Blog Archives - PFwise.com

What Regulation Should a Life Insurance Illustration Comply With?

3/31/2015

Q. What does a typical life insurance policy illustration look like?

A. In the 1990's, the insurance policy illustrations have been misused a lot which led to model legislation that requires insurers to identify policies that are to be marketed with an illustration and what the illustration should include.

Specifically, a life insurance policy's illustration should meet the following standards:

Illustrations must clearly be labeled "life insurance illustration" and contain basic information such as the name of the insurer, name and address of the producer, identification of the proposed insured, and so forth.
Producers may not represent the policy as anything other than life insurance, use an incomplete or noncompliant illustration, or mislead the prospect about the contents of the illustration.
The illustration must conform to a certain basic format that accentuates clear, accurate labeling of information, especially nonguaranteed elements.
The illustration must include both a narrative summary, explaining how the policy works, and a numeric summary, which details the death benefits, death values, and premium amounts.
The illustration must be signed and dated by the applicant or policyowner, certifying that the agent has not guaranteed the nonguaranteed elements of the policy.
Policy illustrations include a table that indicates the scheduled premium, corresponding guaranteed death benefit, and corresponding guaranteed surrender value for each of the first 10 years and for at least every fifth year up to age 100.

How to Determine If It Is Wise to Replace an Existing Life Insurance Policy

3/30/2015

Q. What considerations I should take before replacing a current life insurance policy with a new one?

A. The following questions should be asked before any replacement of an existing life insurance policy:

Is there a potential taxable gain if the current policy is replaced?
What are the differences in the plans of insurance?
What riders do the current and proposed policies include?
How long is the initial death benefit guaranteed to be in force at the illustrated premium for both the current and proposed policies?
What premium is necessary to guarantee coverage at initial/current levels for life in both the current and proposed policies?
What are the financial strength ratings of both the current and proposed insurers?
If the proposed policy is a variable life policy, what gross yield rate is being assumed?

Universities of the Future

3/29/2015

You can attend universities free! This list below includes some of the universities of the future, many of the courses offered by them are free to anyone -

edX
A nonprofit Harvard-IT program that offers free online courses from some of the best universities to anyone.

Coursera
A for-profit program founded by two Standford professors, offers free online courses from some of the best universities to anyone. If you want a verification certificate, you pay.

Udacity
A for-profit program offers free online courses. Proctored exams are offered for a fee.

Saylor Academy
Free online course program founded by Michael Saylor, CEO of MicroStrategy.

OLI
A free online Open Learning Initiative launched by Carnegie Mellon. Anyone who wants to learn or teach can sign up.

The Open University
A British university with an open entry policy. Tuition is about $7,000 a year.

Minerva Project
Students around the world get an elite education for $10,000 annual tuition. Admission is based on academics, with strict grading.

Open Badges
A new credentialing system created by the nonprofit Mozilla Foundation. You can earn badges for skills you learn online and offline and display badges.

Which Term Life Insurance Product Has Free Living Benefits Rider?

3/28/2015

Q. I am interested in purchasing term life insurance. Which insurance company's term life product gives me the free riders so I can access the money while still alive?

A. While it has been table stake for term life insurance companies to offer free Terminal Disease Rider free, few companies offer other riders free as you described.

Prudential is probably the only exception at this time - its living benefits rider allows a policy owner to access death benefits in case of critical, chronic, and terminal illness, and such rider is free.

Unfortunately such rider is not available for all U.S. States yet, if you are interested to find out if it is available in your state, please contact us. This is a very nice rider for some one who is not young and is considering a 30-year Term life.

How is Tax Calculated for 401k Plan Conversion to Roth IRA?

3/27/2015

Q. I have made after-tax contribution to my company's 401k plan and intend to convert it to Roth IRA later. What is the tax consequence of doing this?

A. If you have maxed out your pre-tax contribution to 401k, and still have money left to invest, instead of investing that money from your individual brokerage account and pay capital gain taxes, you can contribute after-tax money to your 401k plan (if your plan allows) and convert to Roth IRA, therefore avoid paying tax forever!

However, a little caveat is that the part of gain from your after-tax contribution inside your 401k plan will be treated as your income at the time of conversion, therefore you have to pay income tax for that portion.

