Personal Finance

| Guide to Managing Your Money

A 529 plan is a tax-advantaged investment vehicle designed to encourage saving for future educational expenses. There are two types of 529 plans: education savings plans and prepaid tuition plans. This article aims to provide a simplified explanation of 529 plans and help you decide whether it's the right choice for your family's educational needs.

529 plans offer flexibility, allowing you to save for educational expenses of any family member, including yourself. The funds accumulated in a 529 plan can be used for college or other post-secondary education expenses, as well as tuition fees for elementary or secondary public, private, or religious schools. The person opening the account is referred to as the account holder, while the beneficiary is the individual for whom the account is opened.

It's ideal to start saving as early as possible, but always consider your family's overall financial situation first. Other financial goals might require your attention and resources before committing to a 529 plan. Keep in mind that penalties may apply if you don't use the money for qualified educational expenses. One of the benefits of a 529 plan is the tax-free earnings growth over time. The longer the money is invested, the more it can grow, and the greater your tax benefits. Withdrawing money from a 529 plan account within a short period after contribution may result in losing some of these benefits.

Alternatives to 529 Plans for Education Savings

A 529 plan is just one of several ways to save for education. Other tax-advantaged options include Coverdell education savings accounts, Uniform Gifts to Minors Act (UGMA) accounts, Uniform Transfers to Minors Act (UTMA) accounts, tax-exempt municipal securities, and savings bonds. Saving or investing for education in a taxable account or with other types of investments are also viable options. Each saving method has its advantages and disadvantages, with varying impacts on your student's financial aid eligibility and your tax situation. For further information on tax implications, consult a tax adviser.

529 Education Savings Plans vs. Prepaid Tuition Plans

In addition to traditional 529 education savings plans, some states and private colleges offer 529 prepaid tuition plans. Prepaid tuition plans enable you to purchase units or credits at participating colleges and universities for future tuition and mandatory fees at current prices. Both types of 529 plans provide tax benefits and have a similar impact on financial aid for post-secondary education.

Prepaid tuition plans usually have residency requirements, limit where you can redeem the credits, and only cover tuition and mandatory fees. They don't allow prepayment for elementary and secondary school tuition. Education savings plans are more flexible, with no residency requirements, a variety of investment options, and the ability to be used for any college or university's tuition, mandatory fees, room and board, as well as for elementary and secondary school tuition.

Choosing the Right 529 Education Savings Plan

You can invest in almost any state 529 education savings plan, regardless of where you live. Compare plans to determine the best one for your family, starting with your state's plan. Many states offer tax incentives or other benefits for their residents, but also take into account the fees charged by the in-state plan. Additionally, consider factors like investment choices, the ability to change the account holder, and beneficiary flexibility when choosing a plan.

Direct-Sold vs. Broker-Sold 529 Plans

Many states have both direct-sold and broker-sold 529 education savings plans available. If you already have a financial professional or want assistance with the process, consider opening an account in a broker-sold 529 plan. However, be aware that broker-sold

plans may have higher fees and expenses compared to direct-sold plans. Direct-sold plans, on the other hand, can be opened by individual investors without the help of a financial professional. If you are comfortable making investment decisions and managing your account, a direct-sold plan might be a more cost-effective option.

Impact of 529 Plans on Financial Aid

The assets in a 529 plan account can have an impact on financial aid eligibility for post-secondary education. However, the impact is usually minimal, as these assets are considered parental assets in the financial aid calculation. The treatment of 529 plan assets and distributions varies depending on whether the account owner is the parent, student, or someone else, like a grandparent or relative. Consult a financial aid expert for specific advice on your situation.

529 plans offer a tax-advantaged way to save for your family's educational expenses. Understanding the eligibility and use of these plans, as well as the differences between education savings plans and prepaid tuition plans, can help you make informed decisions about your education savings strategy. By considering factors like your family's financial situation, state residency, investment options, and financial aid implications, you can choose the right 529 plan for your needs.

