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Now that the government backed down on its proposed changes to 529 plans for future education expenses, we can expect the same tax benefits present for education to be applied to families and individuals who face expenses caring for disabled people.

Families will be able to deposit funds into special savings accounts, called 529As, and earnings in these accounts will grow and can be withdrawn without any tax consequences. The annual contribution limit will start at $14,000, linked to the amount of the gift tax exclusion, and accounts can grow to $100,000 without being counted against qualification for Social Security benefits. The actual account maximum will be defined within each state’s regulations.

As long as the money withdrawn will be used to pay for qualified expenses, like housing, education, transportation, health care, and rehabilitation for the disabled beneficiary, these tax advantages will apply. This new account is a result of Congress passing the Achieving a Better Life Experience (ABLE) Act of 2014 and President Obama signing this bill into law.

Like 529 plans for college education, 529A plans will be managed by each state. This will provide another stream of revenue for the companies contracted by the states to provide these services, an economical benefit to organizations usually within that state. For an idea of what kind of fees consumers will see with 529A plans, you can see this chart that outlines current 529 plan fees on a state-by-state basis. There’s no reason to assume that 529A plans will be any less expensive than 529 plans.

Will 529A accounts help people with disabilities?

Federal benefits like Medicaid aren’t helpful to households that have more than $2,000 in savings. Medicaid could have been an essential tool for helping families afford medical expenses for disabled people, but the asset limitation does little to encourage financial security. A 529A plan would allow a disabled person to have much more sizable assets while still qualifying for Supplemental Security Income.

Some families have been able to establish a special needs trust to get around the $2,000 savings maximum for Medicaid, but not every family with a special-needs member can afford to establish a trust and these trusts don’t offer the tax benefits that 529A plans will. Some savvy savers have used 529 college savings plans inside a special needs trust to pay for educational expenses for a disabled beneficiary, but with the 529A plan, this can be done without the special needs trust.

One disadvantage of 529A accounts is that a household may take advantage of only the plan available in its home state, unlike 529 plans for college savings. Savers won’t be able to shop around. AARP also points out that any funds remaining in an account after a beneficiary passes away may be turned over to the state to help pay for Medicaid expenses. Also, if a beneficiary withdraws funds from a 529A plan and doesn’t qualify for special tax treatment, the withdrawals will be subject to a 10% penalty as well as the income tax, just like a 529 plan.

Excess contributions, deposits made into 529A plans beyond the gift tax exclusion, will be subject to a 6% penalty — so if you choose to save using this vehicle, be careful.

The added cost of typical expenses for an individual with autism over the course of his or her lifetime is $1.4 million according to the U.S. Department of Agriculture. The added cost increases to $2.3 million for a person with intellectual disabilities. Keeping that in mind, the advantages of a 529A plan represent a small drop in a bucket for people who are embarking on a life journey with an automatic financial disadvantage. When some families can take advantage of 529 plans for savings on education expenses, 529A plans could help create a complementary opportunity for families whose children may never attend college, but are certain to spend just as much, if not more, money on educational expenses for specialized services.

529A plans are protected in bankruptcy proceedings, as long as the contributions were made at least two years prior to filing for bankruptcy. A portion of contributions made more recently may be available to creditors’ claims. Due to the sometimes unmanageable cost of living with a mental or physical disability, the need to declare bankruptcy is more likely than it would be for other individuals, so this protection could be important or even life-saving.

These are the full qualified expenses, and they are quite comprehensive: Education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses. Any withdrawals made for other expenses will be subject to the penalty and tax.

Who qualifies to be a 529A plan beneficiary?

In order to qualify, a person must be or have been blind or disabled before his or her 26th birthday. If the person qualifies as blind or disabled under Title II of the Social Security Act or has a disability certificate on file with the IRS, he or she will qualify. Disabilities that qualify are those that include a mental or physical impairment that can lead to death or will last for at least 12 months, by the determination of a physician.

Some details about 529A plans still need to be worked out by the government, but as the plans exist on paper, they could provide some relief to people managing life with a disability. Once 529A plans are available to savers and consumers, readers will be able to find more information on Consumerism Commentary.

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Since the credit crunch in the midst of the latest recession, credit card solicitations have seen a significant increase. Unless you’ve opted out, and good luck with that, you’re probably getting junk mail from credit card issuers with invitations to apply for the latest credit card offers.

