Our tax rebate

I forgot to mention that we got our tax rebate the other day! Wohoo! $1,800. Awww yeah. It’s nice to check your account and it’s almost $2,000 bigger than you were expecting.

We are putting the money into our vacation fund. It’s more than enough to take us all to Disneyland for a few days. We think we might need the money for bills, but we are going to try not to spend it. We will plan our trip when we know we are in the clear. Until then we are just going to do our best to hold onto it. If it ends up that we need it then we just won’t go to Disneyland this year. Not the worst thing in the world, I know.

It’s a psychological thing to have a separate savings account for our vacations. By putting it directly into the vacation fund it’s like saying “We are going.” It will be a loss if we have to take the money out of that account. We will be willing to make sacrifices to keep what we have.

Our short term savings account is where we take money from if we are short on bills. We fund this account each year from our tax returns. We think this fund might be a little short because overtime at my husband’s job was very limited at the start of the year and we had to use more of the fund than we intended to. If we were to put the rebate in this account then it’s like saying “We probably aren’t going on vacation this year. We need the money for bills.” Then there is no loss if we don’t go and no need to make sacrifices to make it happen.

It reminds me of this one year at my dad’s job. His company gave annual bonuses for meeting performance goals. One year they gave the bonuses at the beginning of the period and told everyone that if they don’t meet their goals they have to give the money back. As you can imagine the percentage of those who met the goals skyrocketed. Although, I doubt it was very good for morale. But I’m using the same principle to trick myself into saving for our vacation.

Pic by: Miro-Foto

529 plans

Today, I have another guest article from "Bruce the tax guy" about 529 plans. There is so much to know when it comes to saving for college it's impossible to keep up. I hope this article sheds some light on the topic.

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Hello again,

A 529 plan simply put is a college savings plan. There are two types of plans. Plan A: Pre-paid tuition plans (sometimes called guaranteed savings plans and offered in 15 states), and Plan B: college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plans. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan.

Plan A: You pay the cost of tuition at today’s prices for the designee/s to attend later. The earnings here are basically what the difference is in tuition today from what it will be at the designee’s start time.

Plan B: Savings plans are different in that your account earnings are based upon the market performance of the underlying investments, which typically consist of mutual funds.

So how do they help your State return?

I could explain every States individually but will only briefly list the three main States where the majority of my practice resides. (I am current with 28 States 529 Plans)

In my home of residence, Missouri:

· Your assets grow tax-deferred

· withdrawals are exempt from state income tax when used for qualified higher education expenses

· Missouri taxpayers can deduct up to $8,000 in contributions ($16,000 if married filing jointly) from their state income tax each year

Where I started my practice, Iowa:

· taxpayers can deduct up to $2,595 in contributions (adjusted annually for inflation) per beneficiary from their state income tax. For example, a married couple with two children contributing to separate accounts can deduct up to $10,380 (that's 4 x $2,595) for 2007

Thirteen miles to my west, Kansas:

· Any contributor may deduct up to $3,000 for single filers and $6,000 for joint filers per beneficiary for contributions

· follows federal treatment

· offers state matching grants for “Learning Quest"

o residents with household income lower than 200% of the federal poverty level ($42,400 for a family of four) can receive a match when they contribute at least $100 and up to $600 in 2007 and 2008.

With the examples above I hope you can see the benefits each has and that each state varies. With one big similarity, a deduction for contributions made.

Okay I will bet your hoping all this fun is over.

A few more quick thoughts if you please;

· Most States require residence in order to take the deduction

· In most cases if your designee decides not to attend college you can change to a family member of the original designee

· Funds withdrawn for non college uses will be taxed and add back rules could apply to your States return

· Anybody can contribute to the fund

o Meaning you open a fund for your child/ren and Grandparents, Aunts and Uncles’, Brothers and Sisters, etc. and contribute to it/them

Okay, If you have any questions about 529 plans, I have several links listed below or I will be glad to help. Contact me I may not have the immediate answer but I’ll bet free return preparation (from my office), I can find it.

College Savings Plans Network

U.S. Securities and Exchange

College Savings Without the Tax Bite

529 College Savings Plans – Internal Revenue Code Section 529

With tax season at an end (sorta), I will have more time for my site. I plan on having more 529 information there soon.

Bruce “the tax guy”

Saving will set you free.

I wrote this article as part of the group writing project over at We're in Debt.

Did you know you can buy peace and freedom? Every dollar you pay toward debt buys you freedom. Every dollar saved buys you peace. Isn’t that what everyone wants? Peace and freedom, aren’t those things worth working for?

I think the easiest way to build up your emergency fund is to set up your direct deposit. Decide how much you would like to save (10% of your income is recommended, but if you can’t afford that don’t get frustrated, put aside what you can) and set up that amount to go into your savings account. If the money is too tempting then set it up at a different bank from where you have your checking account. That way you can’t just transfer it online. If you have to trek all the way across town during normal business hours you will be less likely to impulse shop with those funds.

Having a savings account gives you a grace period between a bad event and the consequences of that event. If you lose your job and you have savings, you have a grace period before you start to feel the pain. You have time to make a plan. You can find another job, reduce expenses, ask for help. If you don’t have savings then are left with nothing but a stack of bills that need to be paid. You have no time to plan, no grace period. Your choices are limited and things start to fall apart.

“But what about my debt?” You ask. Yes, pay off your debt as fast and furiously as possible. But that doesn’t mean you don’t put a little something aside for emergencies. Life happens, you need to be prepared. You don’t want to have to use a credit card if something comes up. Even putting $50 a month aside will help if you get into a bind. Once you have your debt paid off you can really start funding your savings account.

Start today!