund on a classic sports car when he turns 18. And of course, the potential tax benefits can be well worth the investment.

Now, as I have said in the past, I am not a financial planner. I am not licensed to give financial advice, nor would I want to. But, as a licensed mortgage professional who spends his days reviewing the financial situations of my clients, I can tell you that too many of us have too much debt and not enough savings. I can also tell you that the vast majority of my clients have not started any kind of education savings for their children, or even themselves for that matter. All I am saying is that maybe it would be worth finding more information about the Utah 529 plans. You can call 800-418-2551 or visit uesp.org for more information.

5 Things that Anyone Can do the Save Money Now

I mentioned the other week that I had been traveling a bunch and had gained greater appreciation for the financial struggles that so many people are facing in our nation. As I have said multiple times, we can all count ourselves lucky to be enjoying the healthy economy that the State of Utah has to offer. That being said, I still encounter too many home owners, or would-be homeowners, who struggle to make ends meet.

Obviously paying down and avoiding debt should be a priority for all of us. Unfortunately, I have found that finding a few extra dollars to accelerate debt payments or, better yet, stay out of debt in the first place, is not as easy as one would hope—but it should be!

Those who have been receiving my Inner Circle newsletter for some time will remember a report I wrote as part of the 5 Things series about saving money. I thought it might be a good idea to revisit a few of the keys I wrote about at the time. Briefly, here are 5 things that literally ANYONE can do to save money, starting today.

1. Drink More Water.

Avoid costly soda and you will be healthier and have more money. But don’t just move to expensive bottled water.

2. Cancel your Netflix Account.

Get your movies for free from the Library. If you must rent, consider a RedBox.

3. Save your Windfall.

Just because you get a little extra back from the IRS or from Grandpa doesn’t mean you need to run out and buy yourself something nice.

4. Increase your Deductibles.

Pay less each month, and then hold onto the savings. If you need it, it will be there later.

5. Build an Emergency Fund, and then pay off Credit Cards.

3-4 months worth of your expenses is crucial—start savings 10% of your income, then, once the emergency fund is set, use that 10% to pay off debt.

How does this relate to mortgages? Well, more money means less debt, which means higher credit scores and more money for down payments, which means more equity, which means lower interest rates, which means lower house payments, which means more financial stability!

As always, if you are not receiving the Inner Circle newsletters, just drop me an email at jayhart@cottonwoodmtg.com and I will add you to the list.