US News Prepaid College Savings Plan Chart

Pt. 2
The US News Prepaid College Savings Plan Chart provides a comparison chart of 14 prepaid state college plans. It covers: are out of state investors allowed, is there a state tax deduction, and type of guarantee.
www.usnews.com/education/paying-for-college/articles/2009/09/23/is-there-a-prepaid-college-savings-plan-for-you.html

Are Prepaid College Savings Plans Guaranteed?

Pt 1.
In a series of articles by US News and World Report, http://www.usnews.com/education/paying-for-college/articles/2009/09/23/guaranteed-college-savings-plans-may-soon-break-promises.html about college prepaid savings plans,
the writer highlights the fact that many state prepaid plans are not guaranteed by law, even though the public may think they are. The article goes over the current legal and financial state of plans in various states.

Common Myths About Wills And Estate Planning

From USA Today, 5 Myths About Wills And What You Should Do:

"60% of Americans don't have wills."

Myth 1: Estate planning is for rich people.
Fact 1: Your assets will be distributed under state "intestate succession"
laws, going to family members not as you would have wished.
You also need to include a durable power of attorney, and health care directive in your estate plan.

Myth 2: Without a will, everything will go to Spouse.
Fact 2: Depending on the state, without a will, most assets will go to spouse and children.

Myth 3: With a will, estate will not go to probate.
Fact 3: All wills go to probate. You can avoid probate with a living trust, a document that holds your property. But for most small estates, states have low cost express probate.
(Editor's note- You can also use a JTWROS document, TOD, or POD documents to bypass probate, each with advantages and disadvantages).

Myth 4: After making a will/trust, I am done.
Fact 4: You need to retitle assets in order to place assets into trust.
You need to update estate plans to reflect major life event changes-divorce, birth of child, or if moving to another state.

Myth 5: I am responsible for parents' debts.
Fact 5. The estate pays debts. If the estate runs out, the debts go unpaid. Debt collectors should contact the estate executor.
(Editor's note: If assets are distributed to heirs, then those heirs are liable to pay from those assets.

www.usatoday.com/money/perfi/basics/2009-10-22-making-a-will_N.htm

"Will the Estate Tax Disappear?"

Look for interesting updates about the impending fate of the Estate tax and current proposed legislation in the new blog: Future of the Federal Estate Tax
http://threepointfive-45.blogspot.com/

"On October 22, 2009, Laura Saunders of the Wall Street Journal published an article, "Will the Estate Tax Disappear?"
Notes:

• If the estate tax disappears in 2010, there would be a carryover basis instead of a step up in basis, and this change might hurt some people. (Editors note: Step up= assets subject to capital gains tax receive a new basis (buying price), which is what the assets are worth at death. Carryover= the original buying price stays after death.)
• A retroactive estate tax is constitutional.
• The article gives a good summary of the Baucus bill.
• It ends with an excellent quote from a practitioner: "I would advise anyone who wants to do a GRAT or Family Limited Partnership to do it soon, like yesterday." (Editor's note: They are advanced estate planning devices that are relevant to high net worth individuals).

http://online.wsj.com/article/SB10001424052748704224004574489581033118194.html

Municipal Bonds

From Municipalbonds.com, learn about
The 5 elements of a municipal bond trade:

Maturity, Interest Rate, $ Amount, Price, and Yield

http://www.municipalbonds.com/2009/01/20/the-5-components-of-a-municipal-bond-investment/

Passive Index Funds Beat Active Funds Debate

From NYT and Standard and Poor's:

• "Over the five years ended June 30, only 37.1 percent of actively managed funds made up of large-capitalization stocks beat the category’s benchmark, the S.&P. 500. Most large-cap investors would have done better with a plain old S.&P. 500 index fund. "
  
• "Only 26.6 percent of managed mid-cap funds beat their index, the S.&P. 400, while 42.6 percent of managed small-cap funds beat the S.&P. 600."

• "S.&P.’s look at funds containing foreign stocks covered four very broad categories, and generally showed that only a small minority of managed funds beat the benchmarks."
  
