July: America’s Birthday 2024

ST. CROIX INSIGHTS

July: America’s Birthday

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

Photo by Luke Stackpoole

Americans have been fighting for our freedom since 1776.

On America’s 248th birthday, I’ve been thinking. These days, I have trouble watching the news, local or national; I suspect you do too. We’ve reached a point in our society where front porches have been replaced by back porches, we hardly see or talk to our neighbors as the world moves faster and faster each day, social media and the rest of the internet seems to divide us. Even the mere mention of politics can cause fierce debate and hot emotions among friends and family. Even as I write this, I suspect I might be offending someone with the subject of this post: America’s Birthday. Our independence.

After my own birthdays, I often find myself reflecting on how quickly each one came and went, reviewing the highlights, the lowlights, and the things I want to accomplish between each birthday. This got me thinking about my history classes in elementary, middle, and high school. I can hardly remember that far back (I’m dating myself here)—but I truly don’t remember when I last read the Declaration of Independence or the Constitution of the United States. I want to revisit what our founding fathers wrote and refresh myself on what we learned in our history class all those years ago.

America is special, even with all the challenges we might see or experience in our daily walks of life. Independence is a common theme in my daily conversations. I feel the freest when I’m in the middle of nowhere: in the mountains, in the woods, on a gravel road, sitting in a fishing boat in the Icy Straits as endless amounts of whales dot the water around me, or walking a cornfield in search of that redneck bird. As far as possible from the tallest buildings that usually surround us, one with nature. For me, that’s the independence I strive for as I celebrate America’s Birthday.

 

Happy Birthday, America, and here’s to many more.

A Tax-Smart Way to Support Grandkids’ Education

ST. CROIX INSIGHTS

A Tax-Smart Way to Support Grandkids’ Education

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC
grandchildren fishing with their grandfather

While the Section 529 plan is commonly known as a tax-favored method for parents to save for their children’s college education, older family members can also utilize this strategy to support their grandchildren’s educational endeavors. Setting up an account for your grandkids can offer similar tax benefits to those funded by parents.

Understanding the 529 Plan Options

A 529 plan can be established as either a prepaid tuition plan or a college savings plan.

529 Prepaid Tuition Plan:

  • Locks in Tuition Rates: Allows you to prepay tuition at participating colleges or universities at today’s rates, protecting against future tuition inflation.
  • State-Sponsored: Typically sponsored by state governments, and the benefits may be limited to in-state public colleges.
  • Limited Flexibility: Usually limited to covering tuition and mandatory fees, with less flexibility in using funds for other qualified expenses.
  • Risk Mitigation: Provides a hedge against rising tuition costs, as you’ve already paid for tuition at the locked-in rate.

529 College Savings Plan:

  • Investment Option: Allows you to invest contributions in various investment options, such as mutual funds, stocks, or bonds, chosen by the account owner.
  • Flexibility: Funds can be used for a broader range of qualified higher education expenses, including tuition, room and board, books, and even certain technology expenses.
  • No Guarantees: No guarantees on investment returns or tuition rates, as the account’s value is subject to market fluctuations.
  • Nationwide Participation: Available in all states, and beneficiaries can use the funds at any eligible educational institution, not limited to specific states.

Getting Started and Maximizing Benefits

Upon setting up a 529 plan, you designate your grandchild as the beneficiary and make contributions within generous limits imposed by the state. These contributions are then invested based on the offerings available for the specific plan. Starting early allows for potential tax-free growth of earnings within the account, providing substantial assistance towards your grandchild’s educational expenses.

Tax Benefits and Flexibility

Qualified distributions from a 529 account are exempt from federal income tax and often from state income tax as well. If the grandchild doesn’t utilize the entire balance for education, you have the option to roll over the remaining funds tax-free to another beneficiary’s account, such as another grandchild. Setting up multiple 529 accounts for multiple grandchildren can be beneficial, especially if they are close in age.

