National College Savings Plan Day
May 29 is National 529 Day. The intent of National 529 Day is to raise awareness and encourage individuals and families to consider investing in a 529 plan to focus on the success of future generations. College is expensive, and starting to save early with a 529 plan or similar college savings vehicle can help you get a jump on accumulating funds for college for children or grandchildren. What is a 529 Plan? A 529 is a college savings plan offered by various states. Contributions are made on an after-tax basis, though some states may offer a tax deduction for state residents who contribute to the plan. Contributions to the plan can be invested and the money inside of the plan grows tax-free. Withdrawals are tax-free if they are used for qualified higher educational expenses, or expenses for K-12 education within the rules. Beyond basic 529 plans, some states offer prepaid tuition plans that allow parents to pre-pay the tuition at designated institutions. Jeff Spencer, Vice President of Investments of the Wedbush Securities Traverse City office says, “There are a lot of myths out there about 529 plans – mainly that they lack flexibility and that the hassle isn’t worth the benefit. I could not disagree more. Not only have we used 529s to pay for traditional higher education, but we frequently use them to pay for community colleges and trade schools.” Spencer adds, “In fact, we’ve had students pay for tools for mechanical school using 529 funds. In addition, we see a tremendous value not just in the tax deferral, but also in the ability to use 529s as an estate planning tool, as grandparents can give intra-family gifts to grandchildren – reducing the size of their estate and keeping wealth in the family for a valuable need. Even better, funds can be moved tax-free between immediate family members, or even be passed on to their children if gone unused.” Benefits of a 529 Plan A 529 offers a number of benefits for parents trying to save for their children’s education. Spencer says, “For families that have a goal for saving for college for their children or grandchildren, we feel 529s provide an excellent, tax efficient vehicle to invest funds for educational needs. While all 529 accounts grow tax-deferred and can be withdrawn tax-free for higher educational needs (i.e. tuition, room and board, books, even a laptop for school purposes), many states also offer a state tax deduction for annual contributions as well (up to $10,000 annual contribution deduction here in our state of Michigan, for example).” He adds, “Even further, many of the perceived limitations of 529 accounts have been addressed over the past few years through updated rules that allow for funds to be used for K-12 private school tuition, as well as very recent changes that will allow for up to $35,000 of unused 529 funds to be rolled over tax-free into a Roth IRA for a student that ends up not needing the balance for an educational need.” In addition, recent changes in the rules now allow a portion of any money left over in a 529 account to be used to pay off a portion of the beneficiary’s student loan debt, if applicable. A portion can also be used to pay down the student loan debt of the beneficiary’s siblings as well. How to celebrate 529 Day One great way to celebrate is to open a 529 account for your child, grandchild or even for yourself if some sort of higher education is in your future. Many 529 providers are offering promotions this month. Definitely speak with your financial advisor to discuss the best option, including the two main types of college savings plan options. Consider adding to an existing 529 either as a one-time payment or start making regular automatic payments. Whether for your own children or another friend or relative, a contribution to a 529 is a great way to support their educational ambitions. Other college savings options Beyond a 529 plan, there are a number of other ways to save money for college. A custodial account is an account opened and administered by an adult for the benefit of a minor. The rules for custodial accounts vary a bit by state, but one thing to remember is that these accounts are irrevocable and control of the account reverts to the beneficiary once they reach the age of majority in their state. Once they have control of the account, they are not obligated to use the money for educational expenses. A Roth IRA can also be used as a college savings account. If the child beneficiary works and has earned income, the account can be opened in their name. Whether your Roth IRA or theirs, withdrawals of money contributed can always be withdrawn tax or penalty free. If you are under age 59 ½, withdrawals of earnings in the account can be taken penalty free, but they could be taxed. If you are over age 59 ½ and have met the five-year rule, all withdrawals are tax and penalty free. You can also use a savings account. Money in the account is liquid, safe and readily available. Perhaps the downside is the returns may lag an investment account such as a 529 or a taxable brokerage account. Make sure to reach out to your Wedbush financial advisor to discuss your college savings goals for your children, grandchildren or others. They can help you establish the best type of account and formulate a plan to achieve your goals in this area. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns
Financial Literacy as a Tool of Empowerment for Women and Children
As we move forward from Financial Literacy month in April, financial literacy is especially important for all of us, but especially so for women and children. Improving financial literacy is important for everyone across all groups and for our economy as a whole. Financial literacy issues for women Overall, women have significantly lower rates of financial literacy, with 3.8 million American adult women having financial literacy skills that rank below a basic level. To add to this: Women make up the majority of caregivers; they are three times more likely than men to quit their jobs to care for a family member at some point during their working years. Women make on average 17% less than men. Pay equity for women is not expected to happen for at least another 43 years. Even though women are more likely than men to complete college, they are also more likely to incur student loan debt in the process. The combination of entering the workforce and generally receiving less income than men often forces them to hold off on paying off their debt, while interest continues to accumulate. To add to this: Women carry 58% of all student loan debt. Women’s loan totals are, on average, 9.6% higher than that for men graduates. Further, include shortfalls in retirement planning for women, and it is easy to see why improving financial literacy among women is so important. IRA and 401(k) balances for women fall short compared to these balances for men. This is even more of an issue when we take into account that women tend to outlive their male counterparts. Both single and married women prioritize their children’s needs and owning a house over preparing for retirement. Women are three times as likely as men to say that they cannot afford to set aside money to save for retirement. Jeff Runyan, Wealth & Investment Advisor, of Runyan Capital – Securities and Advisory Services Offered through Wedbush Securities Inc. says, “Studies have shown that women have characteristics that can help them be more successful investors than men due to their conservative investment approach. Women tend to exhibit characteristics like patience, a focus on long-term goals — including paying down debt, and are less likely to be influenced to make changes to the portfolio from a conversation with their