Don’t get too excited, especially if you have bad credit and are seeing these invitations for the first time. The letter might say you’re pre-approved, but all that means is that you are pre-approved to apply. It’s highly rare that an issuer will run your credit and then send you an invitation to apply. In fact, it’s nearly impossible.

Even if you’re at a bank branch like Wells Fargo and Chase, they could be looking at your account on their computer, and they’ll “notice” you can apply for a new credit card. Even in this case, you need to go through an approval process and could be declined if your credit score isn’t high enough.

Before you waste your time, even if you have good credit, ask yourself these questions before applying for a new credit card.

1. Do I already have enough credit available?

If you already have credit cards, add up your limits. You may all ready have all the credit you need, and if you manage your credit wisely across those cards, you may not need another card.

That being said, having — but not using — more available credit can increase your credit score. Your credit utilization ratio will be more favorable if you maintain the same level of balances on your cards overall while increasing available credit. The same effect, however, can be accomplished by negotiating a higher credit limit with one of your existing cards.

And that approach may be better, because when you do apply for a new credit card, you allow the issuer to do a “hard pull” on your credit, which may negatively affect your credit score. Asking for a higher credit limit on an existing card may also initiate a hard pull, but there’s a chance that it won’t.

Here’s what Capital One says about the process of asking for a credit limit increase:

When you request a credit line increase online or in our automated phone system, our review to determine your eligibility will not impact your credit score. To check your eligibility for an increase, we use the information that we normally receive from the credit bureaus each month. This does not generate an additional inquiry.

If you are unsure, call customer service before requesting an increase.

2. How is my credit score?

It’s a good idea to know two things before you apply for a credit card offer. First, know whether the card is targeted to consumers with excellent credit, good credit, or bad credit. Additionally, know the category in which your credit scores place you. In some cases, if you apply for a card for consumers with excellent credit but you do not have a high enough credit score, the issuer will offer a different version of the card to you, with different interest rates, a low credit limit, or reduced benefits.

In looking at a credit card application recently, I saw a declaimer that explained that the application’s terms pertained to the Visa Signature version of the card, a variety of the card with the most benefits. If the application were not to be approved for the Visa Signature version, the issuer might offer a regular Visa.

The issuers see this “bait and switch” as a better alternative than flatly declining the application, because this way the issuer can steer the customer into a credit card product that is priced according to the customer’s risk category.

Check your credit score before applying for new credit, so you don’t face any surprises. I just use Credit Karma to check my scores from TransUnion and Equifax. This may not be exactly the same score the banks use — usually a FICO score from one of the three credit bureaus — but the exact number isn’t as important as the range. If you check all of your credit reports on a regular basis, and all reports are generally the same, your different scores shouldn’t have much variation.

3. Am I highly disciplined with my spending?

On average, consumers tend to spend more with plastic in their wallet or more electronically than with cash. This is a subconscious effect, so you may not even be aware that it is happening. So unless you are in the habit of conscious spending and tracking your expenses, you may find a new credit card will cause you financial distress in the long run.

Credit cards with rewards are best for people who pay off their entire credit card bill on time every month. If you are disciplined, you might be able to make those cash back rewards or airline miles work for you. Or you may benefit from growing a credit profile with a secured credit card, but again, only with disciplined spending habits.

4. Are the rewards affecting my decision?

Cash back rewards can be a dangerous incentive, and many people believe they have the “hacking skills” necessary to maximize their profits from cards. I’ve used cash back credit cards for a long time while tracking my spending, and I’ve switched to an airline miles card for my primary spending, but I’m not an expert rewards hacker. I don’t spend the effort to buy cash-like products to accrue a large amount of benefits without really spending money.

Credit card issuers know how a small percentage of people use back doors. For the most part, they allow it, but every once in a while, they cut benefits or change the rules, usually without any notice to consumers, and people need to change their approach. Once again, this is a legal bait-and-switch tactic. Entice and attract customers with rewards, and change the value or operation of those rewards at a later date — while the consumer continues using the card as much as possible (generating income for the issuers) to reap what little rewards the issuers offer.

5. Am I desperate?

If you have bad credit, living a middle class life can be frustrating. You’ll have difficulty buying a car without saving up first, and if you want that car to be reliable, you’ll need a lot of money.

You will have difficulty buying a home because purchasing a house without a mortgage is largely unthinkable, especially if you need a house that fits a family. It can be done, of course, usually after years of saving, but that needs to be weighed against quality of life issues.