Enhancements to Financial Aid Eligibility

Previously, distributions from a grandparent’s 529 plan were factored into the expected family contribution (EFC) for federal financial aid, potentially reducing aid eligibility. However, under the FAFSA Simplification Act, students no longer need to report contributions from a grandparent’s 529 plan on the FAFSA form, enhancing the likelihood of qualifying for financial aid.

Maximizing Gift Tax Exclusions

Contributions to 529 accounts count as gifts but can be offset by the annual gift tax exclusion. In 2024, the exclusion is $18,000 per gift recipient. Additionally, a lump-sum contribution to a 529 account allows for claiming five gift tax exclusions, enabling substantial contributions without tax consequences.

Summarizing the benefits of a 529 Plan:

  • Tax Benefits: Contributions are exempt from federal and often state income tax.
  • Flexibility: Unused funds can be rolled over to another beneficiary’s account.
  • Early Start: Starting early allows for potential tax-free growth of earnings within the account.

Important Considerations

It’s essential to note that on the new FAFSA form, the student’s income is based on data from federal income tax returns supplied by the IRS.

By leveraging a Section 529 plan, you can play a significant role in supporting your grandchildren’s educational journey while enjoying tax benefits and financial flexibility.

 

While the Section 529 plan is commonly known as a tax-favored method for parents to save for their children’s college education, older family members can also utilize this strategy to support their grandchildren’s educational endeavors. Setting up an account for your grandkids can offer similar tax benefits to those funded by parents.

Understanding the 529 Plan Options

A 529 plan can be established as either a prepaid tuition plan or a college savings plan.

529 Prepaid Tuition Plan:

  • Locks in Tuition Rates: Allows you to prepay tuition at participating colleges or universities at today’s rates, protecting against future tuition inflation.
  • State-Sponsored: Typically sponsored by state governments, and the benefits may be limited to in-state public colleges.
  • Limited Flexibility: Usually limited to covering tuition and mandatory fees, with less flexibility in using funds for other qualified expenses.
  • Risk Mitigation: Provides a hedge against rising tuition costs, as you’ve already paid for tuition at the locked-in rate.

529 College Savings Plan:

  • Investment Option: Allows you to invest contributions in various investment options, such as mutual funds, stocks, or bonds, chosen by the account owner.
  • Flexibility: Funds can be used for a broader range of qualified higher education expenses, including tuition, room and board, books, and even certain technology expenses.
  • No Guarantees: No guarantees on investment returns or tuition rates, as the account’s value is subject to market fluctuations.
  • Nationwide Participation: Available in all states, and beneficiaries can use the funds at any eligible educational institution, not limited to specific states.

Getting Started and Maximizing Benefits

Upon setting up a 529 plan, you designate your grandchild as the beneficiary and make contributions within generous limits imposed by the state. These contributions are then invested based on the offerings available for the specific plan. Starting early allows for potential tax-free growth of earnings within the account, providing substantial assistance towards your grandchild’s educational expenses.

Tax Benefits and Flexibility

Qualified distributions from a 529 account are exempt from federal income tax and often from state income tax as well. If the grandchild doesn’t utilize the entire balance for education, you have the option to roll over the remaining funds tax-free to another beneficiary’s account, such as another grandchild. Setting up multiple 529 accounts for multiple grandchildren can be beneficial, especially if they are close in age.

Enhancements to Financial Aid Eligibility

Previously, distributions from a grandparent’s 529 plan were factored into the expected family contribution (EFC) for federal financial aid, potentially reducing aid eligibility. However, under the FAFSA Simplification Act, students no longer need to report contributions from a grandparent’s 529 plan on the FAFSA form, enhancing the likelihood of qualifying for financial aid.

Maximizing Gift Tax Exclusions

Contributions to 529 accounts count as gifts but can be offset by the annual gift tax exclusion. In 2024, the exclusion is $18,000 per gift recipient. Additionally, a lump-sum contribution to a 529 account allows for claiming five gift tax exclusions, enabling substantial contributions without tax consequences.

