Is it time to switch 529 college savings plans?

Liz Weston for Reuters writes:  College savings plans are better deals than they were a few years ago, but there are still a few clunkers out there. If you're invested in one, now may the time to think about making a change.

Each fall, investment research firm Morningstar singles out the nation's best 529 college savings plans. That gives you a chance to compare the plan you're using to a gold standard. If the gap is wide, and tax considerations or other benefits don't compel you to stay, shifting to another state's plan could give you better returns, lower costs or both.

For the uninitiated: 529 plans are sponsored by states and run by investment managementcompanies. Withdrawals from the accounts can be used tax-free to pay for qualified education expenses at any college or university in the country. In addition, many states offer tax breaks for their residents and a few offer matching funds.

The plans are extremely diverse in their investment options, management strategies and fees, but overall have improved significantly, said Laura Lutton, Morningstar's 529 expert and director of its funds of funds research.

"The days of plans being filled with really gross investment choices are behind us," Lutton said.

Still, some plans stand out as superior, Lutton said. Morningstar named as the country's best plans the T. Rowe Price College Savings Plan in Alaska, the Maryland College Investment Plan, the Vanguard 529 College Savings Plan in Nevada and the Utah Educational Savings Plan. The plans benefit from solid management, good investment options and reasonable fees, said Morningstar, which gave them a "gold" rating.

The next-best plans, winning a "silver" rating, were the iShares 529 Plan in Arkansas, Scholarshare College Savings Plan in California, Michigan Education Savings Program, CollegeAdvantage 529 Savings Plan in Ohio and Virginia's CollegeAmerica.

Twenty-three plans received a "bronze" rating and 28 were rated "neutral." Morningstar said the bronze plans "have well-executed strategies at a fair price" and that what separated bronze from neutral plans was often the state's tax benefits, with better benefits meriting the higher status.

The four plans cited as the worst include the Schwab 529 College Savings Plan in Kansas, the Minnesota College Savings Plan and two Rhode Island plans, CollegeBoundfund and CollegeBoundfund Direct. Rhode Island's investment options suffered from poor performance while the plans in Kansas and Minnesota were hampered by high fees, Morningstar said.

The federal law that governs 529 plans allows account owners to switch plans once every 12 months. Investors can get around that limit by changing beneficiaries, or the person whom the account is supposed to benefit, said 529 expert Joe Hurley, who founded the SavingForCollege.com site. The beneficiary can be changed back to the original person after 12 months.

Sometimes tax breaks and matching grants can make staying in a less-than-optimal 529 plan worthwhile. That's not the case with Minnesota, which offers neither benefit. Kansas, however, offers matches to low-income families. The state also gives residents a tax deduction — up to $3,000 per beneficiary for singles and $6,000 for couples — but they can get the write-off for investing in any state's plan.

Rhode Island's tax deduction, meanwhile, is limited to $500 for individuals and $1,000 for married couples. Rhode Island has a one-time "baby grant" of $100 for families who open 529 accounts in the state and a matching grant program for low- and moderate-income families that was closed this year to new applicants.

Investors who don't want to lose such benefits could consider making the best of what their plan offers, Lutton said. The Rhode Island plan, for example, suffered in the Morningstar ratings because the age-based investments run by AllianceBernstein lagged in performance. But the plan also offers low-cost Vanguard options for investors willing to do their own asset allocation, Lutton said.

Another option is to take advantage of the best your plan has to offer — such as a superior bond fund — and then open an account in a different state's plan for the rest of your asset allocation. (There's no limit on how many states' plans you can use.)

Hurley recommends calling your current plan to ask about tax and other consequences of moving, since some states require residents to pay back any tax benefits they've received if they move the money out of state.

If tax or other benefits don't tie you to your state, though, your best move is likely into one of the top-rated plans.

"If you're in a state where there are no local benefits," Lutton said, "then go for it."

