Direct from the US Treasury

Continuing from our previous post about education savings and investment plans, why not mention another savings/investment option.

If you’re like most people, you have a certain amount of money as a “buffer” in your savings account.  You never use the money, but have it there just in case.  You earn modest interest on the money at a rate of 0.2% to 1.5%.  Now you could lock the money up in a Certificate of Deposit (CD) which would offer a couple percentage points return, but your money is locked up.

I was researching bonds as well as US Treasury securities.  You can buy US Treasury securities through a broker (why don’t they call them “richer”?  Why “broker”?  I’ll let you decide).  Anyway, I was learning more about US Treasury investment options and found that you can purchase these direct rather than through a middle-man and avoid any commission on the sale.

You can visit https://www.treasurydirect.gov and create an account.  You have the option in investing in various treasuries and bonds.

Treasury Bills -  These bills are sold at a discount and when the term (time period) is up, you’re paid the full amount.  Envision it as you pay $90 for a $100 bill that the government will give you in 52 weeks.

• Terms: 4, 13, 26, 52 weeks
• No interest payments made to you during the term.  The amount paid to you over your original purchase price is your interest gained.
• Minimum Purchase: $100.00
• Interest is exempt from State and Local Income Taxes
• Interest is subject to Federal Income Tax

Treasury Notes – The difference between the Note and the Bill is that the Note option will pay you interest every six months during the term.

• Earn a fixed rate of interest every six months
• Terms: 2, 3, 5, 7, 10 years
• Minimum Purchase: $100.00
• Interest is exempt from State and Local Income Taxes
• Interest is subject to Federal Income Tax

Treasury Bonds - Think of this as a long term note.

• Term: 30 years
• Pays a fixed interest every six months
• Minimum Purchase: $100.00
• Interest is exempt from State and Local Income Taxes
• Interest is subject to Federal Income Tax

Treasury Inflation Protected Securities (TIPS) – Think of these as Treasury Notes that adjust (in your favor) as inflation increases.  You receive interest payments on your principle investment, and the principle investment is increased based on inflation.

• Term: 5, 10, 20 years
• The principle can also decrease according to deflation; however, if you hold the investment to maturity, you’ll get back your principle regardless of the deflation.
• Interest payments are made twice a year based on the principle
• Minimum Purchase: $100.00
• Interest is exempt from State and Local Income Taxes
• Interest is subject to Federal Income Tax

EE / E Savings Bonds – Can make a good gift for the grandkids.

• Min Term: 1 year
• Earns interest for 30 years
• Minimum purchase $25.00
• Two types: Electronic (purchased at $25.00 and accrues interest) and Paper (purchased at $25 and matures to $50)
• No redemption penalty after 5 years
• Interest is accrued (i.e., you don’t receive the money earned until you redeem the bond)
• If used for education expenses could be Income Tax Free (check the tax code)

I Savings Bonds – Similar to the EE Savings Bond except the I Savings Bond will adjust in your favor if inflation increases.

• Interest is exempt from State and Local Income Taxes
• Interest is subject to Federal Income Tax

What are the return rates?

There are a few things to consider when comparing returns of these investment/savings options.  You won’t be taxed by your state on most of these securities.  You might want to compare these against what you could get from a savings account rather than the stock market (although, they may not look all that bad now). The risk of these investments  is low because the government isn’t going  to default.

With that in mind, for money that might have just been sitting around earning less than inflation, subject to Federal, State, and Local Taxes, US Treasuries aren’t a bad idea for a secure investment.  Bytheway, the interest rate stated in your bank account and what you think you might be earning can be different depending on your beginning and ending balances.

DISCLAIMER: Investments hold risk, etc., etc., etc., this information isn’t guaranteed to be accurate or complete. In other words, you’re responsible for your own financial decisions and shouldn’t rely on what is written here; don’t get mad or sue if things don’t go as you planned.

References:

Product in Depth (and sub headings). In  TreasuryDirect.gov. Retrieved July 14, 2009, from https://www.treasurydirect.gov/indiv/research/indepth/indepth.htm

Explaining Simple Interest, Compound Interest, APR, and APY. In  The Simple Dollar. Retrieved July 14, 2009, from http://www.thesimpledollar.com/2006/11/28/explaining-simple-interest-compound-interest-apr-and-apy/

40 Years Ago, 2 Men Landed on the Moon

For millenia, mankind has looked up at the earth’s pale-faced companion and wondered, imagined, and in some cases, worshiped.  Forty years ago, on July 20, 1969, two men made the ultimate step in history and landed on the moon.