Summarizing the benefits of a 529 Plan:

  • Tax Benefits: Contributions are exempt from federal and often state income tax.
  • Flexibility: Unused funds can be rolled over to another beneficiary’s account.
  • Early Start: Starting early allows for potential tax-free growth of earnings within the account.

Important Considerations

It’s essential to note that on the new FAFSA form, the student’s income is based on data from federal income tax returns supplied by the IRS.

By leveraging a Section 529 plan, you can play a significant role in supporting your grandchildren’s educational journey while enjoying tax benefits and financial flexibility.

Strategies to Maximize the Dependent Care Credit in 2024

ST. CROIX INSIGHTS

Strategies to Maximize the Dependent Care Credit in 2024

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

The COVID-19 pandemic prompted Congress to boost the tax credit for qualified dependent care expenses, but these adjustments have since expired. To maximize your benefit from this refundable credit in 2024, it’s important to understand the current regulations.

Referred to as the “child care credit,” this credit is primarily utilized for expenses related to caring for children. Here’s the breakdown: The dependent care credit applies to the expenses of caring for children under the age of 13 while you (and your spouse, if applicable) are working. As per the current legislation, parents with an adjusted gross income (AGI) exceeding $43,000 can claim a credit equal to 20% of the first $3,000 of qualified expenses for one child under 13, or 20% of the first $6,000 of eligible expenses for two or more children under 13. Consequently, for most parents, the maximum credit amounts to $600 for one child under 13 or $1,200 for two or more.

Here are five strategies you can employ to potentially increase your credit in 2024:

  1. Compensate family members: Consider compensating your parents for babysitting services provided to your under-13 child, especially if you’re assisting them during challenging times. These payments, if reasonable, qualify for the dependent care credit. Alternatively, payments to another child over the age of 18 may also be eligible.
  2. Broaden household staff duties: If you have a housekeeper or maid, you can specify that part of their responsibilities includes childcare while you’re at work. The IRS allows costs for household services that include childcare, provided the expenses are properly allocated.
  3. Explore specialty day camps: Enrolling your child in a specialty day camp focused on their interests, such as soccer, chess, or science, can qualify for the dependent care credit. Unlike overnight camps, the expenses for these programs are fully eligible for the credit.
  4. Utilize educational pursuits: Both spouses must be “gainfully employed” to qualify for the credit, but the tax definition allows for one spouse to be a full-time student. A spouse who attends classes for at least five months of the year, not necessarily consecutively, can still contribute to meeting the requirements for the credit.
  5. Leverage flexible spending accounts (FSAs): Utilizing a dependent care FSA is often advantageous as it allows you to cover expenses with pre-tax dollars, potentially saving on federal and state income taxes. Although the maximum contribution to a dependent care FSA is $5,000, you can still claim the credit for expenses exceeding this amount.

Before implementing any of these strategies, it’s important to consult with your CPA or tax professional to see if they fit into your overall financial planning. By doing so, you can ensure that you’re maximizing your benefits while staying compliant with current tax regulations.

We’re committed to providing you with personalized insights and recommendations to help you achieve your financial goals. Whether it’s identifying additional opportunities for tax savings or developing a comprehensive financial plan, we can guide you every step of the way.

 

The COVID-19 pandemic prompted Congress to boost the tax credit for qualified dependent care expenses, but these adjustments have since expired. To maximize your benefit from this refundable credit in 2024, it’s important to understand the current regulations.

Referred to as the “child care credit,” this credit is primarily utilized for expenses related to caring for children. Here’s the breakdown: The dependent care credit applies to the expenses of caring for children under the age of 13 while you (and your spouse, if applicable) are working. As per the current legislation, parents with an adjusted gross income (AGI) exceeding $43,000 can claim a credit equal to 20% of the first $3,000 of qualified expenses for one child under 13, or 20% of the first $6,000 of eligible expenses for two or more children under 13. Consequently, for most parents, the maximum credit amounts to $600 for one child under 13 or $1,200 for two or more.

