Military Finance Report: March 2015

Saturday, March 14, 2015

529 College Education Plan

529 plans are tax-deferred accounts used to pay for college expenses for a beneficiary (usually a child/grandchild) ran by states or education institutions. An investment in a 529 plan is invested in stocks and bonds and will grow tax free until the beneficiary is ready to use the money. The deductions are tax exempt if used for qualified college expenses. For the most part, 529s are a great way to save for your child’s college education but there are some considerations to think about before investing in one.

·         Tax Advantages: If you’ve read more than one article from my blog, you know I’m an opponent of taxes and I focus on helping people pay the minimum amount of taxes as possible. The money you invest in a 529 will grow tax free and when your beneficiary is ready to use the money for qualified college expenses, the earnings will also be tax free. 529 contributions are considered gifts so you’ll be maxed out at $14K a year in annual contributions to a 529.

·         Better Returns: 529s plans are run by States and in most cases have better returns than a simple savings account or treasury bonds. A parent starting a 529 when the child is born has ~18 years to save for the child’s college education. Some states do extremely well and provide amazing rates of return.

·         Realistic Program Management: Unlike most programs designed by the government, the 529 program is realistic and versatile. For military members this is especially important because you can switch 529 programs state to state depending on which state you live or are stationed in. You have an opportunity in picking which state has a better rate of return. For all parents, the 529 can be transferred from family member to family member. If one child doesn’t use it then you can pass it to another child or to a grandchild.

·         Sole Purpose: The sole purpose of a 529 plan is to help pay for a beneficiary’s college education. If you’ve saved more than the cost of a college education and have to liquidate the account then you will be penalized. If your child chooses not to attend college or receives a scholarship then you will have to liquidate and be penalized. The penalty for not using the funds for qualified education expenses is a staggering 10% so, if possible, only save enough for the education your beneficiary(s) can use.

·         Financial Aid Concerns: I try not to expose my political ideologies on my blog but financial aid and social programs are being abused by many people and not for its original intent. Financial aid for college is a common place to find such abuse. Many abusers receive more social welfare money for going to college and use financial aid with little intent on graduating college. For those parents who tried their hardest to save for a 529 but will still look for financial aid for their child, may be impacted in getting financial aid because the 529 will be part of the parent’s “net worth” calculation (a.k.a. Expected Family Contribution[EFC]) even though the 529 can only be used for college expenses. A 529 isn’t necessarily a part of the parent’s wealth as it is used for in the EFC calculation.

·         Limited Investment Options: I mentioned above that 529 plans have better returns than a savings account or treasury bonds but there are still limited investment options. You are limited to the State ran 529 plan for the State you choose. Some states offer deals for their own residents but the options are still limited.  

·         Post 9/11 GI Bill: The Post 9/11 GI Bill allows military members to transfer up to 36 months of education benefits to a family member. I received my Bachelor’s and Graduate’s degree using the Montgomery GI Bill (pre-9/11 GI Bill) and haven’t used any of my post 9/11 GI Bill benefits. I can transfer all 36 months to my children (though it comes with a 4-year Active Duty Service Commitment). So going back to the sole purpose consideration, be careful how much you invest if you’re planning on using the post 9/11 GI Bill for your child. You may have to liquidate more than expected and get penalized 10%.
529s are basically run like mutual funds. My #1 choice for all information on mutual funds is They have a great 529 Center on their site here:

Be careful when you’re doing a simple search for 529 information.  Some of the State-ran plans are worth several billion dollars and it’s a big business. Like all investments they want your money so a lot of Google searches will be advertisement-based over research based. Like I said above, I use to search through 529s.

Wednesday, March 11, 2015

Multi-Level Marketing (MLM) Businesses and Taxes

Multi-Level Marketing businesses (MLMs) have exploded across the country; especially among the military spouse community. MLMs allow military spouses to run their own businesses at home and the job can move with their military spouse. I don’t have an accurate count but I’m sure there are nearly a hundred different MLMs out there. I’ve experienced the following MLMs: Pampered Chef, Amway, WUN Life, Isagenix, Pure Romance, Nerium, Origami Owl, Kyani and Scentsy.
A key thing MLM operators need to know is how to file their taxes. Although I haven’t run an MLM; I do have sufficient experience in tax preparation and here are some suggestions I’ve found doing research on this reader requested topic.

·         Create a separate checkings account to run your MLM. This will allow you to quickly differentiate between costs of running the MLM and income you’ve earned which will come in handy when dealing with deductions.

·         Before you even start your MLM find out if they give you a 1099-Misc Income Tax Form which identifies how much the company records as income you’ve made. Talking with MLM owners I found out that Pure Romance, Pampered Chef and Nerium file 1099-Misc forms with the IRS so you can claim that on your taxes as regular income. If an MLM doesn’t provide a 1099-Misc then it is incumbent on MLM operators to figure out how much income they’ve made. This is easier if you have a separate checkings account.

·         Running an MLM is similar to being self-employed and as such you can claim routine expenses as deductions if you itemize your deductions. If you have a separate checkings account it will make it easier to identify the costs. Some common deductions are phone and internet, party hosting expenses and gas/vehicle expenses for those MLMs which require frequent deliveries and travel. Itemizing deductions can help decrease the tax burden but it is important to ensure you’re legally entitled to the deductions.

·         If your tax situation requires you to itemize deductions then I recommend seeing a tax professional; either a tax preparation company or with a Certified Public Accountant (CPA). A professional can ensure you meet the qualifications for itemizing certain expenses and protect you from an audit.

·         For my non-military readers, if your MLM is your family’s sole source of income PLEASE ensure you meet the necessary requirements to comply with the Affordable Healthcare Act (aka Obamacare). The penalties can be steep and are basically equal to the cost of a “bronze” health care plan. So until the law is changed or repealed, it’s a better return on investment to just ge the healthcare. Like I said before, an MLM is similar to being self-employed so you’ll need to ensure you comply with the federal government’s requirements for health care.
If you’ve run an MLM and filed taxes before please leave me a comment or recommendations you have for other MLM owners.