Lunar Module Approaching the Command Module (From Nasa)

Buzz Aldrin and the Lunar Module "Eagle" (From Nasa)

Below are videos from MythBusters testing and proving that the moon landing was not a hoax (make sure to watch the last one; it’s the best):

Below is the best video of all for debunking the conspiracy theorists:

Below are some interesting resources for learning about the moon landing:

Google’s Moon Page depicting the landing sites of the Apollo Missions:

http://www.google.com/moon/

Nasa Page about the landing:

http://www.nasa.gov/mission_pages/apollo/40th/apollo11_tapes.html

The LRO satellite mission currently circiling the moon took pictures of the Apollo missions’ equipment left behind:

http://www.nasa.gov/mission_pages/LRO/multimedia/lroimages/apollosites.html

Saving for College

During a church lesson on self-reliance last week, the subject turned to saving for childrens’ education and college.  Someone mentioned that there are college savings plans and threw out the number 529.  I was curious because I had heard about Educational IRA’s, and had been thinking about opening a couple for the kids, but I hadn’t heard of “the 529.”

The 529 Saving Plan – Recently, I’ve been researching using the Fortune/CNN Money “Money 101″ site related to investing in bonds, and I skipped ahead to the college savings plans section to find out about this mysterious 529.

College Tuition Estimator – The site also referred me to http://www.savingforcollege.com which has a very simple calculator to determine what you’ll need to put away each month based on how much current tuition is and how much you think your college savings investment will grow.  I was astounded to see total college tuition estimates at over $100,000.  Crazy.  The calculator also lets you know how much you need to put away each month to cover the total tuition.

Giving or Earning? A Matter of Philosophy – It’s my personal philosophy that parents should not pay for children’s college.  Perhaps it’s because I worked my way through college.  Children will also learn money management skills if they save for their own college.  Who will appreciate their education more, the child that has it handed to them, or the one that has worked for it?  I’ll let you decide.

However, there is a good plan to help with your children’s college and help them feel the value of saving, money management, and their education.  Set up a plan where the child puts in a certain percentage from what they earn to be placed in their education fund, then match their contribution.  Now, you may want to contribute when your child is really young which is fine, but teach them about the fund and help understand as they grow older what it’s all about.

So What is a 529? - First of all, there are two types of a 529, we’ll talk about the Savings Plan (not the prepaid).  You access your plan through your state and there are state tax benefits for residents of the state.  Each state’s administration of the plan can be different, so the information and plans may vary from state to state.

The Gist From Wikipedia:

529 plans are named after section 529 of the Internal Revenue Code,[1] 26 U.S.C. § 529. While most plans allow investors from out of state, there can be significant state tax advantages and other benefits, such as matching grant and scholarship opportunities, protection from creditors, and exemption from state financial aid calculations for investors who invest in 529 plans in their state of residence.

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.

529 plans are named after section 529 of the Internal Revenue Code, 26 U.S.C. § 529. While most plans allow investors from out of state, there can be significant state tax advantages and other benefits, such as matching grant and scholarship opportunities, protection from creditors, and exemption from state financial aid calculations for investors who invest in 529 plans in their state of residence….

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.

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.

Below is what we’ve learned from our state’s plan (again, check to see if your state is different or if the plan has changed):

