DM Wealth Management, Inc.
Peggy Frazier Doviak, Ph.D., has been a CERTIFIED FINANCIAL PLANNER™ practitioner and portfolio manager since 2003. An adjunct professor since 2005, currently teaching in the master's of Family Financial Planning program at Oklahoma State University, she has taught thousands of financial advisers in certification courses, including the CFP(r) and CRPC designations, along with graduate courses.
Peggy entered finance in 2003 after her mother was taken advantage of by a stock broker in the dot.com crash, and she has been a financial education advocate her entire career. In 2007, she served on the task force for the Oklahoma State Department of Education’s “Passport to Financial Literacy,” Oklahoma’s financial education curriculum mandate. She is a former member of the Advisory Board for the Journal of Financial Planning and is on the Academic Committee of the Financial Planning Association. She was recently appointed as an advocate for the Women in Finance initiative (WIN) by the CFP Board of Standards, and she is a graduate adjunct professor at Oklahoma State University.
Additionally, Peggy Doviak is a syndicated radio host, public speaker, and author. Her book, 52 Weeks to Prosperity--Ask Peggy Doviak, is being released August 7, 2018, and is available for preorder on Amazon.
Peggy and her husband, Richard, enjoy traveling. She loves her cat, Pumpkin, and her horse, Maggie.
PhD, Education, University of Oklahoma
MS, Finance & Financial Analysis, College for Financial Planning
MA, Creative Writing, University of Central Oklahoma
Assets Under Management:
Investing is risky, and you can lose money. Consult your CPA, attorney, or CERTIFIED FINANCIAL PLANNER(tm) practitioner, as your situation may be different than the questions and articles you are reading.
Congratulations on being debt free and participating in your employer's 401(k) plan! I agree with the other answers which recommend keeping your $25,000 in an investment that is safer than the stock market. If you know that you will not need the money within a specific period of time (like one year), you could consider putting some of it (maybe half?) in a 12-month CD that has the same kind of FDIC insurance as bank accounts. If you know you have 18 months, you might consider putting some the money in an 18-month CD. With interest rates rising, I would not seek out longer term CDs than those right now. CDs tend to pay higher interest rates. Of course, you can't usually access the money during the term of the CD, so keep enough in a high-interest bank account to cover emergencies. Talk to your bank; you don't need to pay adviser fees to buy a CD.
I know you want to earn more of a return, so look at your 401(k) investment allocation as well. Keeping your home down payment in cash, along with your age, suggests you could be quite aggressive in your retirement plan holdings. If you own a lot of bond funds in that account, consider moving them to an equity index fund, like the S&P 500 if you want a higher return. Of course, this idea assumes your risk tolerance level matches an aggressive portfolio. Talk with a CFP(r) professional if possible or at least the person who comes each year to talk about your company's retirement plan. He or she could give you some guidance here!
Again, congrats, and best of luck!
Congratulations on your new baby! Starting an investment account is fine, assuming that your own financial situation is solid. If you have an emergency fund, are saving for retirement, and don't have high-interest consumer debt, then helping your child's financial future is a great plan. You will need to make two different decisions. First, what kind of account do you want to open, and second, what kind of investments (stocks or bonds) should the account have.
If you want to create an account that helps fund college expenses or private school tuition, then your state's 529 plan would work well. However, it's possible your child might receive a full-ride scholarship or not attend college at all! If either of those happen, the funds would have to be used by another approved family member, or the growth would be taxed and penalized.
If you want to create an account that gives your child free access to the money when he or she is grown, then an UGMA (Uniform Grant to Minor's Account) or UTMA (Uniform Transfer to Minor's Account) could be used. Remember, though, that UGMAs and UTMAs can be used for anything the child wants once they have access to the funds, even garage band drum kits!
I would also like for you to consider a Coverdell Education Savings Account (Coverdell ESA). Although they can only be funded up to $2,000 per year, and there are parental income limits ($220,000 married filing jointly), the great thing about the Coverdell is that it can be used for any approved elementary or secondary school activity. This means if you have given birth to an athlete, a trumpet player, or a debater, you can pay those school expenses with your Coverdell funds. Additionally, when your child goes to college, the remaining funds can be rolled into a 529 plan. Like 529 plans, Coverdells are funded with after-tax money, but the growth is income tax free when it is used to pay for any approved school expense.
Once you have chosen the account, you will want to choose the investment. Given your investment timeline, if your risk tolerance allows it, you would probably have better growth in stocks. However, rather than choosing a single stock, you might be safer and would certainly be more diversified in a stock index fund. If you buy a fund that tracks the S&P 500, you will own small pieces of 500 different companies. Yes, single stocks can be home runs, but they can also strike out. Index funds are more likely to earn market-equivalent returns. Bond funds are good for income, but you would need to expect very little growth.