Here are five strategies you can employ to potentially increase your credit in 2024:

  1. Compensate family members: Consider compensating your parents for babysitting services provided to your under-13 child, especially if you’re assisting them during challenging times. These payments, if reasonable, qualify for the dependent care credit. Alternatively, payments to another child over the age of 18 may also be eligible.
  2. Broaden household staff duties: If you have a housekeeper or maid, you can specify that part of their responsibilities includes childcare while you’re at work. The IRS allows costs for household services that include childcare, provided the expenses are properly allocated.
  3. Explore specialty day camps: Enrolling your child in a specialty day camp focused on their interests, such as soccer, chess, or science, can qualify for the dependent care credit. Unlike overnight camps, the expenses for these programs are fully eligible for the credit.
  4. Utilize educational pursuits: Both spouses must be “gainfully employed” to qualify for the credit, but the tax definition allows for one spouse to be a full-time student. A spouse who attends classes for at least five months of the year, not necessarily consecutively, can still contribute to meeting the requirements for the credit.
  5. Leverage flexible spending accounts (FSAs): Utilizing a dependent care FSA is often advantageous as it allows you to cover expenses with pre-tax dollars, potentially saving on federal and state income taxes. Although the maximum contribution to a dependent care FSA is $5,000, you can still claim the credit for expenses exceeding this amount.

Before implementing any of these strategies, it’s important to consult with your CPA or tax professional to see if they fit into your overall financial planning. By doing so, you can ensure that you’re maximizing your benefits while staying compliant with current tax regulations.

We’re committed to providing you with personalized insights and recommendations to help you achieve your financial goals. Whether it’s identifying additional opportunities for tax savings or developing a comprehensive financial plan, we can guide you every step of the way.

The Importance of Planning: Create an Emergency Packet

ST. CROIX INSIGHTS

The Importance of Planning: Create an Emergency Packet

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

the lessons never end

Life, with its twists and turns, presents us with certainties we often prefer to overlook—sickness, mortality, and the unexpected. These topics rarely claim space in our day-to-day conversations, yet they remain an undeniable reality.

In my years as a guide through the realms of financial planning and insurance, I’ve encountered numerous instances where clients faced illness, hospitalization, or life-altering diagnoses. A friend once remarked, “The stuff you’ve been selling for the last 25 years is finally coming true.”

Translation: aging is universal, and while it’s convenient to postpone contemplation on these matters, illness and mortality touch us all.

One aspect that frequently emerges, surprising in its significance, is the prevalence of passwords as vital information within our personal ecosystems. Passwords guarding phones, emails, safes, and online accounts now hold crucial importance. I’ve even layered passcodes atop passwords to fortify the shield around my online presence.

When life takes an unexpected turn, the last thing our loved ones should endure is a scavenger hunt for critical information. I call this crucial data “Waldo,” the linchpin that holds the keys to our vital documents—power of attorney, health directives, financial portfolios, insurance policies, and the roster of contacts (CPAs, attorneys, advisors).

Picture the distress of assuming funeral expenses were prepaid, only to struggle locating the necessary paperwork. Let this serve as a gentle nudge to revisit and reassess your estate plan, life insurance beneficiaries, retirement arrangements, and beyond.

Create an Emergency Packet for your family. Whether physical or digital, it should include all the vital documents in one place. Once you create it, tell your family it’s location and how to access it if it’s behind a safeguard.

Having witnessed and experienced these “Where’s Waldo” scenarios both professionally and personally, I can tell you that being prepared and making these items easily accessible is one additional way you can show how much you love your family.