5 Important Year-End Retirement Saving Deadlines for 2013 / Be sure to make these retirement investment moves before the end of the year

Emily Brandon for US NewsWorld Report writes:  Certain types of retirement contributions must be made by the end of the calendar year to get a tax break, while you can wait to take advantage of others until you file your 2013 tax return. Pay attention to these important tax deadlines when making retirement account contributions and withdrawals.

Make 401(k) contributions. You generally have until the end of the calendar year to make 401(k) contributions. Workers can contribute up to $17,500 in 2013, plus an additional $5,500 if they are age 50 or older. "Look to see if you have maximized your contribution, and if you haven't, you have this last opportunity to do so," says Dirk Huybrechts, a certified financial planner for HFM Advisors in Los Angeles. "If you weren't able to make the full $17,500 contribution, you want to make sure that you contributed at least enough to get the employer match." Contributions to workplace retirement accounts often need to be made by Dec. 31 to qualify for a tax deduction on your 2013 return and to get any 401(k) match your employer is offering for 2013. "If you contribute to your 401(k) plan, it reduces the income tax liability on the money you put into the plan in the year in which you make it," Huybrechts says. "You get the immediate benefit of those dollars."

Take required minimum distributions. Investors over age 70 1/2 must take required minimum distributions from their retirement accounts before the end of the calendar year (with the exception of the very first distribution). The amount that should be withdrawn is generally calculated by dividing your account balance by an IRS estimate of your life expectancy, but in some cases, a much younger spouse's age must also be factored in. Retirees who don't withdraw the correct amount must pay a 50 percent tax penalty on the amount that should have been withdrawn. "If you're supposed to take $10,000 out and you don't take anything out, the penalty is $5,000, plus you have to pay tax on the $10,000, so you definitely want to make sure you do that," says Brian Rezny, a certified financial planner and president of Rezny Wealth Management.

Donate your RMD to charity. Retirees generally need to pay income tax on the amount withdrawn from their traditional 401(k)s and IRAs. However, those age 70 1/2 and older can satisfy the minimum distribution requirement and avoid income tax by donating up to $100,000 directly from their IRA to a qualified charity. "If you can afford it, you might consider making a charitable contribution with your RMD, in which case the money doesn't get added to your income," Huybrechts says. "The charity gets the benefits of your largess, and it might keep your income below the income limits for certain deductions."

There are also a few retirement savings deadlines for tax year 2013 that occur in 2014, but there can still be benefits to doing these things before the end of the calendar year:

Avoid two retirement account distributions in the same year. Your very first required minimum distribution can be delayed until April 1 of the year after you turn 70 1/2. But all subsequent distributions are due by Dec. 31, so delaying your first withdrawal could result in two taxable distributions in the same year. People who are employed after age 70 1/2 can also delay withdrawals from their current 401(k), but not IRA, until April 1 of the year after they retire (unless they own 5 percent or more of the company sponsoring the 401(k) plan). "It makes sense to take it in the first year and not double up on the RMD," says Rick Epple, a certified financial planner and president of Epple Financial in Wayzata, Minn. "We're trying to keep them in the 15 percent tax bracket, and if they space it out, it is easier to keep them in the lower tax bracket."

Save in an IRA or Roth IRA. Workers have until April 15, 2014, to contribute up to $5,500 to a traditional or Roth IRA, or $6,500 if they are 50 or older. If you wait until 2014 to make an IRA contribution you will claim on your 2013 tax return, make sure you tell the plan sponsor which year the contribution is for. The sponsor may report to the IRS that the contribution is for the year the sponsor received it unless you specify otherwise. Even though you're allowed to make IRA contributions up until your tax filing deadline, some financial advisors recommend making the contribution before then. "Typically, the markets start off strong at the beginning of the year," Rezny says. "So you get a bigger boost at the beginning of the year than you would in April when a lot of that gain has already been made."

Donor-Advised Funds Offer Tax Deductions / The donor-advised fund offers two advantages over direct charitable donations.....

