What is going on with gold!?!

The gold market has seen some of its more volatile trading days recently. What does it mean for us as investors? Is it time to buy now?

Gold is a safe haven that has few equals. It is a store of value, but you must pay a ‘cost of carry’ to own gold and it doesn’t produce yield. Gold’s allure is derived from the belief that no matter what happens in the world it will retain value. Can we say the same for the Lira?
The insatiable demand for gold over the past decade was fed by the uncertainty that followed the global economic downturn. Since the economic collapse in 2007-2008, the price of gold has doubled in dollar terms. What we are seeing in the recent violent market drop is a realization that as bad as things got in 2007-08, they are now in the rear-view mirror. Gold Chart

Sure there are plenty issues to be resolved, but the concern wasn’t Cyprus or Spain or deficit spending in 2008. I believe the real fear among every government and many investors was the possibility of a complete failure of fiat money on a global scale. Fiat money is currency that is backed by the full faith of the government issuing it. The United States is rebounding from the recession and the equity market has joined in tandem. Dow Jones chart The dollar has remained steady.

Many gold bugs cling to the decline of local currencies, deficit spending, ‘superficially’ low interest rates, and the great unknown as support for their holdings. The problem is, there is a cost to carry gold and there is 0% yield!  So when things seem to ‘normalize’ gold becomes expensive to hold. Gold doesn’t pay!

The unwind in gold will take some time as central governments and global investors alike adjust to the new normal.

Tax Planning

Tax Planning

Now that tax day has come and gone, its a good time to reflect on what you would have changed about your 2012 taxes. Here’s a couple thoughts to consider for your 2013 tax planning.

  •  Did you accurately track all un-reimbursed employee expenses?
  •  Did you save records of all charitable expenses? Including mileage?
  •  Did you take full advantage of employee matches?
  •  Did you use your FSA/HSA to your full advantage?
  •  Did you take advantage of your state’s 529 plan? Louisiana’s plan offers state tax breaks and even a match!
  •  Did you adjust your withholdings so that you aren’t lending Uncle Sam money all year for free?
  •  Did you maximize your qualified contributions?
  •  Did you save at least 10% of your family’s gross income?
  •  Did you maximize you capital gains? Short term and long term?
  •  Was your portfolio allocated tax efficiently among the different types of accounts?

What’s the best way to fund college in Louisiana?

Parents need to start saving for education expenses as early as possible. It is estimated that over the next 18 years the costs of attending a public university in Louisiana for an undergraduate degree could cost as much as $174,000! People often ask me, “What’s the best way to fund college expenses for a loved one?” There are a couple options, but a 529 plan trumps the Coverdell and the use of a Roth I

What is a 529 plan?
A 529 plan is qualified plan that was developed to help fund education expenses, using tax benefits as incentives.  Earnings inside of a 529 plan grow tax free, and will be tax exempt if used for Qualified Higher Education Expenses (QHEE). These expenses include tuition, fees, room, board, books, supplies, special needs services, and certain required equipment.
A 529 plan offers flexibility by allowing the account owner to transfer the account to different beneficiaries, even allowing the account holder themselves to be beneficiaries.

A unique advantage to the 529 plan is estate related. Assets inside of a 529 plan are removed from your taxable estate, but the account owner maintains control of the assets. This can be a valuable tool when combined with the opportunity to front load your funding. Front loading allows an individual to stack 5 yrs of gifts ($14k/yr for 5 yrs= $70k all at once). Couples filing jointly can stack $140k at once without generating a taxable gift. When you consider the flexibility of changing beneficiaries, there are few comparable options.

Why is LA START a better 529 plan?
Most states offer 529 plans, but, believe it or not, Louisiana has one of the finest programs in the USA! The Louisiana Student Tuition Assistance and Revenue Trust Program, commonly referred to as the “START Saving Program,” is a great way to save for college and other post secondary schools in a qualified account. Louisiana’s START program is direct sold, which means there is no middleman in between your funds and the plan, you deal directly with the plan administrator which is the Louisiana Office of Student Financial Assistance. The START program has no administrative fees or charges and uses several low cost Vanguard funds, leaving more money for your beneficiaries to use for college. Direct selling reduces expenses dramatically, but it also explains why so few people are familiar with the plan. Brokers don’t get paid to sell them, so they don’t sell them.
Very few states offer a ‘matching program’ but Louisiana has a match with a sliding scale of 2% to 14% depending on account type and adjusted gross income. These matches are called earning enhancements, they are savings incentives added to your account annually. Consider earnings enhancements as ‘free money’ for post secondary education savings.

Another benefit of the Louisiana plan offers a state tax break for account owners based on each year’s contributions. Couples can reduce their taxable base by $4,800/yr and individuals $2,400/yr.
Also, it should be noted that one of the fixed income investments offered is a deposit in the Louisiana Principal Protection Fund is guaranteed by the State of Louisiana and last year this fixed income fund yielded over 2.5%. How will a 529 affect financial aid?
 The assets inside of a 529 plan remain the possession of the account holder which will greatly reduce the impact of a 529 plan on a student. Parental assets are currently assessed at a maximum of 5.64% of total value for the Expected Family Contribution(EFC) calculation used by FAFSA.  Grandparents 529 plans will be assessed a higher EFC, but will only affect the financial aid the year following the distribution. Grandparents should consider saving their 529 plan distributions for senior year if reducing financial aid availability is a concern. Here are the details on Effective Family Contribution EFC.

What if my beneficiary gets a scholarship?
If your beneficiary is fortunate enough to get a scholarship, what can you do with the funds inside of the 529 plan? It is worth noting that most scholarships will only cover a portion of a student’s qualified expenses that could be funded out of your 529. But if it looks like you will still have money left in the account after paying these expenses, there are a couple alternatives. The IRS allows account owners to refund assets equal to the value of the annual scholarship without incurring the 10% penalty (contributions are never taxed, earnings will be taxed as ordinary income). Another way to use excess 529 funds is to simply change beneficiaries.

How do I get started?

To open a 529 plan with the LA START, either the beneficiary or the account owner needs to be a Louisiana resident when the account is opened. Once the account is open, residency is no longer necessary. There are 6 categories of account ownership. Accounts can be opened with as little as $10. Once the account is open, there are no time limits for funding or distributions. START funds can be used for qualified higher education programs in ANY state.