Q&A: State tax breaks for 529 plans

Dear Liz: You recently answered a question from grandparents who were contributing $20,000 to their grandson’s college education. You correctly told them they did not qualify fdownloador federal education tax credits or deductions because he was not a dependent. You might let grandparents know, however, that they may get a state tax break for contributing to a 529 college savings plan.

Answer: Most states that have state income taxes offer some sort of a tax break for 529 college savings plan contributions. (The exceptions are California, Delaware, Hawaii, Kentucky, Massachusetts, Minnesota, New Jersey and North Carolina, according to SavingForCollege.com. Tennessee has a tax on interest and dividends but no 529 tax break.) In some states, even short-term contributions qualify for a deduction, so grandparents could contribute money that’s quickly withdrawn to pay qualified higher education expenses and still get the break. SavingForCollege has details on each state’s tax benefits.

Q&A: Thrift Savings Plan

Dear Liz: I am a federal government retiree with a very small retirement account in the Thrift Savings Plan. Where can I invest my small savings so it can safely grow? The balance has not changed for over six months now. If I keep it in the Thrift Savings Plan, what fund is the safest?

Answer: “Safe growth” is an oxymoron. If your balance isn’t changing, then you’re probably in the safest option — which means you won’t see much if any growth in the future, either.

You probably chose TSP’s G Fund, which invests in Treasury securities. You won’t lose money, but you probably won’t earn enough to offset inflation. If you want your money to grow, you need to have at least some of your retirement account in stocks.

Fortunately, the plan offers several “L” or lifestyle funds geared to when you expect to begin withdrawals. L funds offer professional management and a mix of investments that grow more conservative as that date approaches. Retirees who are tapping their accounts typically invest in the L Income fund, which has about 20% of its balance in stocks. If you are five years or more away from using the funds, the next most conservative lifestyle option is L 2020, which has half of its total invested in stocks.

Monday’s need-to-know money news

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Friday’s need-to-know money news

scamToday’s top story: How you may be exposing yourself to fraud. Also in the news: Why responsible people can have bad credit scores, tricks advertisers use to make you spend money, and the money nightmares keeping us awake at night.

16 Ways You May Be Exposing Yourself to Fraud
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Thursday’s need-to-know money news

debt collectorsToday’s top story: How a single missed student loan payment can damage your credit. Also in the news: Finding a financial advisor who won’t rip you off, how tax liens can affect a spouse’s credit, and seven fall budget moves you need to make before the holidays begin.

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Wednesday’s need-to-know money news

22856641_SAToday’s top story: College financial aid advice for divorced families. Also in the news: Getting teens to save can have a long term payoff, bad money habits you need to break, and how to make living on a budget less of a slog.

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Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How your house payments can unexpectedly increase. Also in the news: Why grandparents should be careful with 529 plans, why right now could be the right time to refinance your student loans, and six reasons why early retirement could be a mistake.

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Don’t get caught off guard.

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529 disbursements come with some risks.

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Q&A: Paying for credit repair

Dear Liz: I’m seeking help in reviewing my credit report and how to fix any issues. I am not financially distressed, but have FICO scores in the 675 range. Could you recommend someone I can hire to assist as I need to refinance a house I bought for cash?

Answer: There’s so much fraud in the credit repair industry that you’re likely better off doing it yourself rather than exposing yourself to rip-offs.

Credit repair companies aren’t supposed to take money upfront or promise things they can’t deliver, but many do.

One of the scammers’ most common ploys is to flood the credit bureau with disputes and to take credit for any negative information that temporarily disappears. By the time the negative information pops back up on the file, the scam artists have disappeared with your money.

Another approach they recommend is starting over with a “clean” slate, sometimes using borrowed or stolen identification numbers. That’s fraud, and even if it works, you’ll often find yourself worse off with no credit history than with a flawed history.

The Federal Trade Commission has some helpful advice on do-it-yourself credit repair.

You’ll need to first get copies of your credit reports from each of the three credit bureaus, which you can do once a year for free at www.annualcreditreport.com. Dispute any inaccurate information, such as collection accounts that aren’t yours or late payments that you made on time.

Follow up with any creditors that persist in reporting bogus information.

One relatively fast way to improve your scores is to pay down any credit card debt to 10% or less of the accounts’ credit limits. Don’t close any accounts while trying to improve your scores, since that won’t help your score and could hurt.

Opening new accounts can ding your scores as well, but it can be worth it to add another credit card to the mix if you only have one or two.

Q&A: Shopping for insurance

Dear Liz: I pay about $670 per month for insurance for four cars, our home and a $1-million umbrella policy. We’ve been with the same well-known national insurance company for over 30 years. About five years ago, I checked with another well-known national insurance company about the estimated total premium, which was not significantly different from what I paid.
We filed a claim for a very minor accident about two years ago. My 21-year-old son, 17-year-old daughter, my wife and I drive these cars.

Should I have my coverage reviewed by another company?

Answer: Of course you should. And you should check with more than one.

Premiums can differ dramatically, particularly for younger drivers. A recent Consumer Reports investigation found that although some companies doubled or even tripled auto insurance rates for a teen driver, others barely budged.

Premiums also can change over time as insurers try to build or protect their profits. Insurers will lower premiums to attract more business and raise them to cut losses.

Price isn’t the only thing you should consider. Customer service is important too, so review your state’s complaint survey to see which insurers tend to draw customer ire.

Shopping for insurance isn’t fun, but saving hundreds or even thousands of dollars is. You should make the effort at least every few years.

Friday’s need-to-know money news

Delete "MISTAKE"Today’s top story: How to avoid money mistakes after a spouse’s death. Also in the news: A retirement reality check for homemakers, how to downsize the smart way, and the hidden costs of credit card rewards.

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