(However, as I’ve told my kids and continue to remind them, they’d better treat me well; if they don’t, I have no problem playing Where’s Waldo from the grave too. I guess it’s the reverse way of me showing them I love them; if they want my passwords and information, they’ll need to work for them. There is no free lunch!)

As for where to safeguard these folders, the choice is yours. Whether in a physical safe, your desk drawer, or an agreed-upon location, communication with your loved ones about their whereabouts is crucial. Some individuals even maintain vital documents in a folder labeled “Call Brett.” The simplicity of this approach cannot be overstated. Making these documents easily accessible significantly alleviates stress and time for your loved ones during challenging times.

Christmas Message

ST. CROIX INSIGHTS

Christmas Message 2023

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

the lessons never end

It’s a birth celebration like no other!

I fondly remember the excitement of Christmas morning as a kid, especially trying to guess what Mom had placed under the tree for me. Over the years, this became a running joke in the family: before we’d exchange gifts, I’d ask Big Guy (my dad) if he knew what he bought us. This wasn’t just on Christmases but birthdays too. After all, the gift tag always said, “From Mom and Dad.” But we knew Big Guy had one job at Christmas each year: buy Mom’s Christmas present!

Over the past couple of years, I’ve been thinking daily about heavenly and earthly treasures. We come into the world with no physical possessions, and we leave with none. Yet while we’re here on Earth, it’s so much fun to receive earthly treasures. I know I’d never turn them down!

I believe the word “treasure” has a few different meanings. Maybe wisdom comes with age, but as I’ve gotten older, I’ve developed a better understanding of what a treasure truly is.

It’s that time of year when family and friends gather; when you invite others to your home to celebrate the birth of Jesus; when family traditions come out in full force. It’s that time of year when a country, a nation, or even the world comes together for one primary purchase: the Hope of Eternal Life.

When it comes to earthly financial treasures, it’s that time of year when you see so many people giving financially to the local food shelf or homeless shelter, or to their church hosting a meal for those in need.

Treasures are when it’s cold outside and the fire is warm in your home. Treasures can even be something as simple as having a dog or cat. Someone once told me having a pet was a financial luxury. The more I thought about it, the more I agreed. Those little rascals aren’t cheap!

Did you know one of God’s perfect foods is chocolate? According to Genesis 1:11–13,

Then God said, “Let the land produce vegetation: seed-bearing plants and trees on the land that bear fruit with seed in it, according to their various kinds.” And it was so. The land produced vegetation: plants bearing seed according to their kinds and trees bearing fruit with seed in it according to their kinds. And God saw that it was good. And there was evening, and there was morning—the third day.

Somehow, God knew I wouldn’t survive on Earth without chocolate. And it was good! Life’s too good for lousy chocolates, so enjoy this earthly treasure. (My question I’ll have for him one day will be this: “Why did it take you three whole days to create this perfect food?”)

Wishing you a Merry Christmas and a Happy New Year.

The Lessons Never End – Life Lesson 50 of 50

ST. CROIX INSIGHTS

The Lessons Never End

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

the lessons never end

Photo by Nils Nedel

Well, it’s finally happened: after starting earlier this year, offering my thoughts on the world around me—everything from chocolate to Walmart to cancer to leaving a job—I finally reached 50 Life Lessons. What a milestone! The lessons never end.

The lessons never end. Maybe my two kids will read these lessons one day and better understand their dad. Better understand that life isn’t always easy. Better understand that their old man has walked in their shoes many times, and sometimes he really does know better.

But the thing is, even I don’t have all the answers. (I know. It came as a shock to me too.)

And that seems to be the pattern: Just as we master a new lesson in life, we’re presented with a brand-new one to figure out and work through. Just when we’re sure we have this whole “living” thing figured out, life conspires to remind us how wrong we are and how much we have yet to learn.

It seems there’s a new lesson to be learned every day—and that’s the key to this final lesson. There’s always more to learn. We just have to be open to the lessons. The lessons never end.