If your income tax rate is higher than the capital gain tax rate, this might hurt you a bit. So it's best to do such conversion as soon as possible. However, regulations won't make it easy - a plan may limit the number of conversion each year to only two times.

The bottom line, given the future tax savings you will enjoy, paying a little income tax on that small gain maybe something worthwhile!

Does Employer 401K Match Count Toward Annual Contribution Limit?

3/26/2015

Q. I know I can contribute maximum $18,000 this year to my 401(k) plan, does $18,000 include employer match?

A. For 401k plans, there are two kinds of contributions - employee contribution and employer match contribution, each follow different contribution limits.

For 2015, an employee's annual maximum contribution is $18,000.
Employer's maximum contribution is $35,000.
Combined, a plan's total maximum contribution $53,000.
For an employee who is above 50 years old, there is an additional contribution limit of $6,000.

The High Cost of Care in Retirement - Part A

3/24/2015

You might have accumulated savings to support your golden years, but do you know you may face several financial risks, including the possibility of living with a serious medical condition and providing resources for their care?

Preferred ETF or Preferred Individual Stocks?

3/24/2015

Q. I like preferred stocks. Should I buy the Preferred fund such as PFF or individual preferred stocks?

A. Preferred stocks are between stocks and bonds. The best strategy you can consider is to build your core Preferred holdings in Preferred Stock ETF such as PFF which has more than 6% yield and more than 300 holdings.

For the rest of your money, you can buy new or recently issued preferred stocks at their $25 par value or close to it. New issues can't be called for 5 years.

The Big Picture of Your Investment

3/23/2015

4 Life Insurance Trends in 2015

3/23/2015

Below are 4 life insurance trends happening in 2015, consumers will benefit tremendously from each of these trends.

No Medical Exam Necessary
The no-medical exam life insurance market is growing, with some very attractive products. This is a great news for people who got turned down by the conventional insurance underwriting.

Price Shop Made Easy
With so many life insurance providers, sometime it could be a daunting task to compare their offers. But the life insurance quote engine will rank all the providers' same products from low to high, forcing them to compete on price.

New Living Benefits
Terminal disease rider has been a table stake, chronic care adn critical illness riders are being added to policies by some providers, this is great news for consumers, as people could save on long term care life insurance needs.

Painless Policy Procurement
Traditional paper application is an outdated way buying life insurance today, 60% of insurance companies sell their products via e-signatures and 20% plan to add this function in 2015. This is great news for consumers as they can get everything done online through a web-based application!

As an independent broker, PFwise.com stays on the cutting edge of the life insurance industry's trends. Contact us if you want to take advantage of any of the above big industry trends!

10 Most Tax-friendly States for Retirees

3/22/2015

A note on residency: For people seeking to take advantage of some of the property tax exemptions permitted in these states, it’s important to note that they must generally establish residency in the new state in order to be eligible. Establishing residency can be accomplished in a variety of ways, including by providing proof of the date out-of-state residency ended and in-state residency began (for example, by showing an in-state drivers’ license, utility bills, vehicle and voter registration, and addresses on bank statements and IRS returns).

Alaska
While Alaska might not be the most obvious state that clients look to for retirement, when it comes to taxes, the advantages are undeniable. Alaska has no state income tax, no estate or inheritance taxes and no sales taxes.

As a bonus, Alaska state residents receive an annual dividend check derived from the state’s oil wealth. According to Tax Foundation research, Alaska also imposes one of the two lowest median property tax rates in the country — and homeowners aged 65 or older (and surviving spouses aged 60 or older) are exempt from municipal taxes on the first $150,000 of their home value.

Though retirees aren’t likely to find many of the outdoor leisure activities that some of the more obvious retirement states offer, from a pure tax perspective, retiring in Alaska is a winner.

Wyoming
The wide-open spaces of Wyoming may not have made your list of ideal retirement settings, but with no state income, estate or inheritance taxes, the tax advantages are clear.

Property taxes in Wyoming are established based on a fractional assessment system, which results in most property being assessed on only 9.5 percent of its market value. Further, state sales taxes are lower than the national average, at 4 percent, with exemptions for prescription drugs and food.

South Dakota
South Dakota’s property taxes are a bit higher than Alaska and Wyoming, but resident seniors aged 65 and older qualify for an assessment tax freeze or a municipal tax reduction if their income falls below certain threshold values and the value of their home is less than approximately $182,000.