Barry Fennell for On Wall Street writes:  As year-end tax planning and charitable giving activity swing into high gear, advisors may want to take a look at donor-advised funds. These funds allow an individual to make donations to an IRS-approved 501(c)3 charitable organization in a simple, tax-advantaged way.

The donor-advised fund offers two advantages over direct charitable donations. First, it allows the giver to donate an asset with unrealized gains without liquidating it. Second, it allows the giver to get a charitable tax deduction credit for up to the asset's full market value. In addition, donor-advised funds offer the giver the ability to advise the sponsor of the fund on how the proceeds from the transferred asset should be invested and the timing of payouts to chosen charities.

A donor-advised fund allows the giver to deduct the full market value of the transferred asset in the year it was contributed in the form of a tax deduction (up to 30% of the giver's adjusted gross income on that calendar year's tax return) without realizing any capital gain. A donor can make a cash contribution to the fund and deduct up to 50% of his or her AGI.

Both of these deductions are subject to limitations, especially the new restrictions taking effect in 2013 under the Pease limitation. This limitation applies to individuals with AGI of over $250,000 and to couples with AGI over $300,000; it reduces a charitable deduction by 3% of the donated amount each time AGI hits a series of income thresholds. Advisors and their clients should consult a tax advisor to determine the applicable tax deductibility limits and the ability to carry forward charitable deductions to future tax returns.

The tax-efficient flexibility of donor-advised funds is one of the most attractive features of this investment vehicle and can result in clients making larger-than-anticipated charitable donations. This is especially true of a potential donor who has a long-term holding in an individual stock that has a low cost basis but that has experienced lackluster performance in recent years—or who feels the stock no longer fits in with the overall portfolio's objectives. One additional benefit is that if someone owns a "no basis" asset—one where the cost basis is unknown or the paperwork for it is missing—the individual can still donate the asset and claim the full current market value of it as a deduction.

Different Flavors
Donor-advised funds have been in existence since the 1930s on a limited scale. But they have gained much broader appeal since the early 1990s when large financial services firms began to enhance the flexibility and scope of the products available for donors. These funds can be sponsored by the charitable arm of a financial firm, like Fidelity Charitable, Schwab Charitable and Vanguard Charitable. There are also national donor-advised fund sponsors, like the National Philanthropic Trust, and community charitable funds.

Many of the donor-advised products today require a minimum investment of only $5,000 or $10,000. Fee schedules at most fund sponsors are generally on a sliding scale based on the total assets invested. This is in addition to the typical fund or commingled pool expenses of the underlying vehicles used in the allocation.

Donor-advised funds today have evolved into a significant source of funding for many charitable organizations. In 2011, donor-advised funds in the United States received over $9.6 billion in charitable contributions, according to the National Philanthropic Trust's 2012 Donor-Advised Fund Report. This volume of charitable giving is expected to continue to grow, particularly due to higher levels of participation among young wealthy givers and the recent strong performance of the capital markets.

Advisor Interest Growing
The popularity of donor-advised funds continues to rise among financial advisors who have clients with complex tax-planning issues and more diverse portfolios. Fidelity Charitable notes that over 70% of its new charitable contributions and over 60% of new donor-advised fund accounts in the first half of 2013 came from an advisor referral. The asset selection process for the donor's contribution presents an opportunity to get a better picture of your client's portfolio, while also providing a window to revisit existing investment policy statements and goals.

The asset allocation decisions for donor-advised fund assets will usually be based on when the donor wants to make payouts from the fund to his or her chosen charities. Most donor-advised fund options resemble those of target-date retirement or mixed-asset products. These investment products largely use a fund-of-funds structure, where the underlying investment vehicles are the sponsor company's mutual funds or commingled pools that follow an established investment strategy at that firm.

Securities such as accumulated publicly traded stock and bond holdings are commonly used to make the gift to donor-advised funds. However, funds have increasingly developed the ability to accept more complex assets such as real estate, collectibles and limited private partnerships. Sarah Libbey, President of Fidelity Charitable, says her firm has developed a program to accept shares of less-liquid holdings such as S-corporations and C-corporations, which has seen increased interest from donors in recent years.