• "The study, which looked at 3,500 managed funds, reinforces the findings of many past studies by the S.&P., other firms and academics. Over time, the average active manager simply cannot pick enough market-beating stocks to offset the high cost of running the fund. Most indexers carry expense ratios of less than 0.2 percent, while most managed stock funds charge more than 1 percent, five times as much. Indexers’ smaller fees leave more money in the account to compound, making a big difference over the years."

But the actively managed multi billion dollar industry disputes these findings:

• "Lending some support to their view, S.&P. noted that on an “asset-weighted” basis, managed funds matched or beat their benchmarks in “most categories except mid-caps and emerging markets.”

The author also questions if the average investor actually gets these returns and if the added risk is worth it:

• "Marketing on the basis of recent performance can be a dirty trick, drawing investors in too late to share in the big gains."
• "The average investor therefore does much worse than the investor who buys a block of shares and hangs on through thick and thin."
• "If your long-term plan calls for annual stock returns averaging 7 percent, and you think you can get that with a low-fee S.&P. 500 indexer, is it really worth a lot of trouble to shuffle your money among a sequence of managed funds you expect to return 7.5 or 8 percent."

Learn more:

http://www2.standardandpoors.com/spf/pdf/index/SPIVA_2009_Midyear.pdf

http://boss.blogs.nytimes.com/2009/08/28/active-vs-passive-the-debate-keeps-going/?ref=your-money

Types of business structures

From CNN Money, learn about the types of business tax structures
and the similarities and differences between them:

LLP, LLC, S-corp, C-corp, GP and LP

http://money.cnn.com/2008/07/30/smallbusiness/business_structures_101.fsb/index.htm

Ed Slott Report Blog

Learn from the guru of retirement tax planning in his extensive blog (with extensive
reader Q&A):

• How to minimize taxes, use exemptions and avoid penalties when withdrawing/distributing from retirement plans
• How to avoid errors when transferring accounts from a 401k/company plan to an IRA
• How to best combine retirement planning and estate planning
• Learn more about: Roth IRA, Inherited IRA, Life insurance Planning, Estate planning Trusts

http://theslottreport.blogspot.com/

Beware of College Loan Statistics

“People think students are drowning in debt, and there is a small proportion of students that borrow an exorbitant amount, but most students graduate with a manageable debt load,” said Sandy Baum, an author of the brief"
"For bachelor’s degree recipients who did borrow, the median loan debt was $19,999" (NY Times).

• Unfortunately, when an educated consumer reads information, one needs to read the fine print in the College Board summary of the Department of Education’s National Postsecondary Student Aid Study:
• "PLUS loans, loans from friends and family, and credit card debt are not included" (pg.1)
• "Results from the NPSAS data for nonfederal student loans should be considered estimates. While the data are the best available estimates for a recent graduating cohort, there are limitations to their accuracy" (pg. 4).
• Since undergraduates are restricted by Stafford loan limits, to not count Plus loans and parents paying out of their own pockets is highly questionable when many families use these options to fund college. Also, Private loan estimates are from student interviews.
• This survey does not look into the fact that many students are borrowing high amounts to go to private colleges with questionable payoffs as compared to public colleges.

http://professionals.collegeboard.com/profdownload/cb-policy-brief-college-stu-borrowing-aug-2009.pdf

http://www.nytimes.com/2009/08/12/education/12college.html?_r=2&hp

WSJ "Don't Get Scammed"

In the Wall Street Journal Article, "Laws Take On Financial Scams Against Seniors,"
the WSJ writes that many states are passing harsher penalties for "financial advisers" who sell financially dangerous investments to unknowing seniors.
Hidden in the article is a great list of rules to live by if you don't want to get scammed.
They include:

• Know the Investment risks
• Cost to purchase, ongoing cost
• Liquidity of investment
• Surrender charges
• Suitability of investor
• Investment regulation
• Leave, if can't get answers

http://online.wsj.com/article/SB124269210323932723.html

Are You Worth More Than Michael Jackson?

We need to learn financial lessons from tragedy.
The Wall street Journal reports that Michael Jackson had reported debts of $500,000,000, and assets of $500,000,000 to $1 billion (before lawyers, accountants, and taxes).

http://blogs.wsj.com/wealth/2009/06/26/what-is-michael-jacksons-estate-worth/

There is a difference between Net Worth and Net Income.
Unfortunately, society promotes people who have high net incomes (and what they buy with that income), even though they may spend all of, or more than they earn.

