Echo Blog

Echo Blog

Top Three Considerations for Taking Distributions from 529 College Savings Plans

By Echo Huang, CFA, CFP®, CPA

You’ve saved and invested money in a 529 plan for years to pay for your son or daughter’s college education and the college enrollment time frame is coming up in the next year. Now that you’re getting ready to enter the “529 withdrawal phase”, you’ll want to be sure to make the right decisions when taking distributions from your 529 account. Here are your top three considerations:

  1. Learn how to take distributions to help you with financial aid. First, become familiar with the Free Application for Federal Student Aid (FAFSA) form. The way that a 529 plan is reported for dependent students, and counted for financial aid, typically depends on the owner of the 529 plan. Typically, a 529 plan owned by a custodial parent is counted as an investment and it may reduce need-based aid by a maximum of 5.64% of the asset’s value.  Depending on your income, your 529 plan may or may not impact your child’s financial aid package. Withdrawals from 529 plans owned by the custodial parent, when used for qualified higher education expenses, are not typically counted as parent or student income. Typically, parents as owners of 529 plans get the most favorable treatments, so ideally the custodial parent should own the 529 plan.

    If non-custodial, non-married parents, living separately or relatives (such as grandparents) own the 529 plan, then the assets are generally not listed on the FAFSA form. However, once the funds are withdrawn, the funds are considered to be the student’s untaxed income on the FAFSA form. Untaxed income can reduce the student’s eligibility for need-based financial aid by as much as 50% of the distribution amount, a much harsher impact than the 5.64% reduction based on the net worth of the parent assets. There are a couple of choices to consider: A. Before taking distributions, transfer the ownership to the parent or child as they both receive more favorable treatment for the 529 plan. B. Withdraw to pay for the senior year’s expenses and the treatment of income is irrelevant for applying for aid.

Financial Steps To Take Now To Set Yourself Up For A Productive 2019

By Amy Ng, Associate Wealth Manager

A personal financial review may not be near the top of anyone’s favorite fall activities, but putting effort into one right now can help you understand exactly where you stand financially, and set you up for a prosperous and less stressful New Year. Here are five simple things you should work on before the ball drops in Times Square:

  1. Set your holiday gift budget limit

    The holidays can be a stressful time for many of us who feel obligated to buy gifts for loved ones.  A great way to avoid this stressor is to set your budget for gifts early on and start saving as soon as possible. Saving early in the fall can help you avoid the stress of putting all your gifts on credit and starting the New Year with a large credit card bill.  If you’re finding yourself faced with a tight budget, you may need to review your current spending habits and pinpoint areas to cut back on in order to free up funds for gifts. 

    At Echo Wealth Management, we always advise our clients to factor “Gifts and Charitable Donations” into their annual expenses to reduce the occurrence of stress during gift giving seasons. 
     
  2. Do a credit check

Withdrawal Strategies During Retirement

By Echo Huang, CFA, CFP®, CPA

You may have heard of the 4% rule for withdrawals during retirement as you approach your retirement. I would like to clarify this rule in this blog post and offer some thoughts on how to withdraw from your nest egg to make the money last for at least your lifetime.

What is the 4% rule?

The rule states that if you begin by withdrawing 4% of your nest egg's value during your first year of retirement, and then adjust subsequent withdrawals for inflation, you'll avoid running out of money for 30 years. If you retire with $2 million, the first year's withdrawal is $80,000 and if the inflation is 2% the second year, you adjust the second year's withdrawal by 2%, that is $81,600. It's simple to use and has been considered as the standard rule for withdrawals for many years. In my opinion, this rule is far from perfect for several reasons:

  1. This rule assumes that your investment mix is 60% stocks and 40% bonds. If you're conservative and allocate 75% to bonds, your portfolio may not grow enough to last your lifetime. If you are more aggressive and have 80% in stocks, your portfolio value may decline sharply during stock market crashes and won't have enough time to recover. Your investment mix should be designed based on all your factors: risk preference, loss capacity, time horizon and market conditions.
  2. The time frame of 30 years of retirement may not be long enough for some people and may be too long for others. If you retire early at age 50, your portfolio may have to last more than 30 years. If you retire late at age 70, you may limit your lifestyle spending too much by sticking to the 4% rule if you don't expect to live past age 85 based on your health conditions and family history. There is no do-over in retirement - running out of money even a year before you die is a failure and you simply cannot go back to work at age 89.
  3. Investment return expectations are outdated. When the rule was introduced in the early 1990s by William Bengen, then a financial planner in California, the historical data used at the time included periods that bonds had a high rate of return. Based on the current and projected interest environment, it is unreasonable to assume bond returns of 5% to 6% for next decade. The current federal funds rate is 2.25%. The federal funds rate's year-end estimate for year 2020 is 3.38%, based on the September 2018 FOMC meeting.

Should I Change My Asset Allocation When I'm About to Retire?

By Echo Huang, CFA, CFP, CPA

It takes years to accumulate and grow your nest egg with disciplined saving and investing to an amount where you finally feel comfortable hanging up your spurs and starting the next phase of your life, Retirement.  Now you are about to start ticking off the items on your bucket list; perhaps traveling with family to amazing destinations, pursuing your passion in music or the arts or volunteering with some non-profit organizations. Your portfolio, on the other hand, must continue to work hard for you in order to last at least your lifetime, and that can be 30 years or more.  

In this post, I would like to share what I think you should consider to review your portfolio and make adjustments as needed.

Although it's hard to go very wrong with a simple 50% stock/50% bond mix, there aren't any one-size-fits-all asset allocations for retirement portfolios. An individual's age, retirement income such as social security and pension income, withdrawal rate, and risk profile, among other factors, can all dictate higher or lower equity or bond weightings.  

  1. Allocation to Equity (stocks).  Assume that you have an average appetite for risk, you can take your age, subtract from 110 to determine how much of your portfolio should remain in stocks.  For example, if you are age 65, then allocate 45% to equity and 55% to bonds and cash. If you have longevity gene in your family history and your personal life expectancy is over age 90, consider using 120 instead of 110 to calculate your equity allocation.  As a general rule, you don't want to have too much money tied up in cash, and while you most definitely need an emerging fund going into retirement, that money should be in its own separate account.

Congratulations to Tyler Lodahl for Earning the Distinguished CERTIFIED FINANCIAL PLANNER™ Designation!

By Echo Huang, CFA, CFP®, CPA

We are very excited to announce that Tyler Lodahl has been awarded the Certified Financial Planner™ designation by the CFP Board of Standards. He now becomes one of the youngest CFP® practitioners in the country, as only 4.71% of active CFP® professionals are under the age of 30! Based on the recent data from the CFP Board, the current total number of active CFP® Certificants is just 80,981.

The CFP® certification is recognized as the highest standard in personal financial planning. Anyone can call themselves a "financial planner". Only those who have fulfilled the rigorous certification and renewal requirements of the CFP Board can use the CFP® certification trademarks which represent a higher level of competency, ethics and professionalism.

Through the hard work of our team members and the loyalty of our wonderful clients, Echo Wealth Management has been growing!

Avoid Lifestyle Inflation

By Amy Ng, Associate Wealth Manager

As you age and realize your earning potential, it’s only natural that you will add to and enhance your quality of life. Economic theories assume that humans are rational beings, yet the irrational action of spending beyond ones’ means is a very common reality. Many people see every income boost as a means of buying more stuff. Each raise at work results in a new addition to an increasingly cushy lifestyle filled with unnecessary purchases. The result is people putting off retirement. Even with plentiful salaries, the ever increasing investment in stuff leads them to constantly feeling like they don’t have enough money. Most of us have, or know others who have, experienced the allure of lifestyle inflation. Today’s post covers five things to consider when experiencing this enigma:

  1. Identify Your Goals
    Upon receiving a raise or bonus, one of the first best things you can do is sit down with your loved ones and discuss your personal and financial goals. Talk about where you want to be in two, five, or even ten years. Whether you want to travel more, save for your children’s educations, pay off debt, or buy a home, you’re more likely to avoid lifestyle inflation if you understand how those funds can bring you closer to achieving those goals.
     