Another convenient feature of using a donor-advised fund is that the fund permits donations to multiple charitable organizations with the proceeds from just one gift. Sponsors generally liquidate the donated asset at their discretion and place the proceeds into one of their chosen investment options from which distributions are made to charitable organizations over time. The fund sponsor processes the charitable contribution paperwork and performs the recordkeeping as payouts to the charitable organizations are distributed. The donor can help multiple charities while receiving the necessary tax documentation from one sponsor. The sponsor of the donor-advised fund vets the designated charitable entity's 501(c)3 IRS eligibility on an on-going basis.

The tax advantages of a donor-advised fund might have particular appeal in 2013 to individuals in higher tax brackets, since the capital gains tax rate has increased this year for higher wage earners (individuals with taxable income of $400,000 or more, or $450,000 for couples filing jointly), rising from 15% to 20% as a result of the American Taxpayer Relief Act of 2012. Separately, a new 3.8% Medicare tax for higher-income taxpayers is now in effect. It generally applies to the portion of a taxpayer's net investment income that exceeds AGI of $200,000 for individuals and $250,000 for couples filing jointly. An additional incentive to act for some may be if they discover that the imbedded unrealized capital gains in their portfolio are higher than anticipated because of the recent robust performance of the capital markets.

New Markets
One constant in the United States is that individuals at all income levels tend to give throughout market cycles. Interestingly, the recently released 6th annual Fidelity Millionaire Outlook (September 2013) found that wealthy members of generations X and Y tend to give more as a percentage of their wealth than do older baby boomers. The study found that wealthy generation X and Y individuals gave $54,000 annually on average to charity, whereas baby boomers gave $12,000 annually on average. Thus, the favorable underlying fundamentals for charitable giving do seem to be in place for a continued positive uptick in donor-advised account creation for the foreseeable future.

If you are thinking about recommending a donor-advised fund to your clients, remember that they can accomplish many different objectives from a personal financial perspective—especially portfolio rationalization in a tax-efficient manner. There are some caveats, however. The donor does relinquish control over the asset once it has been gifted to a donor-advised fund, for example. These funds have also come under pressure from some charities for holding on to assets for too long. In addition, the sponsoring fund entity will need to vet the charity the client selects to ensure that it is a 501(c)3 before the fund money is donated.

Using Bitcoin With Quickbooks - Part 1: Recording Sales and Accepting Payments

Jason M Tyra for BitCoin Magazine writes: This is the first part of a multi-part series that will explain how to integrate Bitcoin as a payment method using your existing small business accounting software package.  Why would you need to do this?  In short, because accounting principles generally accepted in the United States and state and federal regulatory authorities require reporting in US Dollars.  This procedure will allow you to properly account for the full extent of your Bitcoin sales and integrate those sales into your business records as if they had originally been made in your home currency.

Since the vast majority of small business owners use a version of Intuit QuickBooks, this series will refer to that product (specifically the 2014 version). The concepts will be the same regardless of what software or version you use, though the implementation may vary somewhat.  I assume as a pre-requisite that you have a basic knowledge of financial accounting, that you are familiar with your accounting software package and that the amounts that you record are determined with reference to US Dollars. 

Starting in 2009, most US desktop versions of QuickBooks featured native multi-currency support.  This function can be activated from the preferences menu and allows rates to be automatically updated from the internet.  The QuickBooks file has a default or “home” currency and then tracks as many other foreign currencies as needed, with the functional currency set by vendor, customer, or account. 

Use of the multi-currency feature comes with a few caveats- First, QuickBooks will only update currencies automatically when the home currency is US Dollars so this feature may not work well for users outside the US.  Second, add-ins like Statement Writer and Fixed Asset Manager will only work with US Dollars, meaning financial statements cannot be denominated in Bitcoin if you choose to hold them as an asset.  Finally, QuickBooks does not integrate with many of the Bitcoin intermediaries in common use at this time.  Thus, billing and collection would require an extra step even if you did use multi-currency.  For these reasons, this procedure does not make use of multi-currency support.