Instead, we should emulate people that have high net worths relative to what they earn and how much they save out of what they earn.

Do you have a greater net worth than Michael Jackson relative to your income?

Most and Least Affordable Cities

An article from CNNMoney and posted on Yahoo Finance, states that homes are at their most affordable in 18 years for the median family income of $64,000. It also lists the most and least affordable city areas in the country. (NYC and Long Island are in the top five least affordable).

Most people say to me that they don't want to live outside of a major city because their salary will go down. However, they fail to realize that it is not the amount of money that you make but the amount you spend on the highest cost consumer good- the price of a house.

Being affordable means that relative to median income, most people can qualify for a house and often one in the $100,000 to $200,000 range, not $400,000. Look for future posts on how much this will save you over a lifetime in mortgage costs.

http://finance.yahoo.com/real-estate/article/107093/Homes-Most-Affordable-in-2-Decades

Second/Third Tier College Ripoffs

Finally, an article from Forbes that asks the question, ""Why do second and third tier schools cost as much as Harvard?". The author says the answer is because they can!

We believe that as long as the gov't provides the funding needed for college loans and colleges are free to charge what they want because there is no free market for education, the situation will exist.

• The author believes that over the last 30 years the demand has risen for college education and supply has not kept up.
• But financially unsavy parents are also the problem and their notion that a higher price makes something better. The author puts it best: " For parents like that, in fact, price may be part of the appeal. It's what's known in college circles as the "Chivas Regal effect" - a lofty price is a sign of status; discounting would tarnish the image."

http://money.cnn.com/2009/04/10/news/economy/kaplan_college.fortune/index.htm?postversion=2009041007

Open a Roth IRA

From Kiplinger and Yahoo Finance: "Why You Need A Roth IRA."

1. You can invest $5,000 per person per year. (Couples $10,000).
2. You do not get the tax deduction now, but you will not pay tax on the tax deferred growth and when you retire you are not forced to take Required Minimum Distributions/ or pay tax on distributions if you decide to take money out.
3. Beware of the income limits.
4. You can withdraw your contributions (not earnings) at any time without tax penalty.
5. Special tax breaks for home, education and medical expenses.

If your company is not giving you a match in your 401k, open a Roth.
http://finance.yahoo.com/focus-retirement/article/106797/Why-You-Need-a-Roth-IRA;_ylt=AirBN2_8XNyDO4jZaU369Zi7YWsA?mod=fidelity-startingout

Preserve your wealth by planning your estate

There are many reasons why people fail to plan their estates.

Some people mistakenly think that the rules that are in place will adequately distribute their property.  Others think that a will is a magic document that encompasses the beginning and end of an estate plan.  Still others think they have not accumulated enough wealth to require estate planning.  Some people even think that their lawyer, accountant, broker, or some other professional has already efficiently and intelligently planned their estates.

These are just some of the many misconceptions that lead people to plan poorly.  It is unfortunate to see people spend so much of their lives living frugally and worrying about money only to give a big chunk of it away to Uncle Sam rather than their loved ones.  

The first step of planning your estate is to recognize the importance of a good estate plan.  

Trump / Kiyosaki Videos

Check out the following, free, Trump / Kiyosaki videos: 

• Adversity  
  
• Art of the Deal
• The Power of Debt
• Increase Your Financial IQ
• Keys to Success
• Respect

It is refreshing to hear the insights of these financial literacy educators.  

http://www.richdad.com/RichDad/trump_kiyosaki3.aspx?utm_campaign=New%20Exclusive%20Trump/Kiyosaki%20Videos&utm_medium=Email&utm_source=VerticalResponse&utm_term=Watch%20the%20videos%20now.

Who can you blame for the financial crisis?

Time Magazine has identified 25 people to blame for the financial crisis.

Note that these people were supposed to be some of the smartest and best educated in the US. But their mistakes indicate that they did not have common financial sense, or they chose to personally profit by (mis)using it.

