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Should I Superfund A 529 Plan? Evaluating The Pros And Cons

Published: 05/26/2020 | Updated: 07/05/2020 by Financial Samurai 14 Comments

A 529 plan is a good way to save and invest for your child’s education. The after-tax money you put into your child’s 529 plan gets to compound tax-free, just like a Roth IRA retirement account. Further, when you use the money to pay for qualified college education expenses like tuition and books, the money is not taxed. The question some ask is whether it’s good to superfund a 529 plan.

Thanks to the 2017 Tax Cut And Jobs Act, $10,000 a year from the 529 plan can also be used to pay for grade school tuition as well. The added flexibility is nice for parents who are considering sending their kids to private school. Tuition can range from between $10,000 to $60,000 a year.

Should I Superfund A 529 Plan? The Pros And Cons

Normally, the maximum each parent is recommended contribute to a 529 plan is based on the maximum gift tax exclusion amount. This amount is $15,000 per parent per year in 2020 versus $10,000 in 1997.

The $15,000 per year is not limited by parent. It is limited by person. In other words, if you get two sets of grandparents to also contribute $15,000 each, along with two parents, that’s six people who can contribute a total of $90,000 a year! If this happens, your child will become a 529 plan millionaire in no time.

Just note, if you give more than $15,000 in cash or assets (for example, stocks, land, a new car) in a year to any one person, you’re supposed to file a gift tax return. You don’t actually have to pay a gift tax since you’re still living. You’re also not going to be sent to prison, like the parents who were caught bribing university officials to help their children gain admission. So don’t worry.



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Would You Risk Months Of Prison To Set Your Kids Up For Life?

Published: 05/24/2020 | Updated: 06/06/2020 by Financial Samurai 76 Comments

Every parent can attest they are willing to do everything in their power to give their children a good life.

Once you have kids, the money will come because you become so motivated to work harder. Not only will you work harder and pay better attention to your finances, you’ll also likely get in better shape because you want to increase your chances of seeing your kids grow up!

Given the desire to give our children a better life, it’s understandable why wealthy families try to bribe their children’s way into various universities every year. We live in a hyper-competitive world.

When Lori Loughlin and Mossimo Giannulli’s plea bargain deal was announced, I was shocked.

Loughlin and Giannulli allegedly paid $500,000 to Rick Singer — the man at the center of the college admissions scandal and the founder and CEO of the company The Key: A Private Life Coaching and Counseling Company — to falsely designate their daughters as recruits to the USC crew team, though neither actually participated in the sport.

Despite evidence from the FBI showing they were guilty, Loughlin and Giannuli held out and stated they were not guilty. Meanwhile, many parents, including Rick Singer, admitted they were guilty. Things were not looking good for this celebrity couple.

For example, Napa Valley winemaker, Agustin Huneeus was sentenced to five months in prison for his role in the college admissions scandal. Prosecutors said Huneeus paid $50,000 for a proctor to sit with his daughter and correct answers as she took the SAT exam. He also paid $50,000 to a University of Southern California athletic department official and agreed to pay $200,000 more when his daughter was accepted to the school as a water polo player.

In another example, LA business executive, Devin Sloane pleaded guilty to fraud and conspiracy for paying $250,000 to get his son admitted to USC, also as a phony athlete. Sloan was sentenced to four months in prison.

Given Loughlin and Giannuli defied the government and paid much more in bribes, the general consensus was that they would ultimately receive a more severe punishment. Lucky for them, that was not the case.



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Why You Should Have A Separate 529 Plan For Each Child

Published: 05/22/2020 | Updated: 07/26/2020 by Financial Samurai 12 Comments

A separate 529 plan for each child versus one 529 plan for multiple children makes the most sense. Let me share with you the reasons why in this post.

When my wife was in her third trimester, we began to brainstorm about all the things we needed before our daughter was born:

  • Name for birth certificate and Social Security #
  • Sleeping arrangement
  • The type of crib, bassinet, and sleeping devices to use
  • The various size diapers, bottles, nipples, swaddles, hats, nose aspirators, clothes, socks
  • The safest car seat
  • New tires and recently performed car maintenance
  • Childcare help

Once we got done with the basics, we focused our attention onto education and finances. Because we already have a son in preschool, if our family remains in good standing, his school policy is siblings automatically have a spot when it’s time to enroll. I think this policy is pretty standard across all schools.

With preschool concerns out of the way, we focused on paying for our daughter’s education through a 529 plan. To keep things simple, my initial thought was to add my daughter to my son’s 529 plan. Alas, after doing some research, it’s probably better to have a separate 529 plan for each child.