One reason to apply for a credit card, specifically a secured credit card, is to build a good credit history. It’s easier to qualify for a secured credit card, and if you have bad credit, it’s probably your only option. Many times, secured cards, especially those that are offered through “pre-approved” application mailings, come with annual fees and high interest rates.

That’s the world people with bad credit live in, even if their bad credit is due to no fault of their own, like a deadbeat ex-spouse, a parent who used your name and Social Security number without your knowledge, or an accident not covered by insurance. I’ve had friends with personal experience in all three cases.

Being approved for the right card, and operating that credit card with good behavior like spending only what you can afford to pay off from savings within a month, can help get you on the path for solid financial footing in the future.

Do not apply for a new credit card without self-reflection that involves the above five questions. Credit cards are tools that can help you financially, but if you don’t consider the consequences and how you fit in the relationship between issuer and consumer, you could end up damaging your future in a short amount of time.

It could take the rest of your life to recover from bad financial mistakes involving too much credit, if you recover at all.

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There’s some good news for American taxpayers this year. First of all, it was recently announced that President Obama would not seek a reduction in tax benefits for those who invest in 529 plans for saving for their kids’ education. Even though it is the wealthy who benefit from this tax break, it is still represents a potential for middle class tax savings, and a reduction in benefit was a bad idea.

401(k) plans are the primary retirement savings vehicle for the middle class, particularly as more employers enroll new employees automatically in the plans. And for those who have the ability to maximize their contribution each year, the new calendar year offers an additional opportunity.

In 2014, the IRS did not adjust the maximum contribution from the previous year. But this year, the maximum contribution to retirement accounts, which include 401(k) accounts, 403(b) accounts, most 457 plans, and Thrift Savings Plans, will be $18,000, up $500 from $17,500.

Savers and investors aged 50 or older can take advantage of a catch-up contribution, effectively increasing the limit for those approaching traditional retirement age. In 2015, taxpayers who meet this age-based criterion can contribute an additional $6,000 above the regular maximum of $18,000. As a result, if you are 50 or older, you can contribute a maximum of $24,000 into these tax-advantaged accounts. That’s up from a total of $23,000 in 2014.

The total contribution limit, including employer contributions, has increased from $52,000 to $53,000.

The benefits of a 401(k) plan are designed to be directed primarily at people who most need an incentive to save for retirement. This may help contain the tax benefits within the middle class. The government does this by applying a maximum level of compensation to which matching benefits apply. In 2015, only the first $265,000 in an employee’s compensation over the course of 2015 may be applied to the company’s matching formula. That income limit has grown from $260,000 in 2014. That’s a sufficiently high maximum and should cover more than just the middle class.

To illustrate, if a company matches an employee’s contributions at a rate of 50% up to a limit of 5% the salary, an employee with a $100,000 salary deferring $15,000 will receive at most a $5,000 matching contribution (5% of the full $100,000 salary). If an employee at the same company ears $400,000 in compensation throughout the year, deferring $15,000, the matching contribution will be $13,250 (5% of the $265,000 maximum compensation, not $20,000). There are additional rules in place that require a company to balance benefits between highly compensated employees (those earning $120,000 or more) and all others.

In 2013, new regulations required 401(k) plan administers to explicitly state in quarterly statements how much investors are paying in fees. Previously, this information was not easy to discover. While you could (and should) look at the various prospectuses in search of management expenses fees or expense ratios, expressed as a percentage of assets, there were at least two obstacles:

  • The expense ratios force you to do your own calculations to determine how much money you’re spending in fees.
  • Not all fees are included in expense ratios. Some funds, like annuity-based mutual funds, don’t have expense ratios but certainly have fees.

To maximize your 401(k) contribution in 2015, spread the $18,000 across the number of paychecks you plan to receive throughout the year. That’s a contribution of $1,500 each month, $750 twice a month, $692 every two weeks, or $346 a week for those age 49 or younger. The calculation for those over 50 who want to max the contribution are $2,000 per month, $1,000 twice a month, $923 every two weeks, or $461 a week.

If your contributions are recorded in the form of percentages, don’t forget to change your contribution to take into account raises and bonuses. If you are expecting your company to match your contributions at some level, if you reach your 401(k) contribution limit before your last paycheck, you may miss out on free money.

Here’s a quick overview of my experience with 401(k) accounts over the past few years, over which time I was employed by a large company in the financial sector, I left that job to work for myself full-time, I sold a business and collected proceeds as income for a few years, and am now back to earning only self-employment income.