• No minimum investment amount to get started
• Funds can be used at the institution of your choice (as long as it is accredited)
• There’s no yearly maximum contribution, however, if an annual contribution (per contributor) is larger than 13K, federal gift taxes may apply
• You can switch who the beneficiary is (if your eldest decides not to go to college for example or receives a full ride scholarship for all 4 years and room and board)
• Qualified withdrawals are not taxed.  So interest and earnings you gain from having your money invested is not taxed when withdrawn if the money is used for qualifiyin education expenses.
• You don’t have to report what you spend the money on to the fund.  However, you need to keep detailed records since this has to do with taxes, if you’re audited, the IRS may want to see your records.
• You can deduct your contributions from state taxes (deduction amount is 5% of the contribution up to a certain amount…not very much, but still)
• You can have multiple accounts per beneficiary (you would use this for investment strategies because you currently can select only one investment strategy at a time).
• You can change your investment strategy periodically
• The investments are based on Vanguard Index and Funds as well as FDIC insured Bank accounts, Bond Indexes, and/or State Investment funds
• You cannot contribute to the account once it has reached about $300,000 (check your state for the current limit); however, your investments can continue to grow past that point
• Withdrawals should be made in the same time period as the education expense
• You can choose to have the investment strategy change automatically from aggressive to conservative as the beneficiary ages.

Whats are the drawbacks of a 529? – Some of the drawbacks with the fund are that there are fees for managing (some of the fees are passed through from the underlying investments), and there are fees if you contribute as someone from out of state.  However, the fees are less than 1%/year, so compare that against a Coverdell account where you’ll pay a commission on the purchase and sale of your investments.

You can pull your money out at any time; however, you’ll face fees and taxes just as if you were to pull money out of your 401k early.  You’ll probably have to pay 10% federal tax fee and any other applicable state and federal taxes on the gains and/or return the amount deducted from state taxes.

Some states have brokerages manage their funds, this gives increased fees to the investor.  I was reading on CNN Money in a different article and saw that the author invested in our state’s fund because it’s not brokered by a traditional broker, the fees are low, and the investment options are better.

Earnings and Strategy for a 529 – You should be able to see from the 529 statements what the earnings are.  With the markets as they are right now, the returns look really bad if you’re making withdrawals right now and your money was invested in stock indexes, funds, or bonds.  This does mean however, it’s the perfect time to get started.  Buy low, sell high…you know.

One strategy is to go for stocks when the beneficiary is in elementary school, move to a mix of bonds when in junior high, and then move to an FDIC insured bank account when in high school.  The FDIC insured bank account is still within the plan’s management.

What other options are there for saving for college? – A Coverdell IRA is another option where you have full control over the investments, stocks, etc.  however, there is an annual $2,000 contribution limit per recipient.  Withdrawals can be made tax free, but contributions are not tax deductible.  Your brokerage will most likely have a minimum initial investment to open the account.

So, whether you choose a 529, a Coverdell, a Savings account, CD, mattress (not recommended), the important thing is to get started and teach the kids to be financially responsible.  Who knows, if they’re taught about correct money principles when they’re young, they will be a whole lot less likely to be in the mess many in America are facing right now.

DISCLAIMER: The information here is to get you thinking about saving for college, investments hold risk, etc., etc., etc., this information isn’t guaranteed to be accurate or complete. In other words, you’re responsible for your own financial decisions and shouldn’t rely on what is written here; don’t get mad or sue if things don’t go as you planned.

References:

529 plan. (2009, June 3). In  Wikipedia, The Free Encyclopedia. Retrieved 17:41, July 12, 2009, from  http://en.wikipedia.org/w/index.php?title=529_plan&oldid=294209892

Money101 Lesson 11: Saving for College.  In  CNNMoney.com. Retrieved 17:41, July 12, 2009, from  http://money.cnn.com/magazines/moneymag/money101/lesson11/

Air Force Week

This morning, we heard sounds overhead, but weren’t able to see the planes making the sounds.

This evening, we saw the planes…from our backyard…up close…very close.

Autumn tried “Skyping” with her “phone.”

We could read the words on the planes they were so close

Celebrating the Music in All of Us

The day I purchased the G1 Android phone, I saw on the phone an application to view YouTube videos. The first video that I tested on the phone was the video featured below. It celebrates the music in all of us all over the world and is pretty cool.

The videos are from the Playing for Change Foundation. From the Foundation’s website:

The Playing For Change Foundation (PFCF) is dedicated to connecting the world through music by providing resources (including but not limited to facilities, supplies, and educational programs) to musicians and their communities around the world.

The “Don’t Worry” video features artists from all over the world:

• Nancy, France
• The Congo
• Kathmandu, Nepal
• Chennai, India
• Amsterdam, Netherlands
• Tel Aviv, Israel
• New Orleans, Louisiana USA
• Barcelona, Spain
• Umlazi, South Africa
• Dharamsala, India

The video below is also from the foundation. It starts with one performer, and then really builds.