The article does not mention how much money they have made from their decisions and that they will not have to pay back this money even though they brought down the financial system and helped bankrupt their companies.

http://www.time.com/time/specials/packages/article/0,28804,1877351_1877350,00.html

Lessons Learned From Madoff Fraud

The Wall Street Journal gives a listing of very prominent banks, investment funds, and rich investors who lost millions (sometimes billions) from Madoff's fraud:
http://s.wsj.net/public/resources/documents/st_madoff_victims_20081215.html

You should learn the following lessons from this fraud (and be better than these investors who didn't adhere to the following advice):

1. Never invest in something or someone just because of name recognition.

2. Always investigate for yourself if something is too good to be true.

3. Double, triple check. Get more than one opinion. Never trust just one advisor (broker, lawyer, accountant).

4. Never assume that just because a person has a degree/or is a specialist that they are competent, or have your best interest in mind.

5. Never assume that the specialist has done the correct planning/paperwork/advice for you.
Investigate for yourself what needs to be done.

6. For the average investor- Diversify, never invest a majority, or even a large minority, of your assets with one person, fund, stock, or company stock.

7. Most importantly, understand what you are investing in, or what you are doing at the advise of a broker/lawyer/accountant. If you don't understand it either: educate yourself about it, or don't go through with it.

Much Education Not Worth The Price

ABC News reporter John Stossel profiles the plight of many students:

• "Promised" a great job after graduation and pushed by high school/college advisors to take out massive amounts of loans, young people have large loans they can never get rid of and lack the job they were promised
• Do not get a major that is not directly relatable to a real world job
• Instead, many teenagers should recieve technical training at a trade school or community college for low cost that will give them real world skills and a good job with no loans

http://abcnews.go.com/Business/Economy/story?id=6654468&page=1

John Bogle Investing Advice

Advice from legendary Vanguard founder John Bogle for the middle class investor:

• Beware of bullish market forecasting
  
• Importance of asset allocation, and bond allocation based on age
  
• Be wary of mutual funds with short superior performance
  
• Low cost Index funds outperform actively managed funds
  
• Be wary of alternative commodity asset classes
  
• Be wary of financial innovation
  
  http://online.wsj.com/article/SB123137479520962869.html
  

Buy vs. Rent Calculator

This is an interactive tool from the NY Times to give you an understanding of whether it is cost efficient to rent or to buy a home. In graph form you can see the number of years to break even and average annual savings from owning or renting. You can also calculate:

monthly rent
home price
down payment
mortgage rate
property taxes
annual rent increase
annual house increase
summary costs of renting
summary costs of buying house
more advanced settings
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html#

The Story of Many in One Lawyer's Plight: Doing a Good Job is Not Enough

An ABA Law Journal article, "Laid-Off Lawyer Competes with Other Attorneys for Paralegal Jobs," describes how the economy has impacted one 43-year attorney in Los Angeles: 

• She lost her job. 
• Her husband, also an attorney, has been losing clients.
  
• They fell behind on mortgage payments.
• The stress caused trouble in their marriage, and they separated. 
• She is applying for paralegal jobs, and has been rejected: She said, "After a while with the paralegal jobs, the listings said, 'No attorneys.' I think it's because they figured attorneys would leave as soon as they found work as lawyers." 

The article says that things "have been looking better for her" because she landed consecutive temporary jobs.  This attorney pithily captures the spirit of the times: "I did a great job at work and I thought that was enough, and it's not anymore."

http://www.abajournal.com/weekly/laid-off_lawyer_competes_with_other_attorneys_for_paralegal_jobs

Tax Breaks In New Stimulus

The New York Times writes about new tax deductions/credits and expanded programs that are available under the stimulus bill . These include:

income tax credit
lower taxes on unemployment
subsidies for Cobra coverage and extended eligibility
car buyer sales tax deduction
increase pell grant
increased education tax credit
expanded 529 plan expenses eligibility
home buyer credit
amt patch
http://www.nytimes.com/2009/02/13/your-money/13money.html?ref=your-money

A Good Job Without College?

