Halpern Financial, Inc.
As Wealth Advisor for Halpern Financial, Inc., Melissa works one on one with clients to determine short and long term goals, and applies her knowledge and expertise to develop retirement, investment, tax management and estate planning strategies. She is committed to empowering clients with a solid actionable financial plan to ensure they are confident in making informed financial decisions. Melissa joined Halpern Financial, Inc. as Wealth Advisor in 2013. She is a member of the firm’s Investment Research Team and became the Chief Compliance Officer in 2015.
Melissa is passionate about financial education for the greater public as well. A special interest of hers is helping families plan for college funding, since she recently went through the college process with her two children. She is frequently quoted in financial media publications, radio and podcasts. She has also provided investor education in partnership with AARP and speaks often on “Late Stage College Funding for High Income Families.”
Melissa is a CERTIFIED FINANCIAL PLANNER™ professional with a Bachelor of Arts degree in Economics from the University of Texas at Austin and a Master of Business Administration degree from the Thunderbird School of Global Management in Phoenix, Arizona. She serves as a subject matter expert for the Certified Financial Planner Board of Standards (CFP Board), contributing to the development of examination questions for the CFP® Certification Examination. She is also an Advocate for the CFP Board’s Women’s Initiative (WIN). She has promoted financial literacy in the region through one-on-one counseling with Capitol Hill staffers and her leadership role on the steering committee for the Metro Washington Financial Planning Day 2011, 2013 and 2014. She serves on the Board of Directors of the Financial Planning Association of the National Capital Area. She lives in Bethesda with her husband and children. Melissa is an avid runner and ran her first Boston Marathon in 2017.
BA, Economics, University of Texas
MBA, Thunderbird School of Global Management
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There are other options out there, but in my opinion, 529 Plans are the most advantageous plan out there for college savers. The contribution limits are very high, so you can benefit from this tax-advantaged plan no matter what your income level is. You contribute money, it grows via investments, and then when your child is ready for college, any withdrawals made for qualified educational expenses are completely tax-free.
Each state has their own 529 Plan, but you are able to invest in any state’s 529 Plan even if you don’t live there. However, I recommend looking at your own state’s plan first because there may be state tax deductions available for your contributions to the account.
Here is a good site to search for 529 Plans by state:
You should contact the 529 Plan of your choice to make sure you are able to open the account as a non-citizen. You may be able to open the account as long as the beneficiary is a citizen.
If you would like an overview of the entire college funding process, I have just written a free ebook on the topic: http://halpernfinancial.com/views/ebook-find-your-financial-safety-school
The best tax deferred savings vehicles are retirement accounts, such as 401(k) or 403(b) accounts. These provide for salary deferral (saving on current income taxes) and tax-deferred growth of investments.
Health Savings Accounts (designed for people with high deductible health insurance plans) allow salary deferral and tax-free distributions for qualified expenses. HSAs are different from Flexible Spending Accounts (FSAs) in that you do not need to spend down the account in a calendar year.
Since you have young children, the next tax-advantaged savings vehicle is a 529 account. You use money you have already paid taxes on, but the growth in the account is tax-deferred, and eventually tax-free if distributions are used for qualified educational expenses. The next popular savings vehicle that you can use is a low cost annuity that can defer taxes on growth, but will be taxed as income at distribution. A method to reduce taxes on investments is to focus on tax-efficient investments.
Unfortunately, there is no investment account that is truly 100% tax exempt. Either you will pay taxes up-front (from your salary) or when you withdraw funds from a tax-deferred account.
I would recommend that you speak with a CPA for advice on strategies to limit your taxable income. Maximizing retirement savings in tax-deferred accounts is certainly one way to do this, but you may qualify for other strategies depending on your situation.
I think I recently read the same whitepaper!
Yes, your advisor is correct. Immediate investments have historically outperformed dollar-cost-averaging because the funds will be invested for a longer period of time. Another benefit of immediate investments is that you will immediately have the intended allocation, as opposed to inching toward the intended allocation over time.
However, your motivation sounds like you are more worried about potential losses due to unlucky timing rather than excitement about potential gains. Dollar-cost-averaging would give you a better chance of avoiding bad timing, but the ‘cost’ may very well be more muted returns. You will have to decide if this tradeoff is worth the peace of mind from avoiding the risk of bad timing. If you prefer to go the DCA route, your advisor would better be able to answer your last two questions on how such a plan would be implemented. Another consideration is any trading or transaction fees your advisor may incur—more trading due to DCA could mean more expense, but not necessarily.
If your daughter is the beneficiary of an IRA, you can set up an Inherited IRA. In an inherited IRA, the balance is not counted in the financial aid calculations because it is considered a ‘retirement account’. However, when distributions are made, they are considered unearned income to the beneficiary and, therefore, timing of distributions is critical. You are required to take minimum distributions each year (which you will pay taxes on), but I would recommend you place the distribution into a 529 plan which will grow tax-free. The best strategy actually depends on how large the account is and how many years until your daughter attends college.
Since your wife is self-employed, either a SEP IRA or an individual 401(k) would provide the highest limit on deferring income. Your CPA can provide guidance on which is best for you from a tax perspective. Based on your income, you can no longer contribute to a Roth IRA. The maximum income limit is $194,000 for a married couple to be able to contribute to a Roth. Traditional IRA contributions are not limited by your income level, but the maximum you can contribute is $5,500 (if under age 50), or $6,500 (if over age 50).
Typically, I recommend maxing out tax-deferred contributions first (workplace retirement account, SEP IRA, individual 401(k)), then contribute additional savings to an after-tax account (also called a brokerage account). After-tax savings is especially important, but often overlooked. Workplace retirement accounts allow your investments to grow tax-deferred, but you will eventually have to pay taxes on the withdrawals. For this reason, tax-deferred accounts, like 401(k)s, are drawn down much faster than after-tax accounts. But with after-tax accounts, you have already paid the taxes. Both types of accounts are crucial to your retirement security.