Advisors' Roundup - May 29, 2015

These caught my attention this week:

In praise of the 401(k):
MarketWatch

Pick your charities well:
FiveThirtyEight

It's net returns that matter:
Vanguard

Advisors' Roundup - May 22, 2015

On my radar this week . . .

Let's see if we can't avoid these kinds of single stock shenanigans:
Bloomberg View

Does the 4% Rule still hold up?
New York Times

Using a Target-Date fund to avoid tinkering:
The Oblivious Investor

Busted 529 Plans - What Gets Taxed?

If you use the funds for qualified higher education expenses, nothing. But that's not the question most people are asking.

What they really want to know is: "If my kid doesn't go to college, what's that going to cost me in taxes?"

Well, if you have another kid (or niece or nephew) waiting in the wings that can use the money for school, nothing. But let's assume Junior is an only child, you don't want the money to go elsewhere, and Junior is not the academic type.

HERE'S WHAT YOU GET TAXED ON

1. Earnings, not contributions, get taxed at your normal income tax rate - plus - 
2. You get hit with a 10% penalty on the earnings only, not contributions
3. If you got a tax break on the contributions, as many states will grant you, you will be subject to a 'recapture' of that amount from the contributions.

EXAMPLE

Let's assume you have contributed $10,000 to Junior's Missouri MOST 529 plan and taken that amount off your state taxable income over the years. Further, let's say those contributions have grown to $15,000 when Junior decides college is not for him. Finally, we're going to assume the 529 owner/taxpayer is in the 25% Federal and 6% Missouri marginal tax brackets. Let's see what we owe:

• Earning at normal tax rates: ($15,000 - $10,000) * (25% + 6%) = $5,000 * 31% or $1,550
• 10% penalty: ($15,000 - $10,000) * 10% = $5,000 * 10% or $500
• Recapture of tax breaks: $10,000 * 6% (state only, there was no Federal tax deduction) or $600

So your total proceeds are:

$15,000

-$1,550

-$   500

-$   600

$12,350

It's important to remember that if you had saved the money outside of the 529 plan, you would have paid taxes on the earnings as you went anyhow and that you would not have received the $600 being recaptured in the first place. Therefore, the only thing you risk by putting the money in a 529 plan and changing your mind is the 10% penalty on the earnings.

If you are a Missouri investor and would like to know more, call (314) 772-9857 or visit www.comptonadvisors.com.

Advisors' Roundup - May 15, 2015

Crossing my desk this week:

Four funds beat the S&P 500 each of the last eight years. Four. Out of a gajillion:
The Reformed Broker

More Buffett & Munger quotes:
The Motley Fool

Tips on paying for college:
Mint.com

Choose Carefully

MarketWatch's Chuck Jaffe looked at all the active funds over the last eight years and tallied up the number that beat the S&P 500 in each of those years.

You can count them on one hand and have a thumb left over.

Now you have a choice. Do you say:

1. Man! that's a hell of a track record - I'm buying some of that fund! - or - 
2. Mmmm - looks like the odds of consistently beating the market are pretty darn slim - I'll stick with index funds.

Choose wisely.

For the original article click here.

For The Reformed Broker's take (succinctly put) click here.

Advisors' Roundup - May 8, 2015

What I've been reading this week:

The markets beat the investors (again):
Advisor Perspectives

Quit chasing squirrels, because (well, see above):
The Reformed Broker

And finally, Berkshire Hathaway's annual meeting was last weekend:
The Motley Fool