If you have questions, talk to a CERTIFIED FINANCIAL PLANNERtm practitioner about how to establish whatever type of account you choose and then how to select appropriate investments for it. Best of luck! Peggy
This is a complicated question because both debts would be nice to eliminate! It would save money to pay off the HELOC first since most of your credit card debt is at zero interest. Is there a way you can pay the card off before you lose that six-month rate? If so, that should be a high priority. Additionally, I'm assuming that you could access the HELOC again in August to pay the tuition if you had no other option. You want to check the terms of the HELOC. If it is a fixed rate of interest, you know that 5% is locked in place; however, if it is a floating rate, the rate could rise in a rising interest rate environment, like the one we are currently in. This would be another reason to pay off the HELOC as soon as possible. Finally, credit card debt is unsecured debt, while a HELOC is backed by your home. If you were in a severe financial emergency, unsecured debt is better than debt attached to an asset you wouldn't want to lose. Finally, remember that sometimes, paying even small amounts toward debt really make a difference. Don't feel like you shouldn't make a payment on the credit cards if it isn't substantial. Even adding $20-$30/month can make a big difference on debt reduction over time!
Retirement can be fulfilling, but sometimes, the finances can get very stressful. As you are trying to create a debt reduction plan, I would encourage you to begin by tracking all of your spending for a month or two. I think that cash flow is central to so much of financial planning. You can keep up with your spending any way that works for you--you can jot it down on a notepad or keep it in an Excel spreadsheet, or use a budgeting software. The trick is writing down everything--where did you spend it, and how much did you spend. If stores sell a wide range of products, you might separate groceries from clothing.
Once you have completed this, I want you to go back into your list and separate bills that have to be paid, called nondiscretionary spending, (like rent and insurance) from discretionary spending (like shopping or eating out). If your bills exceed your income, you will need to find a way to either spend less or, possibly, get a part-time job. Today, many people are working well into their seventies by choice because it increases their standard of living by so much. If you have money left after you have paid your nondiscretionary bills, you can use that to begin to pay off your secured debt.
As others have said, you may have penalties if you try to withdraw too much from the annuity. Additionally, I suspect it will only pay about half of your debt once the taxes are withheld, and you would be left with no savings at all. I'm not sure I think this is the best strategy.
Since you rent, I'm guessing your secured debt is a car, and if those payments are overwhelming, you may want to sell it and purchase a less expensive vehicle. Additionally, you might want to find less expensive housing. However, I don't know your circumstances, and there may be reasons why this isn't the right way forward for you. I really don't know enough about your background or where you live. I urge you to talk to a financial planner who is willing to act as your fiduciary. If you are having trouble finding someone, contact a local not-for-profit financial support service. Be very careful because some of the debt consolidated services will ruin your credit. Websites should probably end in .org (rather than .com) which means you are working with an organization rather than a company.
Best of luck! Peggy
Based off the ZIP Code associated with your question, I think you live in California. Unfortunately, California does not offer a state income tax deduction for contributions to 529 college savings plans. Many states do allow you to take a state income tax deduction, so if my assumption is incorrect, you may be able to deduct a contribution. One advantage of the 529 plan is that you have no income limitations, and the recipient of the account does not have to be below a certain age. As a result, this funding strategy works quite well for graduate school.
Additionally, you would need to be careful with the amount you funded into the plan. Although 529 plans do not have contribution limits, you would give your son money higher than the gift tax exclusion amount with a contribution of $75,000 unless you structured it carefully. In 2017, you are allowed to gift $14,000 to anyone you want without having to file a gift tax return. If you are married, your spouse can do the same thing, but you would then need to file a gift tax return indicating that you both gave to the same person. Although this gift splitting does not result in gift tax, it is an additional step and can be a headache. 529 plans allow an unusual bulk funding of five years of gift tax exclusion in one year. This would result in a maximum gift of $70,000 given by one of you in a single year without needing to split the gift. The $70,000 is, however, still lower than the amount you wanted to fund. To get to $75,000, you would have to trigger the gift splitting mechanism. Additionally, you should know that this is all you can give your son for five years without triggering gift tax issues, and if you should die during the five year period, some of the money would need to be recharacterized.
The following IRS link might be useful to you. You can click on it, or type in the URL https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
Remember, though, if you live in California, this is a lot of information you can't use, as you aren't allowed to deduct contributions to 529 plans at all. Best of luck! Peggy