Investing, Stock Market and Retirement Planning Thread

NTP66
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Postby NTP66 » Fri Dec 28, 2018 1:30 pm

PA's 529 plan is trash, and residents can open 529s from any state.
Yes but I'm pretty sure you only get the tax deduction if you contribute to a PA plan. Though I don't do much tax anymore so perhaps that changed
Nope, you still get the deduction even if you contribute to an out of state plan.

Tomas
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Postby Tomas » Fri Dec 28, 2018 1:36 pm

PA's 529 plan is trash, and residents can open 529s from any state.
Yes but I'm pretty sure you only get the tax deduction if you contribute to a PA plan. Though I don't do much tax anymore so perhaps that changed
Not an expert on PA, but if this website is correct:
State tax deduction or credit for contributions:
Contributions to Pennsylvania AND non-Pennsylvania 529 plans of up to the gift-tax annual exclusion amount ($15,000 in 2018) per beneficiary are deductible in computing Pennsylvania taxable income.
https://www.savingforcollege.com/529-pl ... tment-plan

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Postby willeyeam » Fri Dec 28, 2018 1:54 pm

Ah that's good then

NTP66
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Postby NTP66 » Fri Dec 28, 2018 1:55 pm

As a PA resident and holder of the Utah plan for the past six years, I can confirm that it’s correct.

mac5155
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Postby mac5155 » Fri Dec 28, 2018 4:36 pm

PA's 529 plan is trash, and residents can open 529s from any state.
Yes but I'm pretty sure you only get the tax deduction if you contribute to a PA plan. Though I don't do much tax anymore so perhaps that changed
According to the website that I used to evaluate which plan to enroll in, any states plan was tax deductible.

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Postby mac5155 » Fri Dec 28, 2018 4:37 pm

Oops, I now see it was on a new page.

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Postby mac5155 » Fri Dec 28, 2018 4:41 pm

As a PA resident and holder of the Utah plan for the past six years, I can confirm that it’s correct.
Did the low (no?) fee draw you to Utah?

I went off performance rating, and I also liked that Ohio used Vanguard to manage.

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Postby NTP66 » Fri Dec 28, 2018 4:48 pm

As a PA resident and holder of the Utah plan for the past six years, I can confirm that it’s correct.
Did the low (no?) fee draw you to Utah?

I went off performance rating, and I also liked that Ohio used Vanguard to manage.
That and the fact that I could create my own custom glide path. I can change it later on if need be.

Image

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Postby mac5155 » Thu Jan 03, 2019 8:46 pm

Is it worthwhile to cancel a credit card with my highest limit, had it since around 2015. I want to get another card for some upcoming travel, and I have a decent bit of accounts open.

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Postby MrKennethTKangaroo » Thu Jan 03, 2019 10:07 pm

Is it worthwhile to cancel a credit card with my highest limit, had it since around 2015. I want to get another card for some upcoming travel, and I have a decent bit of accounts open.
Generally speaking the higher the credit limit you have, the better. Also generally speaking, the more available revolving debt, the better. You can get dinged for having too many revolving accounts with balances.

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Postby mac5155 » Thu Jan 03, 2019 10:23 pm

Is it worthwhile to cancel a credit card with my highest limit, had it since around 2015. I want to get another card for some upcoming travel, and I have a decent bit of accounts open.
Generally speaking the higher the credit limit you have, the better. Also generally speaking, the more available revolving debt, the better. You can get dinged for having too many revolving accounts with balances.
I have three with balances. About 30 percent utilization at the moment. Will likely drop in a few months to zero.

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Postby scb147 » Thu Jan 03, 2019 11:31 pm

Living in PA, I never realized that I could get a 529 from another state. Can I move my current PA 529 to another state's 529?

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Postby shafnutz05 » Fri Jan 04, 2019 7:29 am

I am paying off almost all of two credit cards once I get my bonus in the next paycheck. I cannot wait.

NTP66
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Postby NTP66 » Fri Jan 04, 2019 8:04 am

Living in PA, I never realized that I could get a 529 from another state. Can I move my current PA 529 to another state's 529?
Call to confirm, but I believe that you’re allowed to rollover to a new plan once annually.

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Postby LITT » Fri Jan 04, 2019 8:19 am

I am paying off almost all of two credit cards once I get my bonus in the next paycheck. I cannot wait.
:thumb: :thumb:

we paid of all of our non-mortgage debt about 12 months ago. was a great day.