Property tax refunds are also available for low-income senior citizen residents (generally, income must be as low as $10,250 for single taxpayers and $13,250 for couples). South Dakota income, estate and inheritance taxes are favorably set at zero percent, and, like Wyoming, the sales tax is a relatively low 4 percent.

Georgia
Georgia is creeping up in the rankings when it comes to the best retirement states — not only is its weather relatively mild compared to other tax-friendly jurisdictions, but it has plans to phase out its property tax system by 2016.

Currently, Georgia residents aged 65 and older are exempt from all state property taxes on their homes, as well as up to ten acres of land. The state income tax ranges from 1 to 6 percent, but Social Security income is exempt. Residents aged 62-64 can also exempt up to $35,000 per year in other retirement income, rising to $65,000 for those aged 65 and older (which can exempt up to $130,000 per couple).

Georgia does not impose a state estate or inheritance tax, and sales taxes are relatively low at 4 percent (with exemptions for food and drugs), though local taxes may add to the state sales tax burden.

Louisiana
Louisiana does impose a state income tax of between 2 and 6 percent, but offers attractive exemptions for retired residents. Social Security benefits are exempt from Louisiana’s income tax, as are government pension funds (including military and civil service pension funds).

Residents 65 and older can also exclude up to $6,000 of annual income from private pensions, annuities and IRAs. Louisiana does not impose an estate or inheritance tax, and the sales tax is low at 4 percent with exemptions for food and prescription drugs.

Further, Tax Foundation research suggests that Louisiana state property taxes are one of the lowest in the U.S., with the added bonus that retired residents age 65 or older with income below approximately $70,000 are eligible for an assessment freeze on their home value for as long as they live in the home.

Mississippi
Mississippi’s state income taxes may be a bit higher than other winning retirement states (3 to 5 percent), but the exemptions for retired residents are generous — all Social Security benefits, income from IRAs, 401(k)s, 403(b)s, Keogh plans and income from both public and private pensions are completely exempt.

Sales tax is likewise a bit higher at 7 percent, but prescription drugs, utilities, fuel and health care services are exempt. Mississippi imposes no estate or inheritance tax, and its property tax rates are extremely low — the median property tax rate on a $100,000 home is about 0.5 percent, and senior citizen residents qualify for a $75,000 homestead exemption.

Florida
Florida is one of the most obvious choices for retirees looking to enjoy warm weather and all of the leisure activities it permits, but it actually stacks up fairly well from a tax perspective.

Florida imposes no state income, estate or inheritance taxes, though it has an average sales tax of 6 percent. However, Florida residents qualify for a $50,000 homestead exemption that can substantially reduce property taxes if the client establishes Florida as his or her primary residence.

Even better? Residents in some Florida localities who are aged 65 and older can qualify for an additional $50,000 homestead exemption if they meet certain income requirements.

Nevada
Depending upon the locality, Nevada’s property taxes are very low — but there are no tax exemptions for residents, so the entire value of the client’s home is subject to property tax. The Tax Foundation calculates that Nevada residents bear the 21st lowest national property tax burden.

Fortunately, Nevada imposes no state income, estate or inheritance taxes, though its sales taxes are about average at 6.85 percent (food and prescription drugs are exempt from Nevada state sales tax).

Texas
Texas imposes no state income, estate or inheritance taxes — and technically has no state property taxes, though it has authorized local governments to collect property taxes, with a $15,000 homestead exemption for residents.

Seniors aged 65 and older are entitled to exempt an additional $10,000 of the property’s value from school taxes and $3,000 from other local taxes that may be imposed. Despite these exemptions, actual property taxes in Texas remain relatively high, with the Tax Foundation estimating that they are the 15th highest in the U.S. Sales taxes in Texas are about average, at 6.25 percent.

Arizona
Arizona is another of the more obvious retirement locales that makes the short list for tax-friendly retirement states — state income tax ranges from 2.59 percent to 4.54 percent, with exemptions for Social Security benefits.

Arizona retirees can also exclude up to $2,500 in military and civil service pensions or Arizona state government pensions — out-of-state pensions are fully taxable. Because Arizona does not impose its own state property tax, property taxes can vary considerably by locality, though low-income seniors are eligible for a tax credit of up to $502 for property taxes.