Check out this article form CNN Money: "Good jobs with a high school diploma."  

http://money.cnn.com/2009/02/06/pf/saving/toptips_findingwork_willis/index.htm?postversion=2009020613

Dave Ramsey Built His Business from Nothing

See this classic article on how Dave Ramsey built his business from nothing:

http://ftp.media.radcity.net/ZMST/daily/IS032405.pdf

Notice a few key traits that make Ramsey successful:

• He has a willingness to learn from mistakes.
• He approaches things from a blank slate, beginner mentality. He asks lots of questions and learns a lot.

See the history of Dave Ramsey's company, The Lampo Group Inc., here:

http://www.daveramsey.com/etc/cms/index.cfm?intContentID=2797

Lesson from Robert Kiyosaki: Assets Can Make Your Dreams Come True

The story behind Kiyosaki's new book with his sister, Rich Brother, Rich Sister: Two Different Paths to God, Money and Happiness, demonstrates how Robert Kiyosaki lives by the message he teaches.

With his sister in financial trouble, the renown author of Rich Dad, Poor Dad did not pay all of his sister's bills. He created an asset with his sister, a book. This answer can be the lifeline with her current problems. It can also help her fulfill her other dreams. Robert Kiyosaki's pitch to his sister captures the possibilities: "We'll promote the book on a world tour. Eventually, you can start your own book series. I can see the titles now: Karma. Reincarnation. Compassion."

Read the rest of the story here:

http://www.latimes.com/news/science/environment/la-me-beliefs9-2009feb09,0,1589137.story

Are law schools "exploiting" 80 - 90% of their students?

Criticism of Law Schools
Speaking at a January 9 program, sponsored by the Association of American Law Schools, the dean of New York Law School, Richard Matsar, said, "We should be ashamed of ourselves. We own our students' outcomes. We took them. We took their money. We live on their money . . . And if they don't have a good outcome in life, we're exploiting them. It's our responsibility to own the outcome of our solutions. If they're not doing well . . . it's gotta be fixed. Or we should shut the place down." (As transcribed on TaxProfBlog.)

Law schools may have many failures, but the shrinking legal market is showing that the failure of an education costing more than $120,000 to pay off for so many students might be the greatest one.

Some Questions to Consider
Does law school pay off as an investment?

• Is going to law school a "lottery" to be in the top 10%, as some critics are suggesting?
• Are monetary gains the only reason students go to law school? If there is another reason, are law schools the most efficient means to the goal?
• Assuming the recent criticism of law schools is justified, accurate, and correct, what can law schools do to remedy the problem? How can law schools get more students hired?

Brief Reflections
Criticizing law schools and higher learning institutions is easy. Thinking about ways to create better systems is much harder.

Ultimately, I believe that students and prospective students should be aware of the current problems and they should engage in a cost/benefit analysis to see whether the very expensive investment of law school will pay off by leading them to their goals.

Resources on the Criticism
The recent criticism is well summarized by the ABA Law Journal in "Law Dean Says Schools 'Exploiting' Students Who Don't Succeed."
http://www.abajournal.com/news/law_dean_says_schools_exploiting_students_who_dont_succeed/print/
TaxProf Blog succinctly excerpts the critical commentary and has interesting comments that follow the excerpts in "Is the Law Professor Gravy Train Over":
http://taxprof.typepad.com/taxprof_blog/2009/01/is-the-law-professor.html

The podcast of the AALS Committee on Research Program (Jan. 9, 2009), "Citations, SSRN Downloads, Carnegie, Bar Passage, Careers: Competing Methods of Assessing Law Schools" is available online:
http://www.aalsweb.org/fri/commresearch.mp3

H&R Tax Info

Confused about your upcoming tax return?
Confused about technical tax terms?
H&R Block has tax tips divided by topic and a more detailed index with helpful information including:

• credits and deductions
• college
• housing
• marriage and family
• investment income

http://www.hrblock.com/taxes/tax_tips/index.html

401k Hidden Fees You Pay

Read this article to understand the changes in 401k fee disclosure required and the types of administrative fees you may be paying beyond the expense ratio that a mutual fund charges.

Learn how to analyze what kinds of fees that you are paying and if they are reasonable.

http://online.wsj.com/article/SB122099798601116727.html