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, she has taught thousands of financial advisers in certification courses, including the CFP(r) and CRPC designations, along with graduate courses for Masters' programs in financial planning.
Peggy entered finance in 2003 after her mother had a bad experience with a stock broker, 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 public speaker and author with experience in radio and television. She is active in financial literacy initiatives and works to promote the financial planning profession. Her book, 52 Things a Broker Might Not Tell You: Planning Your Prosperity In a Year, is available on Amazon and her website, www.peggydoviak.com. Book Peggy for a talk or workshop if your group wants help in planning their prosperity!
Peggy and her husband, Richard, enjoy traveling. She loves her two cats, Pumpkin and Sandy, and she can often be found with her horse, Maggie, training to be a barrel racer.
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.
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
Your question is appealing to me because I started in finance after reading some books recommended by a friend! If you are interested in information about becoming a financial adviser, I would strongly encourage you to consider the field of financial planning. One of my favorite series of books is the "Tools and Techniques" series published by National Underwriter. The website is www.nationalunderwriter.com, and although the books are an overview of topics, there is enough detail to be useful. From a practice management perspective, you should read anything written by Deena Katz who, among many other people, is a giant in the field. Her books offer useful ideas when running a financial planning practice.
More than anything, you will want to enroll in a curriculum program for the CERTIFIED FINANCIAL PLANNER(TM) designation. There are many available in the country, some run by universities and some run by for-profit colleges. Look at all your options before you make a decision.
My favorite financial book is Thinking, Fast and Slow by Daniel Kahneman. It's about how people make decisions and offers an excellent, readable introduction to behavioral finance.
The choice in books will be as varied as the number of answers you receive. Read what you find interesting first, and then as you gain more knowledge, other subjects will become more relevant.
Be Prosperous! Peggy Doviak
This is a very interesting question. I'm going to answer it generally, but then refer you to IRS Publication 590-B that gives more detail. Click the link, or type in the following URL:
To recap your situation,
Your father owned an IRA, and he died with your mom as the beneficiary. She is taking distributions at the appropriate level.
When your mother dies, I think your question is whether you or your children should be the successor beneficiaries, and the decision of who to list as the beneficiary is designed to minimize taxes.
The first piece of the answer involves how much RMD will be required. With some exceptions outlined in Publication 590-B, the RMD rate will likely be your mother's rate, as successor beneficiaries do not get to use their own life expectancies (The IRS really wants to get their money).
The second piece of your answer involves the definition of "kiddie tax," which is often thought to be investment income, but is actually defined as unearned income. IRA distributions are considered unearned income, and if the IRA RMD is greater than $2100 in 2016, then the distribution will trigger "kiddie tax" This means that the income is taxed at the parent's rate rather than the child's rate. I would recommend you look at the 2016 Instructions for Form 8615 for more details. You can click the link or type the URL into your browser, https://www.irs.gov/pub/irs-pdf/i8615.pdf.
Be Prosperous! Peggy Doviak