Arizona residents who are 65 or older and have established Arizona as their primary residence for at least two tax years can also apply for a property valuation freeze. Arizona has no state estate or inheritance taxes, and has an average sales tax of about 5.6 percent, though local governments can add their own sales taxes into the mix.

Whether you are looking for warm sunny weather or wide-open spaces with mountain views in retirement, the financial implications of a state’s tax climate can’t be ignored — and some of the most tax-friendly states might pleasantly surprise you as you plan for retirement.

The $100,000 Competition Between an All-Weather Portfolio and a Classic Portfolio - Part E

3/22/2015

In our previous blog posts (here, here, here, and here), we followed the $100,000 competition between Tony Robbins' "all weather" portfolio and the Classic portfolio proposed by Barry Ritholtz.

Now Barry Ritholtz came out with a small modification to his "Emergning Classic" portfolio as he acknowledged that it lacks exposure to the emerging markets. The updated Classic portfolio will look like this:

20% total U.S. stock market
5% U.S. small cap value
10% Pacific equities
10% European equities
10% emerging market equities
5% U.S. REITs
10% U.S. TIPs
10% U.S. high yield corp bonds
20% U.S. total bond

5 Key Tax Deductions for Self Employed

3/22/2015

Q. I run my own small business, what kind of tax deductions most self-employed people tend to forget?

A. If you are self-employed, here are 5 key tax deductions you need to consider. But none of them is simple, it's worth paying for an experienced CPA to get them right -

1. Home office deductions
This can be a great source of reducing the tax bill if you work at home. The IRS in 2014 offered taxpayers a simplified way to calculate the allowable deduction.

2. Health insurance premiums
Under many circumstances, the costs of medical, dental or long-term healthcare premiums are deductible. This deduction covers premiums for a spouse and children up to age 27. There are strict guidelines that must be met and the deduction will not reduce the amount of self-employment tax owed.

3. Self-employment tax
Anyone running their own business finds out quickly about the self-employment tax, which essentially doubles the amount paid by a regular employee to cover Social Security and Medicare. There is some relief in the form of a deduction equal to one-half the amount paid.

4. Retirement tax shelters
Opening a SEP IRA or a Keogh plan is a good way to reduce the tax bill and save for retirement. Up to 20% of earnings can be contributed with a cap of $52,000 per year. That’s far greater than the amount that can be placed in a traditional IRA.

5. Depreciation of equipment
Most types of property – except land – owned by and used in a business, can be depreciated. To be eligible for depreciation, the equipment must be used for more than one year, among other rules. Tables provided by the IRS spell out the formulas to be used to determine the amount of depreciation that can be claimed.

5 Ways to Improve Your Credit Score

3/21/2015

Q. How to improve my credit scores quickly?

A. There is no short cut to improve one's credit score quickly (unless it's a mistake made by the credit bureaus and you corrected it). Below are 5 ways everyone can use to improve the credit scores:

Always pay your bills on time
For each credit card, spend only up to 10% of the card's limit, then start using another card.
Still pay the item that is in dispute, don't presume since an item is in dispute, so you don't have to pay for it
Don't easily co-sign something, you will be held responsible for it if anything goes wrong!
Don't open too much credit at once. Anytime you open a new credit, hard inquiry will hurt your credit, but its impact will disappear after 12 months.

How to Track Your IRS Tax Refund?

3/20/2015

Q. I e-filed my tax return, is there an easy way to track my refund status?

A. Yes, IRS is trying to make it easy for you to get your refund back.

Just go to IRS.gov and on the top of its home page, you will see a section called "Get Your Refund Status", click that, enter your social security number, your tax filing status, and the exact refund amount, you will be shown the status.

Possible responses include:

Return received
Return approved
Refund sent

You will also receive information on how to launch a trace if you haven't received your refund within 28 days of filing your return.

You can check your status after 24 hours if you e-file or 4 weeks if you mail your paper return.

4 Tips to Get a Bigger Financial Aid Package

3/19/2015

Q. I only received 70% of the grants that I need, on top of my expected family contributions, to pay for my child's college cost of attendance. How can I get a bigger financial aid package?