Author: Brian McKay
May 4th, 2023

In today's world, having a healthy credit record is vital for financial success. Your credit score plays a significant role in determining your ability to access loans, credit cards, and other forms of financing. However, unforeseen financial challenges, such as job loss, medical emergencies, or unexpected expenses, can lead to a negative impact on your credit record. When this happens, it can be disheartening and overwhelming, as it becomes more difficult to secure the financing you need for essential expenses or future investments.

Rebuilding your credit is a necessary process that requires time, patience, and commitment. While it may seem like a daunting task, it is possible to improve your credit standing by following a strategic approach. It is important to note that there are no shortcuts or secrets to achieving a better credit score. Genuine improvement comes from consistent, responsible financial behavior over time.

This guide is designed to help you understand the steps needed to rebuild your credit effectively. By adhering to the principles and practices outlined below, you can work towards improving your credit score and ultimately regain your financial footing. With dedication and persistence, you will be better equipped to achieve financial stability and open doors to new opportunities in your personal and professional life.

  1. Pay Your Bills on Time, Every Time

Paying your bills on time is crucial to maintaining a healthy credit score. "On time" means ensuring that your payment reaches the company by the due date. If you pay by mail, send your payment a few days in advance to avoid late payment penalties.

  1. Don't Get Too Close to Your Credit Limit

Your credit utilization ratio, which measures how much of your available credit you are using, plays a significant role in determining your credit score. If you use too much of your credit limit, your credit score may suffer. While some experts recommend using no more than 30% of your total credit limit, others suggest keeping it below 10%. Find a balance that works for you and stick to it.

  1. Avoid Applying for Excessive Credit in a Short Period

Applying for or opening multiple new accounts within a short time frame can lead to a dip in your credit score. This includes applying for new credit cards to transfer balances or opening store card accounts to take advantage of discounts. Limit your applications for new credit to maintain your credit score.

  1. Consider a Secured Credit Card if You Don't Qualify for a Regular Card

Secured credit cards are offered by many banks and credit unions. These cards typically start with a small credit limit, requiring you to deposit an amount equal to your credit limit as collateral. As you demonstrate timely payments, your credit limit may increase, and you may eventually have your deposit refunded. Although fees and interest rates can be high for secured cards, using one responsibly can help establish a positive credit record.

  1. Pay Off Your Credit Card Balance Each Month

Using a credit card and making on-time payments can help you build credit. Pay off your balance in full each month to avoid finance charges and keep your credit utilization ratio low. This practice can contribute to better credit than carrying a balance, as it prevents you from getting too close to your credit limit.

  1. Maintain Consistent Credit Habits

Credit scores are based on your long-term payment history. The longer you have credit and make timely payments, the more evidence there is to demonstrate your creditworthiness. Maintain positive credit habits and watch your score improve over time.

  1. Check Your Credit Reports and Fix Errors Promptly

Your credit report documents your loan and borrowing history. You are entitled to a free copy of your credit report from each of the three nationwide credit reporting companies every 12 months via Equifax also provides six additional free credit reports annually through December 31, 2026. Monitor your credit reports regularly and dispute any errors to maintain an accurate reflection of your credit history.

Negative Information on Your Credit Report

Negative information, such as late payments, bankruptcies, foreclosures, lawsuits, and judgments, can remain on your credit report for seven to ten years. Recent negative information typically has a more significant impact on your credit score than older information.

Four Things That Don't Help Rebuild Your Credit

  1. Using a debit card or paying cash: These transactions don't demonstrate your ability to repay debts.
  2. Using a prepaid card: Prepaid cards use your own money, loaded onto the card in advance, and do not contribute to your credit score.
  3. Taking out a payday loan: Even timely repayments might not help your credit.
  4. Obtaining an auto loan from a "buy here, pay here" car lot: Unless the dealer explicitly promises in writing to report your on-time payments, these loans may not contribute to rebuilding your credit.

Rebuilding your credit requires time, patience, and dedication. By following the steps outlined in this guide, you can gradually improve your credit score and regain financial stability. Keep in mind that it's essential to monitor your credit reports regularly, maintain good financial habits, and avoid actions that won't contribute to rebuilding your credit. With persistence and discipline, you can successfully restore your credit and achieve a brighter financial future.

Author: Brian McKay
May 1st, 2023