This August, I am planning to drop off my daughter, Ella, for her freshman year at college. In a matter of mere weeks, she will be living on her own terms, as an adult, or somewhat resembling one. My wife, Johanna, and I are getting ready to crack open the 529 account that we have been saving in for eighteen years and convert these dollars into education, experience and hopefully, a diploma! I am feeling both immensely proud of her and terrified for myself at the same time; experiencing all the hopes and fears a parent feels at this bittersweet moment.  Besides the obvious parent angst, however, this moment is also special to me as a financial advisor. I have spent my career thus far advising people on the benefits of planning ahead, investing early, maximizing tax savings, etc. but never really eating my own cooking. By using a 529 plan, this will provide my wife and me with significant tax savings as we spend the assets on tuition and school-related expenses. Best of all, I get to do the math and enjoy a meal for myself!

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Practically speaking, the benefits of using a 529 plan are back-end weighted, meaning that you must wait for that big bang for your buck. There may also be a small up-front benefit as certain states offer a limited annual state income-tax deduction for contributing to a 529 plan. This incentive (if you can get one) is a savings, but usually not a monumental one. The 529 benefits come when the money is being spent. All the capital appreciation and income that the plan account earns while children grow up will not be subject to federal or state income tax so long as it is spent on school. Given that us parents will be the ones footing the bill on Ella’s college, those saved taxes belong to us! Over time, with the escalating costs of higher education, the savings can be truly significant for those parents (and grandparents) that fund 529 accounts early and often. For clients who are over the federal lifetime gift tax exemption amount, using a 529 plan requires some closer scrutiny as there is the additional consideration of estate taxes.

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Similarly saving for retirement involves planning to reach your goals . In a ‘traditional’ retirement account, there is ordinarily a valuable tax benefit (deduction) in the year that the money is saved, and the income and appreciation are tax deferred. When you take your money out of an IRA, 401(k), profit sharing or other pension plan, however, tax is then due. ‘Roth’ retirement accounts offer tax-free appreciation and distribution, however the money saved is not tax deductible when you save it. The right answer as to which of these options are best for you and your family is an individual decision based on your stated investment objectives and goals, and one that we are happy to guide you on.

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Stock markets continued to appreciate in the second quarter[1]. While there are some signs of economic slowing[2], equity indices have risen to new records[3] and corporate profits have remained robust so far this year. We have begun to rebalance some portfolios as stocks have greatly outperformed bonds and growth stocks have greatly outperformed value stocks in the past year and half[4]. If you would like to discuss your portfolio or anything else relating to your financial life, please give us a call!

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Best wishes for a fun-filled and relaxing summer!

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Regards,

Scott Lasky, CFP™

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[1] Per Charles Schwab & Co, the S&P 500 Index was up 4.3% in the second quarter.

[2] Per the U.S. Bureau of Labor Statistics, the unemployment rate increased to 4.1%.

[3] Per Barron’s, the DOW, S&P 500 & NASDAQ closed with record highs on May 15June 18, 2024

[4] Per Morningstar, the US Market Index gained 3.48% in the second quarter, as the US Core Bond Index is up 0.17%.

The S&P 500 Growth ETF (SPYG) total return is 24.54% year to date as of June 28 and was 30.02% for 2023, while the S&P 500 Value ETF (SPYV) return was 10.61% and 22.2% for the same respective time periods. Past performance is not a predictor nor any guarantee of future results.

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All statements are opinions and should not be construed as facts. This newsletter is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in Lionshead Wealth Management’s products or affiliated products. The information provided is for educational purposes. Your advisor does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions. Further, your advisor makes no warranties with regard to such information, or a result obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

 

All investment strategies have the potential for profit or loss; changes in investment strategies, contributions or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio. 

 

Lionshead Wealth Management is registered as an investment adviser and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. Registration as an investment adviser does not constitute an endorsement of the firm by securities regulators nor does it indicate that the adviser has attained a particular level of skill or ability.

 

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