A. It is common for families that on top of their EFC, the financial aid packages they receive are not big enough to cover the total cost of attendance. Here are 4 tips families can try to get a bigger financial aid package.

1. Ask for an increase
If you have had some unexpected changes, such as a pay cut, an increase of medical expense, after sending colleges' the application letters, you should bring these changes to college financial aid offices' attention and ask for sympathy, and additional aid.

2. Time your ask
By April, most schools have an idea, judging by the deposits they receive from students who accept their letter of admission, about whether the incoming class will be overfilled or underfilled. If you send your request in mid-April, the schools that are underfilled might reconsider the aid package they gave out earlier.

3. Show academic improvement
Some schools may offer higher merit based aid if a student brings in higher scores on ACT or SAT later in senior year. Find out if the school your child plans to attend has such practice or not.

4. Leave the door open
If your child couldn't attend a school due to financial reason, write a letter to the school explaining the reasons. Some schools might come back and offer a higher aid package if they found the classes are underfilled.

College Cost Estimator

3/18/2015

How much will my child's college education cost will be when he or she reaches college age?

If you wonder about this question, the College Cost calculator below can give you an answer - it is based on 2014 average public and private universities' total annual costs, assuming the average public and private universities' total annual cost increase rates, factoring your child's current age, and gives you the total 4 years' college costs, including tuition, room and board, books, etc.

Just enter the current year and your child's age in current year, you will have an idea how much money it will cost you, if your child goes to a public university, or a private university.

Should I Consolidate All My IRAs and 401Ks into One Account?

3/18/2015

Q. I heard there is a minimum required distribution for all IRA and 401K accounts. I have multiple such accounts, should I consolidate my retirement account so I don't have to take distribution from each of these accounts which is a big hassle?

A. No, the minimum required distribution is not taken from each individual account, so you don't have to consolidate all your IRA and 401K accounts just to prevent this hassle which doesn't exist.

For example, let's say 2015 is your first year to take the minimum required distribution as you turn age 70.5. Here is what you need to do in order to take the MRD:

Add up all your IRA and 401K accounts' balances as of December 31, 2014
Divide the total by your life expectancy factor (IRS Publication 590), this will tell you how much you must withdraw
Since 2015 is your first year to do so, you can delay the withdrawal till April 1, 2016
You can take the entire distribution from one account or multiple accounts, as long as the total amount is correct

Consolidating your multiple accounts into one account will help, so does roll over your 401k from former employers into one account, as you have fewer number of accounts to monitor and manage, plus you might save on account management fees.

A 529 Plan Alternative - Whole Life vs 529 Plan Comparisons

3/17/2015

In our previous several blog posts, we showed the upside and downside of 529 plan and upside and downside of Whole Life insurance for college funding.

Now we will summarize the comparison results in the table below.

A 529 Plan Alternative - The Downside of Whole Life As An Alternative

3/16/2015

In our last blog post, we discussed Whole Life as a 529 Plan alternative and some of its benefits. Now we will discuss some of the downsides of Whole Life as a 529 plan alternative.

While cash values can be borrowed tax-free as a policy loan, if the policy lapses, a taxable event may occur for the borrower.
If the Whole Life is a Modified Endowment Contract (MEC), the loans or withdrawals may be subject to tax at the time distribution is taken, plus an additional federal tax penalty depending on the borrower's age.

Who May Benefit From Whole Life As a 529 Plan Alternative the Most?

Although Whole Life insurance does provide additional benefits, there may be situations where it may not be appropriate. If not put in place when the child is young, the life insurance policy may not build enough cash value to properly cover college expenses. Also, when using whole life insurance for college planning, the use of the optional Additional Paid-Up (API) rider can supplement the early build-up of cash values. Without the API rider, the policy may not build up cash value quick enough to provide sufficient funding for college when the owner needs it.

The Bottom Line
The additional benefits whole life insurance provides, together with the tax-preferred access to cash values, make it a valuable tool for college funding. Whole Life insurance can play a key in a young family's college planning, whether it is stand alone or alongside a 529 plan.

In our next blog post, we will wrap up our 529 plan vs. Whole Life comparison discussion with a table summarizing the key differences between 529 Plan and Whole Life for college fundings.

