Personal Banking E-Newsletter - June 2012

College Prep: Five Reasons to Study Up on 529 Plans

Millions of families striving to meet the mounting costs of college have flocked to 529 college savings plans.

For most investors, the plans' main attractions are the potential for federal tax-deferred earnings growth and federal tax-free qualified withdrawals.1 The plans' aggregate asset limits, which often exceed $200,000, also appeal to contributors concerned about the potential for a six-figure price tag on a four-year degree. But a closer look at the rules governing 529 plans may reveal other attractive reasons to consider putting them to work as you make one of your most important investments — in your child's or grandchild's future.

Avoid federal gift taxes and accelerate giving — You can contribute up to $13,000 (or $26,000 if you and your spouse give and file jointly) to a 529 plan each year without owing federal gift taxes, provided you haven't made other financial gifts to the plan beneficiary in the same year. In addition, you can elect to make a lump-sum contribution of up to $65,000 ($130,000 for married couples filing jointly) in the first year of a five-year period, provided you don't give the beneficiary additional taxable gifts during the five-year period.2

Create an educational funding legacy — A 529 plan offers the owner control over the plan, including flexibility in naming and changing its beneficiary. The beneficiary can be any age and generally can be changed to a qualified relative when needed. For example, if the original beneficiary decides not to attend college, you can designate a new beneficiary. This flexibility may enable you to establish a college funding legacy for current and future generations. For example, you could open a 529 plan account to pay your child's college bills. Then, if there's money left over after he or she finishes college, you can change the beneficiary to another qualified family member and perhaps later to a grandchild.

Consolidate assets — Consolidating college funding assets for one beneficiary in a single 529 plan can make them easier to manage. Depending on plan rules, you may be able to arrange transfers from a Coverdell Education Savings Account, a custodial account or another 529 plan without triggering federal income taxes. Be sure to review the tax implications with a tax professional, however. Transfers of assets from Series EE and I bonds may also be allowed under certain conditions.

Maximize financial aid eligibility — Money in a 529 account is usually considered by colleges to be the account owner's asset, which often means the parents' asset. As a result, a maximum of 5.6% of the balance is generally assumed to be available for college annually, compared with 35% if the assets were the student's. With a custodial account, on the other hand, the assets are considered the student's. And according to the Department of Education, qualified distributions from a 529 plan are not counted as parent or student income and therefore do not affect aid eligibility.

Look into state tax savings — Depending on the state you reside in, plan contributions to that state's 529 plan may be eligible for state tax deductions. Don't overlook this potential benefit when choosing a plan.
There may be other advantages of 529 plans to consider, as well. Be sure to talk with your financial advisor and tax professional for help assessing how a 529 plan may affect your tax situation.

1The earnings portion of nonqualified withdrawals is subject to federal income taxes, a 10% federal tax penalty and possible state taxes and penalties.

2If you die before the end of the five-year period, a prorated portion of the contribution will be considered part of your taxable estate.

Section 529 plans are established and maintained by state governments or agencies or eligible educational institutions. Contributions must be kept in a qualified trust in order to be treated as a qualified tuition program.

You should consider a 529 Plan’s fees and expenses such as administrative fees, enrollment fees, annual maintenance fees, sales charges, and underlying fund expenses, which will fluctuate depending on the 529 Plan invested in the investments chosen within the plan.

© 2010 Standard & Poor's Financial Communications. All rights reserved.


Summer Fun on a Budget

Temperatures are climbing, school is out and everyone wants to beat the doldrums with some fun summer activities. However, keeping the kids (and yourself) entertained can put a strain on your wallet. Here are some ideas to have some fun in the sun without breaking the bank.

Want to spend a day at the water park? For a family of four, admission alone can cost over $100, and then you have to factor in concessions, parking, gas for travel, etc. Rather than spending all that money for a day in the pool with hundreds of people, organize a neighborhood water park party! Each family that gets involved contributes something to the event: food, a slip n' slide, water guns/balloons, prizes, etc. Keep it low-key or go all out; it's up to you.

How about going to a baseball game? Again, the biggest budget hold-ups for this activity are cost of admission, travel, concessions and dealing with crowds. The easiest way to avoid most of those is to attend a minor league game rather than a major league match-up. Northwoods League game prices are usually less than $10, and you can cut down on the cost of concessions by tailgating or grilling out at home before the game. All the fun of a day at the ballpark at a fraction of the price.

What about the fair? State, county and city fairs and carnivals are a lot of fun, but the expenses can add up quickly. Food, games, rides and souvenirs all factor into the total cost of the trip. To keep costs down, lay out a budget before you get to the fairgrounds. Allot specific amounts for games, concessions and rides. You can also look through newspapers and online for coupons.

