How a 529 Account Helps Make Saving For College Easy!

Saving for your child’s higher education is one of the most important investments you can make for their future. To make saving for college easier, the Qualified Tuition Program or the 529 plan was established. The 529 plan is a federal-income-tax-free savings plan to be used exclusively for qualified educational expenses.

Research shows that a college education can lead to increased income and better job prospects. Unfortunately, the rising cost of tuition has become a budgetary issue for many families. Tuition prices have jumped so much that if you want your child to graduate from college debt-free (or close to it) you better start saving now.

The benefit of subsidizing college with a 529 account are varied. Below are a few reasons worth considering:

College is expensive. The earlier you start saving, the more time you have for your savings to work for you. Even saving small amounts will eventually gain larger dividends down the road.

Cover more than tuition. A 529 account can be used to pay for all the costs associated with higher education, including textbooks, computers and other necessary materials.

Use towards technical education. In addition to tuition at public or private colleges, the 529 savings can be used towards trade schools. These types of educational institutions are becoming very popular mainly due to the increasing costs of traditional universities.

Tax benefits. The state of California offer tax-advantaged growth as well as a way to potentially shrink your taxable estate. While contributions to California’s plan are not deductible at the state or federal level, all investment growth is free from state and federal taxes, and the earnings portion of withdrawals for qualified education expenses are income tax free. Additionally, the California 529 plans allow individuals to contribute up to $15,000 per year per account without triggering any federal gift taxes or using any of your lifetime gift tax exclusion amount. The IRS Publication 970, “Tax Benefits for Education”, explains how to calculate the taxable portion of distributions. (Please consult your tax advisor regarding potential tax benefits).

Lower student debt. A 529 savings account can help ease the burden of student loans and lower the amount that is borrowed.

Flexibility. There are two different types of 529 savings accounts. A 529 plan permits you to move money around to different accounts within the plan. Keep in mind that each plan has its own set of rules, so do your homework before making changes that could unfavorably affect your investment.

• Prepaid tuition plans – These plans allow for the pre-purchase of tuition with money to be disbursed when the student enters college. These prepaid tuition plans are usually managed by state organizations or by colleges and universities themselves. Most of the time, the funds in these types of plans cannot be used for room and board.

• Savings plans – Most of these plans invest in mutual funds, certificates of deposit and are dependent on the investment return of these assets.

5 Tips for Raising Funds From Crowdfunding

If you are going to start a crowdfunding campaign, you may wonder how you can raise funds quickly. In this article, we are going to talk about some crowdfunding tips that may help you collect more funds for your startup. Based on the type of platform and campaign, you can tweak and adjust these tips. Read on to find out more.

Tip #1: Do your homework

This tip may work for you only if you have enough time to prepare for these campaigns. Generally, it takes around 11 days to do the homework and get ready for the launch of this campaign. Based on your fundraising needs and campaign type, your time requirement may vary. Given below are some tips that may help you get ready:

• Get the best fundraising advice from the internet
• Opt for the best crowdfunding platform
• Consider other successful campaigns
• Find out how to ask for donations
• Decide if you should organize an event

Tip #2: Ask For funds Early

If you think you just need to launch a campaign page and funds will start pouring in, you need to think again. In the US, there are more than 200 crowdfunding platforms. So, what are the chances of your campaign being found?

So, what you should do is promote the campaign the same day you launched it, which will help you set yourself apart from the crowd. According to statistics, around 50% of startups collect most funds during the first and final 3 days of the duration of the campaign.

You can use the in-built sharing mechanism of your crowdfunding platform to get the word out about your startup. This may include Twitter, Facebook and email, to name a few.

Tip #3: Look for prospective investors

Look for investors who may be willing to provide funds for a certain cause. For instance, if you know a relative, neighbor or colleague who has lost a family member to cancer, chances are that they may be willing to provide funds for a cancer research campaign.

Tip #4: Be Clear about where the funds will go

If you want your prospective investors to trust your crowdfunding campaign, we suggest that you be clear about where the money will go. It’s even better if you be as specific as possible. By keeping your investors informed about your campaign, you can build their confidence and they will continue to invest more money in your startup.

Tip #5: Offer Incentives

For investors, incentives work like a charm but they work for specific campaign types. The good news is that crowdfunding campaigns are more successful when it comes to creative projects and adventures. Listed below are some popular incentives you may offer to your prospective investors:

• Free tickets to a game, concert or show
• Media shout-outs
• Handmade crafts
• Caps and hats
• T-shirts

In short, if you follow these crowdfunding tips, you will be more likely to raise a lot of more money for your start-up.