A 529 Plan Alternative - Benefits of Whole Life For College Planning

3/15/2015

In our last two blog posts, we discussed the upside and downside of 529 plan for college planning. Now we will discuss an alternative option, it has some of the same contribution, accumulation, and distribution tax features of a 529 plan, but also offers additional benefits. It is Whole Life Insurance.

Below is a list of the benefits of using a Whole Life insurance policy for college planning:

Cash values can be borrowed via policy loans, for college or other uses, without a taxable event.
Guaranteed premiums, guaranteed death benefit, and guaranteed cash value in a whole life insurance policy are not subject to market volatility. The policy's cash value will not decrease based on performance of financial markets. Any dividends paid will enhance the cash value and death benefits.
In the event of a disability, an optional waiver of premium rider may continue to pay the premiums to guarantee the proper funding stays in place for the college plan. This is crucial in the event of a disability to make sure the money is going to be there to pay for college.
The cash value inside a life insurance policy is not counted as an asset for the owner of the policy when applying for financial aid under current FAFSA guidelines.
An additional benefit to life insurance that is not addressed in a 529 plan is that in the event of death, the life insurance policy provides an income tax-free death benefit to the beneficiary which can be used to pay for college education.

In our next blog post, we will discuss what are the downside of Whole Life insurance for college planning and which segment of the consumer market it is appropriate for college planning.

What is a MEC?

3/15/2015

Q. What is a MEC in insurance and why it is not good for the buyer?

A. MEC stands for Modified Endowment Contract.

MEC is important because cash-value life insurance is known for is tax-free benefits during accumulation and tax-free ways to access the cash value during distribution phases. But Congress has placed limits on the amount of money one can put into the cash-value life insurance policies so that rich people can't simply put as much money as possible into such great products and enjoy all the great tax benefits.

More specifically, all cash value policies are subject to the 7-pay rule, which limits the tax benefits of cash value withdrawals. Policies that fail this test are classified as MEC.

Corridor Rule
The corridor rule states that in order for any life insurance policy to avoid being classified as a MEC, there must be a "corridor" of difference in dollar value between the death benefit and the cash value of the policy. All single-premium policies are now classified as MECs. Flexible-premium policies must pass the seven-pay test in order to avoid MEC status. This test caps the amount of premium that can be paid into a flexible-premium policy over a period of seven years.

Important Factors
Each policy that is now issued will have its own MEC premium limit that is based on several factors, including the age of the policy owner and the face amount of the policy. Any premium paid into the policy in excess of this limit will result in reclassification of the policy as a MEC. However, the unused cap space within this limit is cumulative. For example, if the MEC limit for a policy is $5,784 the first year and $4,000 of premium is paid into the policy, then the excess $1,784 of unpaid premium is carried over to the premium limit for the second year.

This limitation expires after seven years, as long as no material changes, such as an increase in death benefit. Any material change such as this will effectively restart the seven-year test. A decrease in the death benefit will not restart the test, but it may result in the policy being immediately classified as a MEC in some cases. Once a policy has been classified as a MEC, it cannot regain its former tax advantages under any circumstances. The MEC classification is irrevocable.

9 Promotions From Fidelity in 2015

3/14/2015

“IRA Match” from Fidelity
This is a brand new and unique offer from Fidelity. Unlike 401(k)s in which many employers give a match, IRAs offer no such match. Fidelity decided to create a unique promotion in which they will “match” your annual deposits for up to three years. You’ll need to transfer over your existing IRA to Fidelity to quality for this promotion. Rollovers for employer sponsored plans do not qualify for this offer.

For more information about this offer, please visit their website.

Earn Up to $2,500 From Fidelity
This offer is available to new or existing Fidelity customers, and can be traditional brokerage accounts and IRA. The minimum deposit is $50,000 to qualify. Funding must come from an external account to Fidelity Investments. Currently there’s no end date for this promotion. This offer is similar to TD Ameritrade’s cash offer, which also includes free trades.

For more information about this offer, please visit their website.

200 Commission-Free Trades From Fidelity
This offer is available to new or existing Fidelity customers. In order to get the free trades, you have to specify the Fidelity account. This offer is similar to the OptionsHouse promotion, but requires a much higher amount of money to deposit for investing. If you are already looking to invest with Fidelity, this is an ok deal, but not if you are undecided on your choice of broker. You must perform these free trades within 90 days.