If you are faced with the same dilemma, here are the reasons why a separate 529 plan for each child makes more sense.



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Become A Better Father: Time To Man Up Dads!

Published: 05/18/2020 | Updated: 06/21/2020 by Financial Samurai 97 Comments

how to be a good father

Before becoming a father, I dreaded changing diapers. Now that I am a father, I long to win the poop lottery. To see my boy take a gigantic dump is curiously gratifying. Digestion system. Check!

Before becoming a father, I wrote a lot about supporting mothers because I couldn’t fathom having to carry a child in my belly for nine months. It didn’t seem possible to naturally give birth to something so big. Watching a C-section video is also uncomfortable. I felt guilty not providing equal care. It was the least I could do.

But now that I am a father, I’ve come to realize that I haven’t been giving fathers enough credit. Being a father is damn hard work! From 11pm – 6:30am shifts, to then having to go grind it out at work, to providing constant moral support, I give props to all dads.

There is a tremendous amount we fathers can do to provide for our children and make our partners’ lives easier.  



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A Night Doula Costs A Lot Of Moola: Postpartum Childcare Help

Published: 05/12/2020 by Financial Samurai 54 Comments

As any expecting first-time father would do, I read several books on how to support my wife during her pregnancy, what I should do as a father, and how to care for a baby after birth. I also talked to about 25 moms (12 of which were moms of the boys HS tennis team I coached) about what they wished they had more of or what they would have done differently during their 4th trimester.

Without hesitation, most moms told me they wished they had more support. The first 3-6 months after childbirth is usually quite brutal. The support could have come from more paid time off, more help from grandparents and friends, or more help from their husbands.

I also went down a deep rabbit hole online learning about a lot of parents who lost their babies during the first six months postpartum. It is very sad and fear-inducing, but it is also important to know what might happen without proper care.

Given I didn’t want to mess things up as a first-time father and we didn’t have any local support, I did more research on finding support postpartum. I landed on the benefits of hiring a birthing doula, a day doula, and a night doula.

After being super frugal since graduating from college, now was the chance to finally spend up on something that will help the people I love the most. Here is a guest post from my wife on everything you should know about hiring a night doula.

Before Sam and I had our first child, all I could really think about was getting through the pregnancy and surviving the birth. What I should have done was spend more time preparing for everything that comes postpartum.

Sure, we took newborn care classes, got all the appropriate baby gear, and prepared the nursery. We felt ready. When our son finally arrived though, Sam and I were flooded with indescribable joy juxtaposed with overwhelming first-time-parent anxieties and intense sleep deprivation.

After a few weeks, we realized we needed more help than we anticipated, and hired a night doula.

I’m going to explain why we decided to hire night doulas with both of our two kids, how much it cost us (not cheap!), and what our experiences were like hiring and getting support from night doulas.

So, just what is a night doula and should you hire one?



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A Real Estate Goal Every Investor With Kids Should Consider

Published: 05/10/2020 | Updated: 07/01/2020 by Financial Samurai 36 Comments

A real estate goal every investor with kids should consider

As a real estate investor, you should always have a real estate goal to shoot for. Real estate goals will help you stay on target to build your real estate empire.

As a real estate investor with kids, you’ve got more responsibility. What are the three things that cause the most financial stress for every family or aspiring family? I postulate they are:

  • Healthcare costs
  • College tuition costs
  • Living costs (rent or saving up to own a home)

Solving rising healthcare costs comes with a couple of conundrums. To get subsidized healthcare, you’ll probably have to work for an employer. If you like your job, this is OK. But if you are like most people who are disengaged from their jobs, you’ll eventually come to feel like you’re trapped in golden handcuffs.

If you’re an early retiree, one solution to combat your rising healthcare costs is to make less than 400% of the Federal Poverty Limit and receive subsidized healthcare from the government. Otherwise, you’ll have to pay full price as we do, no matter how healthy you are. But do you really want to live near abject poverty just so you can get subsidized healthcare? Probably not.

Solving college tuition costs is comparatively simple. Go to a community college for two years and then transfer to a 4-year state school. Or be smart enough to receive grants. Or skip college altogether and go to a trade school.

Unless you are already rich, paying private college tuition is one of the best wealth transfers from the middle class to the rich. We’ve all heard the cacophony of complaints about crushing student loan debt and bad jobs after college graduation.