The “Stand by Me” video features artists from :

• Santa Monica, California USA
• New Orleans, Louisiana USA
• Amsterdam, Netherlands
• Zuni, New Mexico USA
• Toulouse, France
• Rio de Janeiro, Brazil
• Moscow, Russia
• Caracas Venezuela,
• The Congo
• Guguletu, South Africa
• Barcelona, Spain
• Umlazi, South Africa
• Pisa, Italy
• Mamelodi, South Africa

I recommend listening with a good set of headphones.

2009 Inauguration of Barack Obama

History was made today with the inauguration of the first African American President Barack Obama.

As an interesting side note, in the actual administering of the oath to Barack Obama, the Chief Justice accidently mixed up the order of the words.  Barack smiled and repeated them as they were given and in the correct order.

A few lesser known snippets about President Obama’s history courtesy of Wikipedia:

Barack Obama was born at the Kapi’olani Medical Center for Women & Children in Honolulu, Hawaii, to Ann Dunham, a white American from Wichita, Kansas of English and Irish descent. Obama’s father was Barack Obama, Sr., a Luo from Nyang’oma Kogelo, Nyanza Province, Kenya. His parents met in 1960 while attending the University of Hawaii at Mānoa, where his father was a foreign student.  The couple married on February 2, 1961; they separated when Obama was two years old and divorced in 1964. Obama’s father returned to Kenya and saw his son only once more before dying in an automobile accident in 1982.

After her divorce, Dunham married Indonesian student Lolo Soetoro, who was attending college in Hawaii. When Soeharto, a military leader in Soetoro’s home country, came to power in 1967, all students studying abroad were recalled and the family moved to Indonesia. There Obama attended local schools in Jakarta, such as Besuki Public School and St. Francis of Assisi School, until he was ten years old.

He then returned to Honolulu to live with his maternal grandparents, Madelyn and Stanley Armour Dunham, while attending Punahou School from the fifth grade in 1971 until his graduation from high school in 1979. Obama’s mother returned to Hawaii in 1972 for five years, and then in 1977 went back to Indonesia, where she worked as an anthropological field worker. She stayed there most of the rest of her life, returning to Hawaii in 1994. She died of ovarian cancer in 1995….

After four years in New York City, Obama moved to Chicago, where he was hired as director of the Developing Communities Project (DCP), a church-based community organization originally comprising eight Catholic parishes in Greater Roseland (Roseland, West Pullman, and Riverdale) on Chicago’s far South Side. He worked there for three years from June 1985 to May 1988.  During his three years as the DCP’s director, its staff grew from one to thirteen and its annual budget grew from $70,000 to $400,000. His achievements included helping set up a job training program, a college preparatory tutoring program, and a tenants’ rights organization in Altgeld Gardens.

Obama also worked as a consultant and instructor for the Gamaliel Foundation, a community organizing institute. In mid-1988, he traveled for the first time to Europe for three weeks and then for five weeks in Kenya, where he met many of his paternal relatives for the first time.

Obama entered Harvard Law School in late 1988. He was selected as an editor of the Harvard Law Review at the end of his first year, and president of the journal in his second year. During his summers, he returned to Chicago where he worked as a summer associate at the law firms of Sidley & Austin in 1989 and Hopkins & Sutter in 1990. After graduating with a Juris Doctor (J.D.) magna cum laude from Harvard in 1991, he returned to Chicago.

Obama served for twelve years as a professor at the University of Chicago Law School, teaching constitutional law. He was first classified as a Lecturer from 1992 to 1996, and then as a Senior Lecturer from 1996 to 2004.  He also joined Davis, Miner, Barnhill & Galland, a twelve-attorney law firm specializing in civil rights litigation and neighborhood economic development, where he was an associate for three years from 1993 to 1996, then of counsel from 1996 to 2004, with his law license becoming inactive in 2002.

Barack Obama. (2009, January 20). In  Wikipedia, The Free Encyclopedia. Retrieved 19:15, January 20, 2009, from  http://en.wikipedia.org/w/index.php?title=Barack_Obama&oldid=265330808