Last year, I had the option to contribute part of my self-employment income into an Individual 401(k) plans or a SEP IRA, but I did not do so. Theoretically, I can still choose to invest in a SEP IRA for 2014, so as I prepare my tax return, I’ll determine whether this will be beneficial or not.

In 2013, I was purely self-employed, and with still receiving income as a result of the sale of an asset with installation payments, I won’t qualify for a tax-advantaged retirement plan.

In 2012, I was for about half the year an employee of a company, during which time I faithfully contributed a portion of my income to a 401(k). For the remainder of the year, I have been and will continue to operate this web site as a consultant for that company, and I have not been contributing to a tax-advantaged retirement plan during that time. Assuming no financial tragedies and modest desires, my retirement needs are met, though I’m not sure what I want my retirement to look like.

In 2011, I worked fully for myself. Without an employer, I had no access to a regular 401(k), but I did initiate an Individual 401(k), which follows the same rules. By the end of the year, I expect to have maximized the employee portion of my 401(k) contributions at $16,500 with extra invested for the employer portion.

My 2010 contributions fell short from the maximum by about $700, and a portion of that is due to leaving the company in the middle of December. I received the full company match, a 100% match on the first 4% of my salary that was contributed to the plan, in every pay period.

In 2009, I contributed the maximum $16,500, but I didn’t plan for an extra paycheck at the end of the year, so that last paycheck did not include a contribution to my 401(k). As a result my imperfect calculation, I missed out on a portion of my employer’s matching contribution. Some employers match after taking all contributions for the year into account, but mine contributes on a pay period basis. Any pay period that I did not contribute to my 401(k), the company did not match.

In 2008, I missed the full contribution amount by $1,000. That year, I made several changes to my contribution rate and lost track of what my rate needed to be in order to maximize my contribution.

The following table illustrates the change in 401(k) contribution limits over the past several years.

Year 401(k)
Maximum
Catch-Up
Contribution
Maximum
Allocation
2015 $18,000 $6,000 $53,000
2014 $17,500 $5,500 $52,000
2013 $17,500 $5,500 $51,000
2012 $17,000 $5,500 $50,000
2011 $16,500 $5,500 $49,000
2010 $16,500 $5,500 $49,000
2009 $16,500 $5,500 $49,000
2008 $15,500 $5,000 $46,000

Photo: urban_data

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I can’t claim to be an expert on raising children. In fact, this is one of many, many topics about which I am not an expert. I do not have children of my own, and my observations of my friends and their children are limited. My experience comes from my memory as a child being raised by my parents.

To be honest, I have no idea how my parents managed my development into a somewhat capable adult or what they were thinking at the time, even though I do have a younger brother and had the chance to do a little more observation.

Ron Lieber’s new book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money (Harper, on sale February 3, 2015) will serve as the perfect how-to guide for when I do have children of my own. I will want my offspring to have a well-developed sense of self, including financial issues, long before I did. Maybe I can prevent repetition of some of the mistakes that I lived through, all though sometimes mistakes offer the best opportunities for learning.

Lieber uses his book as an opportunity to encourage parents to start discussions with their children and to guide them in those discussions. In many cases, there are no absolute answers or rules that work for every parent, every child, in every situation. That would be an impossible task, as the financial realities of families wildly, as do children’s developmental processes.

This variety is skillfully woven throughout the book to give readers enough examples and counterexamples to spur reflection and consideration among parents who may not have given money discussions with children much thought. Many of the examples come from Ron Lieber’s community of readers through his column and blog in The New York Times and on Facebook. The author spent a year meeting with many of the families who contacted him to share their experiences, challenges, and decisions.

One anecdote that stuck with me came in a section in which Lieber shared discussions about children who work. I had jobs when I was a teenager, including one retail, but mostly office jobs. These jobs helped me earn a little bit of money, but didn’t really instill much about responsibility. My jobs came during school breaks for the most part, as I believed, as I think my parents did, that education was my priority, and that my “job” was to do well in school.

The author shared a story about a family of nine in Lewiston, Utah, raising 1,800 cows on the family farm. Unlike my life growing up, the children in this family have no time for extracurricular activities.