As of the fall of 2013, Bitpay.com supported ledger downloads in Intuit Interchange File format (.iif).  Though this may save some data entry work if your business has considerable Bitcoin transaction activity with Bitpay, you will still need to create the accounts in QuickBooks to classify your transactions.  If there is a demand for it, I will address how Bitpay and QuickBooks interact in a later article, though Bitpay’s website already does a good job of this.

To book Bitcoin sales in QuickBooks:

1.       First, record sales as normal, using the programmed workflow in QuickBooks (either “create statements” or “create invoices”) in your functional currency (USD, Euro, etc.).  If you request funds using Coinbase, Bitpay, BIPS, or another payment service provider, you may want to select the option bill with reference to your functional currency instead of directly in Bitcoin in order to reduce your exchange risk.

2.       Before recording payment, you will need to add two new accounts to your company’s chart of accounts (you only need to add these accounts once).  From the home screen, select “Chart of Accounts”, then select the “Account” tab and click “New.”  The first account will be an “Other Current Asset” account (under “Other Account Types”) called “Bitcoin” (or “Bitcoin Wallet” or whatever works for you).  The tax line mapping will be “not tax related.”  The second account will be an income account called “Bitcoin Exchange Gains.”  The tax line mapping will be “other income.”  You may also want to add an expense account called “Bitcoin Exchange Losses”, though gains and losses generally should net out and show up as a single line item on your Profit and Loss statement.  Close the chart of accounts.

3.       Add Bitcoin as a payment method.  From the home screen, select the “Receive Payments” function (also accessible from the Customers menu).  On the “Customer Payment” screen, select the “More” button adjacent to the cluster of payment method buttons.  Then select “add new payment method.”  The new payment method will be called “Bitcoin” of type “Cash.”  Select “Ok.” 

4.       To record a payment on account in Bitcoin, click the “Receive Payments” button and select the customer from the “Received From” menu.  Input the amount received in dollars.  This should be the same amount that you billed, even if the exchange rate fluctuated between billing and receipt, or else QuickBooks will show an unresolved debit or credit balance on the customer’s account.  Click the “More” payment method button (looks like a plus sign), then select “Bitcoin.”  In the “Deposit To” box, select the other current asset account you created to track your Bitcoin Wallet.  Your customer should now show payment in full for the associated invoice.

This procedure is just one of several possible ways to record Bitcoin sales in QuickBooks and less complicated that some of the others out there.  Since you are already using the regular QuickBooks workflow, you should have no problems with your Cost of Goods Sold or Accounts Receivable showing weird balances (they will be denominated in dollars, just as you recorded them).  Always remember to record sales and payments in QuickBooks using the “Create Invoices” and “Receive Payments” functions.  Not doing so may result in misclassification or underreporting of income, unapplied customer payments and other undesired results.   

The next part of the series will be “Revaluing Your Wallet and Converting to Cash.” Feel free to contact me with feedback, questions, or requests. 

A year-end financial checklist can help protect what you’ve earned / bonuses

Holly Nicholson for the New Observer writes: Question. We’d like to make sure we’re in as good of a financial shape for future retirement as possible. We are married and in our early 30s, so we have time to get things in place as long as we are smart and know what to do. We are both expecting a modest bonus before year’s end. As the end of the year is approaching, do you have a checklist of financial tasks you could share?

Answer. I’m sure this won’t cover everything, but the following financial strategies may help you keep more of what you’ve earned in 2013 and plan for next year.

• Consider tax-loss harvesting if you have any investments in a taxable account that have lost value. The stock market has done well this year, but you still may have some losers in stock or bond holdings. Selling these before the end of the year will help offset any capital gains you may realize either through actual selling of stocks, bonds or funds or due to distributions from mutual funds. You can replace whatever you sell and still take the loss as long as you don’t violate the “wash sale” rule. This rule will eliminate the ability to use the loss if you repurchase substantially identical investments within 30 days before or after the sale. Losses can be used to offset gains dollar for dollar and up to $3,000 of income. Any unused losses can be carried forward until they are depleted or until death, whichever comes first.

