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Active Strategic Management

  • Wealth Management / Financial Planning

    Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services. Contact a Paisley Financial Associate to learn more about how we can provide for you. 

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  • 401 K Plans

    A 401k retirement plan is a special account funded through pre-tax payroll deductions. Funds in the account can be invested in stocks, bonds, mutual funds or other assets, and are not taxed on any capital gains, dividends, or interest until withdrawn.

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  • IRA Rollovers

    An IRA is an Individual Retirement Account, and provides either a tax-deferred or tax-free way of saving for retirement. There are many varieties of IRA's please read more on the link below to see which is right for you.

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  • Educational Plans

    A 529 plan is a tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary. Many different plans exist. Learn more to see which is right for you.

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  • Alternative Investments

    Alternative investments are instruments such as physical gold or other commodity based ETF's such as oil or lumber which can be used as a hedge or inflation hedge against an overall portfolio.

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  • Independent Research

    Paisley Financial provides timely and accurate research on markets, companies and industries. Our team offers more than three decades of experience as well as time held relationships with industry experts that will bring the highest quality of knowledge to our customers.

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529 Plans

A 529 plan is a tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher education expenses of a designated beneficiary.

There are  two types of 529 plans: Prepaid Plans and Savings Plans.

Prepaid plans allow one to purchase tuition credits, at today's rates, to be used in the future. Therefore, performance is based upon tuition inflation.

There are  two types of 529 plans: Prepaid Plans and Savings Plans.

Savings plans are different in that all growth is based upon market performance of the underlying investments, which typically consist of mutual funds. Most 529 savings plans offer a variety of age-based asset allocation options where the underlying investments become more conservative as the beneficiary gets closer to college age. The big question in today's volatile markets is what type of downside protection do you have sitting solely in Mutual Funds, even if more conservative options are available? In 2008, even bond funds went down so now, more than ever it is important to work with an Advisor you feel is capable of navigating you through the boom times as well as bust times.

Benefits

Money from a 529 plan can be used for tuition, fees, books, supplies and equipment required for study at any accredited college, university or vocational school in the United States and at some foreign universities. The money can also be used for room and board, as long as the fund beneficiary is at least a half-time student. Off-campus housing costs are covered up to the allowance for room and board that the college includes in its cost of attendance for federal financial-aid purposes. Note that qualified education expenses do not include student loans and student loan interest.

A distribution from a 529 plan that is not used for the above qualified educational expenses is subject to income tax and an additional 10% early-distribution penalty on the gains portion only unless one of the following conditions is satisfied:

       o The designated beneficiary dies, and the distribution goes to another beneficiary or to the estate of the designated beneficiary.
       o The designated beneficiary becomes disabled. A person is considered disabled if there is proof that he or she cannot do any substantial gainful activity because of a physical or mental condition. A physician must determine that the individual's condition can be expected to result in death or continue indefinitely.

The designated beneficiary receives any of the following:
       o A qualified scholarship excludable from gross income
       o Veterans' educational assistance
       o Employer-provided educational assistance
       o Any other nontaxable payments (other than gifts, bequests or inheritances) received for education expenses

Why Start a 529 Plan?

Although contributions are not deductible from the donor's federal income tax liability, many states provide state income tax deductions for all or part of the contributions of the donor. Beyond the potential state income tax deduction possibilities, a prime benefit of the 529 plan is that the principal grows tax-deferred and distributions for the beneficiary's college costs are exempt from tax.

The donor maintains control of the account. With few exceptions, the named beneficiary has no rights to the funds. Most plans even allow you to reclaim the funds for yourself any time you desire, no questions asked. However, the earnings portion of the "non-qualified" withdrawal will be subject to income tax and an additional 10% penalty tax.

A 529 plan can provide a very easy hands-off way to save for college. Once one decides which 529 plan to use, one completes a simple enrollment form and makes a contribution or signs up for automatic deposits. The ongoing investment of the account is handled by the plan, not by the donor. Plan assets are professionally managed either by the state treasurer's office or by an outside investment advisor, like Paisley Financial. The donor will not receive a Form 1099 to report taxable or nontaxable earnings until the year of the withdrawals.

529 plans generally have very low minimum start-up requirements and low contributions. The fees, compared with other investment vehicles, are low, although this depends on the state administering the plan. Everyone is eligible to take advantage of a 529 plan, and the amounts that can be put in are substantial (over $300,000 per beneficiary in many state plans). Generally, there are no income limitations or age restrictions.

Things to Consider

While the number and types of 529 plans is growing, not all investment vehicles are available in 529 form.

The earnings portion of money withdrawn from a 529 plan that is not spent on eligible college expenses will be subject to income tax and an additional 10% federal tax penalty, and the possibility of a recapture of any state tax deductions or credits taken.

The 529 account is counted as an asset that may affect the eligibility of financial aid such as loans and grants. If the parent owns the 529 account, then the financial aid office will only take into consideration 5.64% of the entire value; if owned by the student it will also be considered at 5.64% of the entire value for calculating EFC (Expected Family Contribution).[verification needed] A potential workaround is for the plan owner to be someone other than the student or the parent (such as a grandparent).

Tax Advantages and Considerations

Due to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), 529 plans gained their current prominence and tax advantages. Distributions from 529 plans for qualified higher education expenses are exempt from federal income tax.

A final rather unusual advantage of the assets in a 529 plan is that although they can be reclaimed by the donor (subject to income tax and the 10% additional penalty on any gains) the assets are not counted as part of the donor's gross estate for estate tax purposes. Thus 529 plans can be used as an estate planning tool to move assets outside of one's estate while still retaining some measure of control if the money is needed in the future. A beneficiary must be designated and the income tax savings are still only obtained if the money is eventually spent for education, though in some cases estate taxes can be reduced without spending the money on education.

In certain circumstances where a 529 account has experienced investment losses over the term of its existence, the contributor to the account may withdraw the funds and have the losses deducted from taxable income but may not be counted as such for Alternative Minimum Tax purposes.

Contributions to 529 plans are considered gifts under the federal gift tax regulations and hence any contributions in excess of $13,000 ($65,000 if filing single over five years) or $26,000 ($130,000 if filing married jointly over a five-year period) per donor count against the one-time gift/estate tax exemption. The five-year period is known as the five-year carry-forward option: Once the single donor puts in $65,000 or the married jointly donor puts in $130,000, they are not be able to make another contribution (gift) to that individual (without using part of their lifetime gifting exclusion) for five years.

Since tuition payments are not subject to the annual gift limitation, parents who are trying to minimize estate taxes may be better off making their annual gifts to another vehicle such as a Uniform Transfers to Minors Act (UTMA) account and then paying the tuition directly.

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