For more information about this offer, please visit their website.

Apple Gift Card Up to $500
Get an Apple gift card up to $500 in value. Fidelity IRA, trust, and business accounts are not eligible for this offer. This offer is only available for new or existing customers of Fidelity. Funding must come from a non-Fidelity account. This offer ends October 14th 2015.

For more information about this offer, visit their website.

American Airlines AAdvantage Miles
Fidelity is offering a promotion when you open up a new account with them. Get up to 50,000 American Airlines AAdvantage miles when you open and fund a non-retirement brokerage account. Funding must come from an external non-Fidelity account. This offer ends in March 31st 2015.

For more terms and conditions for this promotion, visit their website.

United MileagePlus Miles
Earn up to 50,000 MileagePlus miles from United when you open a new account with Fidelity. Like the above over with American Airlines, you must fund a non-retirement brokerage account. Funding must also come from an external non-Fidelity account. This offer ends in April 31st 2015.

For more terms and conditions for this promotion, visit their website.

Delta SkyMiles Program
Earn up to 50,000 Delta SkyMiles when you open a new account with Fidelity. You must fund a non-retirement brokerage account. Funding must also come from an external non-Fidelity account. This offer ends December 31st 2015.

For more terms and conditions for this promotion, visit their website.

Get One Year of Free Trades
This offer is available for a limited time to new or existing Fidelity customers. Earn commission-free trades for up to one year, when you register to open and fund a Fidelity IRA or brokerage account, or add new money to an existing one.

For more information about this offer, please visit their website.

Active Trader Pro and 200 Commission-Free Trades
Similar to the other free trade offers Fidelity has, this promotion includes their Active Trader Pro service. You must deposit $50,000 to qualify into a new or existing Fidelity IRA or brokerage account, upon which you’ll get 200 commission-free trades for 90 days.

For more information about this offer, please visit their website.

A 529 Plan Alternative - The Downside of 529

3/14/2015

In our last blog post, we discussed the upside of 529 plan. Now we will take a look at the limitations and disadvantages of a 520 Plan.

Penalty for Non-qualified Distribution
Distributions from a 529 plan for uses other than qualified education expenses may result in tax ramifications. In the event of a non-qualified distribution, the distribution is subject to ordinary income tax, as well as a 10% penalty on the gain.

What if a 529 Plan saver lost job or had a family emergency and had to access funds from the 529 plan? Not only the person already paid tax on the money before it was contributed to the plan, but now also have to pay tax on a portion of the earnings withdrawn, plus a 10% penalty.

Subject to Market Risk
529 plan assets are often invested in accounts that are subject to the risk of the market. What if the child started college in 2009 after the market crashed?

What If Accidents Happe
If disabled for 90 days, would the 529 plan saver be able to cover living expenses and continue contributing to a 529 plan? What if those 90 days turned into 2 years? This may look like a stretch, but it is not. The average long term disability absence is 2.5 years! 529 Plans offer no options to fund the plan in the event of disability.

Impact on Financial Aid
When applying for financial aid, a 529 plan is identified by FAFSA as an asset of the parents, if the parent is the account owner, and is recognized in the family contribution level toward college costs. The higher dollar amount in a 529 plan may mean a higher family contribution level and a lower amount of financial aid that may be obtained.

In our next two blog posts, we will evaluate Whole Life as a 529 Plan alternative and which market segment is Whole Life best suited for.

A 529 Plan Alternative - The Upside of 529

3/13/2015

Q. I heard life insurance as a 529 plan alternative. Is it a good alternative?

A. In this blog series, we will take a look at these two options for college funding - 529 Plan vs. Whole Life, and analyze each option's strengths and weaknesses.

The Upside of 529 Plan
The traditional college planning begins with a 529 plan. These plans are favored for college planning for a few reasons:

Contributions are made on a Federal tax-basis
Earnings grow tax-deferred
Withdrawals out of the plan are tax-free on Federal, and most if not all states taxes, as long as the fund is for qualified education expenses
Some states also offer state income tax deduction on plan contributions, with an upper limit per year
Funds in a 529 plan can be tied to market return

While a 529 Plan offers some powerful tax-based benefits, it also has some limitations and disadvantages.

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