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A Day In The Life Of Two Stay At Home Parents Who Also Work

Published: 05/08/2020 | Updated: 12/14/2020 by Financial Samurai 94 Comments

A day in the life of two work from home parents with a business

Stay at home parenting is one of the hardest and most rewarding things one can do. This article will share a day in the life of two stay at home parents who also work on a side business.

The purpose of this article is to:

  • Help folks realize that working from home and taking care of a child is not as easy as you might think. It’s actually much easier to drop your kid off at daycare.
  • Discuss ways to be a better parent and more efficient producer while at home.
  • Encourage the 3% of the male parent population who are stay at home dads to speak up about their experiences. And of course hear from stay at home moms as well.
  • To recognize there is no one way to raise a baby since every baby and family situation is different.
  • Highlight how difficult juggling parenthood and work is during a global pandemic. After more than 10 months of sheltering-in-place with preschools closed, life has been extra difficult.

More Full-time Working Parents



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Roth IRA Or 529 Plan To Pay For College: Comparing The Pros And Cons

Published: 05/08/2020 | Updated: 01/16/2021 by Financial Samurai 55 Comments

One of the main questions that has come out of my 529 savings guide by age post is whether to contribute to a Roth IRA or a 529 plan. This is a great question I did not think about because contributing to a Roth IRA is not something I have ever done.

Fortunately or unfortunately, by the time I worked a full year in finance, I was no longer eligible to contribute to a Roth IRA due to the income limit requirement. Instead, I just focused on maxing out my 401(k) every year for the next 13 years until I left full-time work for good.

Partly due to my inability to contribute to a Roth IRA, I developed a negative bias towards the investment vehicle. It made no sense to me why the government would set arbitrary income limits for retirement savings when I believed everybody deserved to save efficiently for their future. Further, the article is a nice counterpoint to the 99% positive Roth IRA articles out there.

Now that I’m older, wiser, and have two children to consider, let’s take a look at the pros and cons of contributing to a 529 plan or a Roth IRA for college. I’ll also share some thoughts on which route is best for you.



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Recommended 529 Plan Amounts By Age: Careful Saving Too Much

Published: 05/04/2020 | Updated: 07/26/2020 by Financial Samurai 74 Comments

From a financial perspective, one of the best things to come out of the coronavirus-induced market meltdown is being able to contribute to your children’s 529 plans at lower index prices. Let us dig deep into the recommended 529 plan amounts by age.

Given parents are investing for an expense that might not occur for another 10-18 years, it’s easier to invest in a 529 plan during times of turmoil.

Originally, I had only planned to invest $15,000 into my daughter’s 529 plan in 2020 because I was nervous about the stock market after a 10-year bull run. However, once the stock market started selling off in February and March, I decided to contribute more to her plan.

Recommended 529 Plan Amounts By Age
Contributed $30K in daughter’s 529 plan in March

The stock market kept on tanking until I ran out of bullets. By the end of March 2020, I had ended up superfunding $75,000 into my daughter’s 529 plan.

If I had contributed more, I would have violated the superfunding rule, which allows families to front-load five years worth of contributions ($75,000 per donor/$150,000 per couple) without having to file gift taxes, while protecting their lifetime gift and estate tax exemption.

Given the world felt like it was coming to an end in March 2020, my wife and I decided to have her dollar-cost-average into our daughter’s 529 plan by $15,000 a year for the next five years just in case the recovery takes years.

When the stock market began rebounding in April, so did both of our children’s 529 plans. Today, our son’s 529 plan account is only about twice as large, despite being 3X older.

This is when I began to wonder what is the appropriate 529 plan amount by age. I was beginning to feel like we had over-contributed to our daughter’s 529 plan.



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Career Insurance: The Guaranteed Way To Prevent Unemployment

Published: 04/17/2020 | Updated: 05/09/2020 by Financial Samurai 54 Comments

This whole coronavirus pandemic has really got me thinking about all of our children’s future. The world is suboptimal for us adults now. But what will their world be like in this already brutally competitive place full of constant rejection?

Our country already has over 22 million Americans unemployed as of April 19. By the end of summer, the unemployment figure will likely exceed 40 million if we do not open up at least parts of the economy by then.

In big cities, expect to spend up to $1,000,000 providing for your child through college. In 18-hour cities, expect to pay at least $250,000. Either way you cut it, raising children is expensive. Now imagine spending all that time and money and not being able to find a job, let alone a fulfilling career? Terrible!

If extremely wealthy and famous people are willing to risk their reputations and their freedom and bribe their kids’ way into well-ranked private universities for better employment opportunities, what hope do the rest of us have?

We need career insurance.



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