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Postby MrKennethTKangaroo » Fri Jan 04, 2019 8:25 am

Is it worthwhile to cancel a credit card with my highest limit, had it since around 2015. I want to get another card for some upcoming travel, and I have a decent bit of accounts open.
Generally speaking the higher the credit limit you have, the better. Also generally speaking, the more available revolving debt, the better. You can get dinged for having too many revolving accounts with balances.
I have three with balances. About 30 percent utilization at the moment. Will likely drop in a few months to zero.
30 percent wont ding you and having 5 or 6 cards wont either.

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Postby Tomas » Fri Jan 04, 2019 5:10 pm

Living in PA, I never realized that I could get a 529 from another state. Can I move my current PA 529 to another state's 529?
Most likely you will be able to do it. However, before you do that, figure out whether you will be charged a tax. For example, my current home state (Arkansas) would demand repayment of all the state tax write-offs I was able to take due to my contributions to the Arkansas 529 plans. Pennsylvania might require something similar.

In any case, though, you can own multiple 529 accounts for the same beneficiary. So, even if your don't move your current PA investment, you can simply open a new 529 account in a different state.

The one potential benefit of having some money in your own state 529 plan is that some states (Arkansas being one of them) now allow 529 funds to be withdrawn to finance private k-12 education. And while I am reasonably sure Arkansas will allow AR529 funds to be used that way, I don't think other states' 529 funds would qualify.

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Postby Tomas » Mon Jan 07, 2019 4:59 pm

As a PA resident and holder of the Utah plan for the past six years, I can confirm that it’s correct.
Did the low (no?) fee draw you to Utah?

I went off performance rating, and I also liked that Ohio used Vanguard to manage.
I finally have some time to write a few comments on the proper strategies for 529 plan selection:

First order effect (will likely create tens of thousands worth of profit):

Investing in ANY 529 plan beats not investing! :)

Important second order effect (will likely create you $10,000+ worth of profit):

Performance rating and the investment company identity (Vanguard, TIAA, etc.) are rather worthless criteria to pick the 529 plan on. I am a finance professional, I educate future stock pickers, and I benefit from people investing in managed funds (because their fees allow Vanguard, etc. to lower index fee funds) - but I can guarantee that there is a TON of evidence that you have a MUCH higher chance to earn less when investing in the managed (stock picking) funds compared to simple index funds. The "past performance" means nothing - very likely the past winners were just lucky (in other words, somebody has to finish first). I could go on and on and on - but I won't... :)

Investment company identity: what matters is not that the state uses, say, Vanguard funds, but the TOTAL fees that include - sometimes huge - state administrative fees. An example: Arkansas uses (seemingly cheap) Vanguard funds, but adds state fees that ultimately lead to rather high total fees of 0.53% (and it was actually 0.75% until 2-3 years ago). Note that even the Utah plan described on this page adds 0.2% to all funds!!

So what to do: the funny thing is that managed funds (and, in particular, target date funds) HAVE TO disclose their holdings. Very often, the asset distribution resembles the chart @NTP66 posted in his above post on this page. And here lies the trick: you can indeed achieve pretty much the full benefits of proper diversification with just 3 funds - one stock index, one bond index, and one (guaranteed return) money market (the Utah 529 plan described above on this page has a luxury - both US and international index funds. I think US index fund is quite sufficient). I can guarantee that going to the 529 plan website every January and spending 10-15 minutes to readjust the portfolio distribution to perfectly mimic the (mandatory-disclosed ) distribution of target date funds will pay big, big time.

Somewhat less important 3rd order effect:

Do your research on the TOTAL fees. For example, the CA stock index has the fee of 0.08% (management 0.03%, expenses 0.05%, board fee 0%), the bond index cost is 0.15% (0.03+0.12+0) and the guaranteed money market comes with a big fat ZERO cost! Just eyeballing the numbers, that means that mimicking Utah structure with California funds will save me at least 0.1% every year. This 0.1% saving (assuming $5,000 annual investment and 8% portfolio return) will create about 1% real value over the 18-year horizon. Not a huge value, but why to waste roughly $2,000?

Enough for today. :)

If I have some more time in the future, I will make case for keeping 100% stock allocation FOREVER on your 529 account (a first order effect for people who are reasonably wealthy)...

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Postby NTP66 » Mon Jan 07, 2019 7:24 pm

100% all the way? I’m all ears. I viewed the 529 like I do retirement, where most are much more risk averse as they approach withdrawal age.