There is a presumption that [youngest family member Zeb] will work, that his family members will teach him how, and that he will be good at it, quickly. And while none of the boys is a great scholar or a star athlete, their parents operate under the assumption that the ability to perform basic labor is something within every child’s grasp. They know that every boy will grow up to work in the family business, but they’re confident that none of them will be afraid of the effort it takes to succeed someplace else.

The idea of this hard work leads to a discussion elsewhere in the book about the quality of “grit.” Measurements of grit, or how well someone persists, particularly through obstacles, correlates more tightly with direct measures of success than other types of aptitude, like IQ. Allowing children to develop grit through work gives them the ability to handle much more of life as an adult.

An important section of The Opposite of Spoiled focuses on instilling gratitude. Spoiled children show no gratitude for the advantages they have. Lieber offers specific suggestions for dealing with the observations kids have even at an unexpectedly young age. How do you explain socio-economic status to kids who are aware of being rich or being poor through their own observations?

The author points to this research:

[A researcher...] showed 3-year-olds a series of photographs and distinguished between the haves and have-nots. Only half of her subjects thought that the rich and poor people would be friends with each other. Other research has shown that 6-year-olds keep score of which kids have what sorts of possessions and begin to make judgments accordingly. By 11 or so, they’re beginning to assume that social class is related to ambition. Around age 14, they begin to wonder if there is a larger economic system at work that may constrain movement between classes.

It’s safe to say we all know some adults whose attitudes may be stuck at the development level between the ages of 11 and 14. But the book offers great suggestions for addressing issues of class without instilling pity or jealousy.

Lieber also addresses some of the more controversial aspects of child development pertaining to money, allowance and charitable giving.

I don’t read many personal finance books. After a decade of reading some of the best and some of the most laughable, I’ve been kind of burned out by the genre. For the last year, I’ve been selecting my reading carefully. I was initially excited about the opportunity to read Lieber’s latest because I am a fan of his columns in The New York Times, and his articles have often served as inspiration for the topics I’ve covered on Consumerism Commentary.

I’m glad that The Opposite of Spoiled didn’t disappoint. While many readers of Consumerism Commentary have shared their own stories over the years, the concise collection of advice found within The Opposite of Spoiled has offered me new perspectives for raising my future children to be empathetic, understanding, generous, and smart.

Pre-order The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money by Ron Lieber now, in hardcover or Kindle edition.

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How Your Positive Posse is Destroying You

by Luke Landes
Positive Posse

One of the oft repeated mantras in leadership training is to surround yourself with people who understand you and support what you do. This philosophy translates well to people who need emotional support for any endeavor, even if one’s goal is to just keep living. Everybody needs support, and everybody needs to feel that someone ... Continue reading this article…

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Who Benefits From 529 Plans, the Middle Class or the Wealthy?

by Luke Landes
Child in college

When I first began reading that President Obama was considering reducing the tax benefits for savers who make use of 529 plans and other education savings accounts to reduce the cost of education-related expenses, I was surprised. It has been my understanding that 529 plans, all though I do not have one, are intended to ... Continue reading this article…

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New Jersey Business Filing Services: Scam or Not?

by Luke Landes
New Jersey Business Filing Services

Here’s an idea for all you people who like to “hustle” to come up with ways to earn extra income. This has happened to me many times, and it comes it many forms. So far, I haven’t fallen for what I think is at worst a scam, but sometimes, one could argue, is a legitimate ... Continue reading this article…

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Prize-Linked Savings: Win Money For Opening a Savings Account

by Luke Landes
Win to Save - Prize-Linked Savings

Since December, federal banks and credit unions have been allowed to offer savings accounts that include a raffle element, after some states have allowed accounts like these for some time. The goal of these lottery-like accounts is to encourage more people to save money, particularly those households with low and moderate incomes. This was the ... Continue reading this article…

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Is It Time to Invest in Oil? Here’s What I Did.

by Luke Landes
Standard Oil

At the beginning of the year, I joined another investing challenge. This was sponsored by Motif Investing, who provided me and several other financial writers and bloggers $500 to invest in strategies each of us would choose. Like last year’s Grow Your Dough competition, this is a relatively short time horizon for me. In 2014, ... Continue reading this article…

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4 More Personal Finance Rules I’ve Broken

by Luke Landes
Rules

A few days ago I shared four personal finance “rules” I’ve broken. So-called rules sell books because they provide a way for an author to be declarative and have solid opinions, even when these rules have been around for a long time, repeat already well-known concepts, or aren’t appropriate for everyone. Start saving for retirement ... Continue reading this article…

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