• Make sure you have maxed out your tax-advantage retirement accounts by the end of the year. If you haven’t already done so, that may be a good use of your bonuses. 401(k) and 403(b) plans allow a maximum of $17,500 for 2013 with an additional $5,500 catch-up for those age 50 and over. The ability to contribute at this level depends on your income and plan contribution rules. Invest in a traditional or a Roth IRA, and you have until the 2013 tax filing date, but if the market continues to rise, investing earlier than later would be wise. The contribution limit is $5,500 or $6,500 if age 50 or over. There are income restrictions for deductible contributions to an IRA. For single filers, the deduction phase-out begins at $59,000 of modified adjusted gross income(no deduction allowed if over $69,000); it begins at $95,000 for those married filing jointly if both spouses are covered by a work retirement plan (no deduction if over $115,000) and $178,000 if only one spouse is covered by a work retirement plan (no deduction if over $188,000). For Roth IRAs, the phase-out begins at $112,000 for single filers (no contribution allowed if over $127,000) and $178,000 for those married filing jointly (no contribution allowed if over $188,000).

• If you have or know of future college students for whom you would like to help pay for college, make a contribution to a 529 account. The state tax deduction for contributions made to the NC 529 plan is scheduled to expire this year. If you want to obtain the deduction, your contribution must be received and processed before the end of the year. The deadline for the different methods of making a contribution can be found at cfnc.org or by calling 866-866-2362.

• Consider making charitable contributions before year’s end. If possible, bunch deductions into the current year and push income into next year if you think your tax bracket will be lower in 2014. Take advantage of the extension for the tax credits for energy efficient home improvements which were extended last year but are scheduled to expire after 2013.

Congratulations on your bonuses.

Read more here: http://www.newsobserver.com/2013/11/30/3412869/money-matters-a-year-end-financial.html#storylink=cpy

MYOB launches enterprise API

Voxy.co.nz writes: MYOB today announced the introduction of an application programming interface (API) for its ERP business management system EXO Business, which is used by thousands of mid-sized clients across Australia and New Zealand. The API allows any third-party application to connect to EXO Business data files.

The technology company launched its API program earlier this year, starting with an API for its flagship cloud accounting solution AccountRight Live - a powerful cloud-enabled accounting solution with a rich desktop interface. It has since attracted more than 550 API developer partners.

General Manager - Enterprise Division Andrew Birch says, "The launch of EXO Business API is a significant milestone in the tier 3 ERP solution space and greatly enhances MYOB’s ability to assist mid-sized clients in managing their businesses. Importantly, the best-practice API design enables third-party developer partners to achieve stable integration and extend their reach to include our many thousands of EXO Business clients.

"The opportunities are endless for developers to create and integrate apps that make business life easier for EXO Business clients. Clients will be able to access a wide range of add-ons providing additional functionality, such as customisable reports and analysis tools that integrate securely with other online services."

Enprise CEO Mark Loveys says, "The new MYOB EXO API will make it even easier for third party developers to more safely and correctly extend the reach and functionality of MYOB EXO Business. With so many thousands of businesses already using MYOB EXO throughout Australasia, I believe it is now a compelling platform for developing complementary market vertical add-on products such as mobile solutions and cloud-based services."

"This will help take MYOB EXO from already being the top-selling mid-market ERP product in this region into even more vertical market opportunities. Vertical solution developers always prefer to work with the market leading platform - and here, that is MYOB EXO."

The MYOB EXO Business API is available for use with EXO Business v8.3 and above, as a Windows service and accessed locally or via the cloud using the MYOB LiveRelay. It’s available on any programming language that supports REST-based web services.

The MYOB API developer program is open to any developer who wants to create and integrate add-on solutions that make business life easier for AccountRight Live and EXO Business clients. The program offers three levels of membership to suit different needs.