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Postby NTP66 » Mon Jan 07, 2019 7:54 pm

Also, it’s not an exact comparison when looking at Utah and California. You hit on it earlier, but the fact that they’re completely separate funds (VG for UT, TIAA for CA) is still worth noting.

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Postby Tomas » Mon Jan 07, 2019 9:42 pm

Also, it’s not an exact comparison when looking at Utah and California. You hit on it earlier, but the fact that they’re completely separate funds (VG for UT, TIAA for CA) is still worth noting.
No, they are perfectly equivalent - both are market index funds, so they track pretty much the same thing. The difference is that CA will charge you less (because the state does not want it's cut) whereas UT, thanks to state cut of 0.2% makes its funds more expensive despite those funds being managed by a cheaper company (Vanguard).

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Postby NTP66 » Tue Jan 08, 2019 6:49 am

Pretty much the same thing, but not exactly the same, which is my point. Splitting hairs, I know.

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Postby Tomas » Wed Jan 09, 2019 10:21 am

100% all the way? I’m all ears. I viewed the 529 like I do retirement, where most are much more risk averse as they approach withdrawal age.
There are two reasons NOT to view 529 investment like a retirement: (1) 529 will likely not be your main (and ultimate) asset and (2) (more importantly) different taxation of 529 vs. 401k/403b.

The Utah 529 portfolio weights @NTP66 posted

Image

- and especially the huge weight put on cash after year 16 - are IMO highly sub-optimal. They work only for people for whom the 529 value at the age of 16 truly determines the level of financial support they will be able to provide for their child AND, at the same time, they cannot afford to hold any stocks in their PERSONAL portfolio. There definitely are people like that, but I also think that for many people, 529 is just one of the assets they hold, and they are also wealthy enough to hold some stocks in their personal portfolio (say, Vanguard brokerage account). For those people, the following holds:

As long as you are wealthy enough to hold ANY stocks in your total portfolio, you are robbing yourself if your hold the stocks in your personal brokerage account, while your 529 account holds cash or bonds. The capital gains in your 529 account will NOT be taxed, while the capital gains in your brokerage account will be subject to taxation.

Basically, you should view the 529 account the following way: for your determination to push your kid to study hard to get to and through college (remember, if the kid does not go to college, you will pay substantial penalties on withdrawal from 529), the state and federal government give you the wonderful opportunity to avoid capital gain taxes for the next 20+ years. So, your 529 account should hold ONLY assets with the highest gain potential (i.e. the riskiest assets) you are comfortable holding given your total personal wealth.

A simple example: Assume that your 529 account holds $100,000. And, assume that given your total wealth, you are comfortable holding $100,000 worth of stocks (in addition to bonds, cash, real estate, etc.) in your total portfolio. In that case, your $100,000 worth of stocks should be fully residing in your 529 account - not in your Vanguard brokerage account - in order to avoid taxation of all the expected capital gains. [If, at the same time, you are very risk averse and want to protect the value you saved for your kid toward college, simply told $100,000 of extra cash in your personal bank money market account!].

Incidentally, in terms of retirement, the same thinking applies to your ROTH IRA account. Even in retirement, most models suggest that SOME of your retirement assets should be held in riskier assets such as stocks. Provided that ROTH IRA constitutes a relatively smaller fraction of your retirement account, ALL of its assets should be held in the riskiest asset you find optimal to hold.

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Postby NTP66 » Wed Jan 09, 2019 10:27 am

Thanks for the write-up. So your own plan is to have your 529(s) 100% equities the entire time? Our target going into this was basically a dollar figure - $25k. We hope that's enough for one year at a private school, or multiple years at a community college. Either way, the rest can be covered via financial aid or, hopefully, scholarships.

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Postby mac5155 » Wed Jan 09, 2019 10:45 am

Mrs mac has a few student loans - private (Signature?) loans through Navient (nee Sallie Mae). The interest rate on them is pretty substantial. Is it worth refinancing them? I'm not losing any benefits, i don't think - they're not federally backed. I thought about going through SoFi or Citizens bank, etc. Curious thoughts? The payment isn't a problem but was hoping to shave a few years off the term. The interest on one is almost 12. Hell I can get a private unsecured loan from PSECU for 9.9%.

So nice of her to wait like 3 years to tell me - also a benefit, her sister is a cosigner so I'd be helping her out.

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