  2. Get The Money Out Of Your Hands

Get to Know Jared Johnson, Our New Team Member!

By Echo Huang, CFA, CFP®, CPA

As my company successfully expands, I am pleased to welcome Amy Ng and Jared Johnson as the newest additions to our team. Both Amy and Jared started working here on June 11, 2018 and they are in training to be Associate Wealth Manager, overseeing and enhancing the Echo Dashboard and designing customized financial plans for clients.

These two distinguished individuals are passionate about serving people and they have various skills and strengths that will bring our company’s personalized services to a higher level.

Amy joins EWM with seven years’ experience in client administration, with three of those years specific to finance management. She graduated from Metropolitan State University Summa Cum Laude in 2017 with a BS in Finance. Amy currently studies for her MBA at Hamline University.

Jared is a recent graduate of Saint Mary’s University of Minnesota where he competed in NCAA hockey and graduated Summa Cum Laude in 2018 with dual Bachelor of Arts Degrees in Finance and Business Intelligence & Analytics.

They will enroll in a CFP® certification program soon to obtain comprehensive study of all areas of financial planning in order to become a CFP® practitioner in two to three years.

Get to Know Amy Ng, Our New Team Member!

By Echo Huang, CFA, CFP®, CPA

As my company successfully expands, I am pleased to welcome Amy Ng and Jared Johnson as the newest additions to our team. Both Amy and Jared started working here on June 11, 2018 and they are in training to be Associate Wealth Manager, overseeing and enhancing the Echo Dashboard and designing customized financial plans for clients.

These two distinguished individuals are passionate about serving people and they have various skills and strengths that will bring our company’s personalized services to a higher level. 

Amy joins EWM with seven years’ experience in client administration, with three of those years specific to finance management. She graduated from Metropolitan State University Summa Cum Laude in 2017 with a BS in Finance.  Amy currently studies for her MBA at Hamline University. 

Jared is a recent graduate of Saint Mary’s University of Minnesota where he competed in NCAA hockey and graduated Summa Cum Laude in 2018 with dual Bachelor of Arts Degrees in Finance and Business Intelligence & Analytics. 

They will enroll in a CFP® certification program soon to obtain comprehensive study of all areas of financial planning in order to become a CFP® practitioner in two to three years.

To learn more about Amy and Jared, please read their bios and see their pictures here on our web site:

http://www.echowealthmanagement.com/our-team

Let's learn more about Amy in addition to reading her bio.  She's answered these questions I asked this week:

  1. What excites you the most about your work?
    Being able to assist our clients in achieving their goals and of course building relationships!  As someone who values human connection, I revel in learning about the diversity of our clients.

What Should You Expect from Your Financial Advisor?

By Echo Huang, CPA, CFP®, CFA

You may be working with a financial advisor and wonder what you should expect from your financial advisor. You may be someone who is thinking of hiring a financial advisor as your financial picture becomes more complex and you really want to have an expert in your corner to help you better plan for your financial future. I’ve put together a list of expectations that I believe are important to consider when choosing or evaluating a financial advisor.

Savings Alone Won't Pay for College

By Echo Huang, CPA, CFP®, CFA

A college diploma opens the door to a lifetime of higher earnings. Based on Bureau of Labor Statistics, in 2016 dollars, Bachelor's degree holders earn nearly $1 million more over a lifetime than those who have only a high school diploma. Those with professional degrees earn over $2 million more. In addition, college graduates enjoy much better job security and opportunity, especially during economic downturns. Based on "The State of Entry-Level Employment in the U.S. March 2017" by The Rockefeller Foundation, seven in ten U.S. employers look for college degrees when hiring entry-level workers.

For many parents, college is one of life's most important, and expensive, investment goals. How much does it cost? How much can you expect from financial aid? How can you invest and earn more while borrowing less? I would like to answer these questions here and provide some strategies for successful investing.

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