A Guide to Bank Stress Testing

The economic collapse of 2008 showed how closely connected worldwide financial institutions have become. Affected entities included too big to fail financial houses, all the way down to your local bank.

The combination of the failure of the mortgage backed securities market coupled with a liquidity crisis, nearly brought the worldwide financial system to its knees. This failure cast light on the risk to the world of finance. Because of government sponsored bailouts, the solvency of large institutions came under scrutiny.

Banks are more responsible for ensuring they have enough capital on hand to absorb problems in the credit market. However, the Federal Reserve wants proof and they use stress testing to obtain it.

Stress testing is now mandated by law, and the operative legislation is the Dodd-Frank Act. Dodd-Frank mandates stress testing for all institutions with at least $10 billion in assets. As a practical matter this now applies to nineteen of the largest US financial houses, including Chase and Morgan Stanley.

A stress test is a balance sheet assessment that looks to an institution’s insolvency under hypothetical unfavorable economic conditions. One example supposed a 21% drop in housing prices, a 50% drop in equity prices, and an unemployment rate of 13%. These conditions are unlikely but may be possible, and are similar to what some would call an economic apocalypse.

While many subject to the stress test passed, for others it was very close, or a small amount failed. Needless to say, confidence was shaken among those who choose to invest in the financial industry, despite the many bailouts and increased scrutiny.

What does this mean for your local bank? Community institutions are exempt from stress testing, but that does not mean they have no responsibility. The Comptroller of the Currency has issued guidelines for institutions with less than 10 billion in assets. Among the areas that are being looked at are commercial real estate borrowing and commercial transactions.

Because of the connection between domestic banks and European banks, stress tests are now mandated for overseas institutions. Stress tests are planned for 124 banks across 22 countries.

For your local bank, a regulator will be looking at toxic assets. These are assets that the regulator may believe to be illiquid and inflated in value. These will primarily deal with loans, and will look at the risk associated with those loans. Next, the regulator will look at uninsured mortgage backed securities. The regulator will discount the value of these assets.

These potential losses are totaled and factored into the adverse scenario, and they will be offset against the institution’s ability to earn its way back to health. If passed, business goes on as usual. If failed, the regulator may require additional capital to be raised. If the capital cannot be raised, closure will be the final step.

In order to get a sense of whether your local banking establishment is in trouble, look at the kinds of loans it makes. If it is in the habit of making a lot of unsecured loans, you might have reason to feel uncomfortable.

An Introductory Look Into Transfer Pricing and Arm’s Length Doctrine

Background & Arm’s Length

Transfer pricing happens when two related companies, that occupy a similar industry, trade with each other. When a US-based subsidiary of Company A decides to buy something from its UK-based subsidiary and the two entities agree on a price for the transaction, transfer pricing occurs. A principle comparable to transfer pricing is the “arm’s length” doctrine. The arm’s length doctrine states that the amount charged between two related parties for a given transaction must be the same as if the parties were not actually related. In essence pricing between two related companies must be consistent with pricing either entity would charge a third party. The doctrine also states that two companies must act as though they are negotiating in a normal market since the market would provide a guideline for the ‘fair’ price of a particular transaction.

Limitation of Arm’s Length

Since transfer pricing occurs between two related companies there is potential for price distortion to occur. Two companies may wish to distort or manipulate the price of the transaction that occurred to minimize overall tax liability if one or both of the companies is subject to a substantial corporate tax. Price distortion is especially appealing in ‘tax havens’ or countries with low or zero corporate tax rates. Transfer pricing has been under the microscope in recent years for this reason.

Government appointed agencies work to ensure that companies are not abusing it to avoid taxation. In theory, the ‘arm’s length’ approach is supposed to stop misuse by ensuring that transactions between related companies are treated as if the two entities are not related and priced accordingly. However, in practice, implementing ‘arm’s length’ proves to be bothersome if not impossible for highly specialized companies. Imagine, for a moment, that two related companies are trading a tiny component for an MRI machine that is only made for that particular machine and is not manufactured by any other company.

Hardly any market comparison would exist for this transaction, so the appropriate price is not obvious. The problem with this is two-fold. This situation could provide leeway for abuse because with no market comparison the companies could simply set their own price. It could also create undue burden on companies that are law-abiding and follow ‘arm’s length’ but are lacking a market-based guideline. Currently, ‘arm’s length’ is a favored approach to determining transfer prices; however in this case it is problematic. Perhaps other ways of determining transfer prices need to be developed and implemented.

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