peers. However, women tend to save versus invest, hurting them financially over time.” This reinforces that overcoming such obstacles as living longer, taking time off work to care for loved ones, making less money for equal amounts of work and lower financial literacy rates demands focused planning and education to help improve financial literacy and retirement readiness for women. As an example of this, Runyan adds, “Women tend to use low-risk investment alternatives, like cash, savings/checking accounts, and certificates of deposit. At the same time, men are willing to accept a higher degree of risk, which brings them greater returns over time. The compounding interest effect on women’s returns, even if they are naturally better at staying focused on goals, keeps them from reaching the success they otherwise are entitled to. Fortunately, the investment gap is closing as more women are participating in the market and starting to invest at younger ages.” Financial literacy for children Studies have shown that our financial literacy habits are in place as early as age seven. Instilling good habits such as opening a savings account to be able to buy something they want can leave a lasting impression and cultivate good financial habits for a lifetime. Start talking with your children about money values early on. This includes what to prioritize and how to create a budget. Use cash as a tangible teaching tool rather than a debit card, and discuss investing in their college education. These lessons are as, or perhaps more, important than anything they will learn in college in that the ability to manage their finances will allow them to keep more of what they earn regardless of what they do careerwise. How to start investing for retirement and for your future As with anything that might be new or daunting, start with small steps. Learning about your credit score. Good credit is the key to so much in life, including the ability to get a mortgage and even landing a better job. Keep track of your personal debt. This is a key component of your credit score and reducing your debt load can free up money for other financial priorities such as saving for retirement. Along these lines, be sure to pay off overdue bills and to earmark funds towards paying off debt on a monthly basis. Open a savings account. This is a key first step towards saving and investing for many. Make a budget. This allows you to track where your money is going as well as what is coming in. Listen to a financial podcast, or perhaps several. There are many great podcasts available on a variety of financial topics. You can listen to a podcast while doing other tasks. These steps apply to all of us, not just women. As far as retirement, talk with your financial advisor about the best retirement savings options for you. This might be an IRA, a workplace retirement plan like a 401(k) or other options like an annuity. Our financial advisors here at Wedbush want to help you reach your retirement and other financial goals. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by
Current State of the Housing Market
The housing market is a major component of our economy. The housing market can be a reflection of the overall state of the economy. Timothy Canty, CPFA, Vice President of Investments of the Wedbush Securities San Diego office says, “Currently, we are seeing a decline in listings. This is because buyers will have to finance at a higher rate, so people are holding off on the urge to move. Additionally, because we have relatively stable rates of employment, people have decided to sit until things get better.” According to S&P CoreLogic’s Case-Shiller U.S. National Home Price NSA Index released on March 28, home prices declined for the seventh consecutive month in January of 2023. Current state of the market Existing home sales declined 2.4% in March compared with February levels according to the National Association of Realtors. Sales for the month were down 22% from March of 2022 levels. The rate on the popular 30-year fixed mortgage started the year at around 6.5% but had dropped by the end of January. However, from there mortgage rates have risen and by the end of March were averaging about 6.85%. Canty says, “The challenge is the high interest rates have so far curtailed the inventory of homes. We are not seeing prices go up and we are also not seeing price instability.” Higher mortgage rates are a key driver of lower home sales. Higher rates make homes less affordable for many buyers. This hurts home sales especially at the higher end of the market. One factor keeping prices from falling at a larger rate is the inventory of existing homes on the market. In some areas this inventory is some 40% lower than in the pre-pandemic period. New listings in March of 2023 were down 17% from March 2022 levels. Total existing-home sales jumped 14.5% from Jan 2023 to Feb 2023, ending a run of 12 consecutive months of declining sales. Housing starts rose 9.8% in February, which helps provide inventory. Overall, it is a strange and complex housing market for both buyers and sellers. Outlook for the housing market There are a number of factors that will determine the direction of the housing market as we move forward. The low supply of existing homes for sale that is keeping inventory relatively low is helping to keep home prices from falling more than they might have given other issues in the economy like higher interest rates. A contributing factor is that some potential sellers might be reluctant to sell and move to another home due to the low interest rate that they have on their current home. They do not want their monthly costs to experience a drastic increase. Inventory issues still have not fully recovered from the 2008 crash that devastated the housing market at the time. Inventories are currently at about 2.6 months, higher than the 1.6-month level we saw a year ago, but still at a historically low level. A key factor for prospective home buyers and home builders is the state of the economy. Buyers do not want to take the leap into buying a new home if they are worried about their employment status and their future income. Canty says, “We may see some pressure if we see a substantial drop in employment rates.” Mortgage rates always play a key role in the health and activity level in the housing market. As mentioned above, a big part of the issue of housing supply is the reluctance of many buyers to move and give up a low rate on their existing mortgage. A recent survey showed that some 82% of homeowners who might consider selling and buying a new home felt locked in by their current low mortgage rate. Sales of homes at the higher end of the market will suffer as fewer buyers will be able to afford them if they have to take out a mortgage at a higher rate. High interest rates also impact new home construction. Many people who might like to build a new home for themselves are reluctant to take the plunge if they need to take out a mortgage to make this happen. This not only impacts buyers and sellers, but also impacts home builders and related industries that supply home builders. Cash sales have been a significant part of the housing market with all cash transactions making up 27% of all sales in March. While down slightly from the prior month, this level is still high historically. The economy and the level of interest rates will be key factors in determining the state of the housing market in the coming months. The actions of the Fed will continue to be closely watched. Are you thinking of buying or selling a home? Consult with your Wedbush financial advisor to discuss how this fits as part of your overall financial planning strategy. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.