Finally, investigate what events are taking place locally. Explore or to see what your community has in store for the summer months. Making a few substitutions and taking the time to research best prices will help you have a fun, frugal summer.

How to Create a Secure Password

Your password is more than just a key to your computer or online account. It is a gateway to all of your important information. If your password falls into the wrong hands, a cybercriminal can impersonate you online, access your bank or credit card accounts, sign your name to online service agreements or contracts, engage in financial transactions, or change your account information. Unfortunately, many users are still not taking the necessary steps to protect their accounts by using strong passwords. Far too often, passwords with simple combinations (such as 123456, password, qwerty, or abc123) are being used. In other cases, people simply use their pet’s name or their birth date — information that can be easily found online, such as on a Facebook or genealogy page.

Creating Secure Passwords:

Cybercriminals have developed programs that automate the ability to guess your passwords. To protect yourself, passwords must be difficult for others to guess but, at the same time, easy for you to remember. Here are some recommendations:

  • Passwords should have at least eight characters and include uppercase 
    and lowercase letters, numbers, and symbols. 
  • Avoid words and proper names, regardless of language. Hackers use programs that try every word in a dictionary.
  • Don't use personal information — names, birthdays, etc., that someone might already know or easily obtain.
  • Change passwords regularly — at least every 60 days. If you believe your system or an online account you access has been compromised, change your passwords immediately.
  • Use different passwords for each account you have.
  • Make sure your work passwords are different from your personal passwords.

Protecting Your Passwords:

  • Do not write down your passwords. If you need to remember your passwords, write down a hint to a password, but never the password itself.  Store the hint in a safe place away from your computer.
  • Do not share your password with anyone — attackers may try to trick you via telephone calls or email messages into sharing your password.
  • Do not reveal your password on surveys, questionnaires, or security forms.
  • Decline the “Remember Password” feature in Web browsers.
  • Always remember to log out when using a public computer.
  • If you need a utility to store your passwords, an “electronic vault” may be a viable option. When deciding which password manager/electronic vault to use, look for programs that use powerful encryption algorithms, keylogger and phishing protection, and lock-out features.
  • At work, follow your organization’s password policy

4 Habits That Harm Your Credit Score

If you are like most consumers, you don't spend a lot of time thinking about your credit history. You may think that as long as you pay your bills on time, your credit history and related credit scores should be shiny and clean. However, many common money habits can be detrimental to your credit score without you even knowing it. Keeping these money mistakes to a minimum will help keep your score high.

1. Credit consolidation

A popular financial planning tool used by banks and personal advisers is to take some or all of your old debt and roll it into a new consolidation loan. The main goals of this strategy are to refinance debt to a lower interest rate and to lower the total monthly minimum payment.

While both of these results can help your overall financial picture, getting rid of older debt can hurt your credit score. A portion of the score is determined by the length of your credit history, and open accounts that have a track record of on-time payments will boost your score. Closing all of them and rolling them into a new loan can drop your score significantly, especially if it reduces your overall available credit.

If reducing the interest rate you pay on loans and credit cards is the goal, try to negotiate a lower rate with your existing lenders before choosing consolidation.

2. Shopping for credit

Everyone wants to get the lowest rate possible on mortgages, car loans and credit cards.

However, financial institutions considering lending you money almost always run a credit check to ensure that you are a good risk. Multiple requests on your credit file in a short period of time can lower your score.

In the eyes of the credit score developers, this activity can suggest that you are scrambling to obtain new credit. Since 2009, the score has been adjusted to take this type of activity into account, but it can still have an effect. To minimize these so-called hard hits on your credit report, have preliminary discussions with lenders without consenting to a credit inquiry. That way, you can make a final decision with a single lender, which will run a single credit inquiry, before finalizing the loan. Request your own credit score (which doesn't result in a hard hit) and provide it to lenders so that they can make an informed preliminary decision based on your credit history.

3. Refusing to pay

At some point, you are likely to enter into a dispute with a vendor or creditor. It may be that blender you bought online that broke soon after it was delivered or outstanding finance charges that you don't think you owe. Unfortunately, most vendors have a big stick when it comes to coercing you to pay. They can threaten to submit the outstanding amount as a collection item on your credit report, thereby dropping your score. There are processes in place with all three major credit bureaus to handle such disputes, but the collection will stay on your report in the interim. If the bureau receives enough proof from the vendor that you do owe the money, it will remain on your report for a full seven years.

Try to work out payment disputes in a timely manner to avoid this situation. It may take repeated letters or phone calls to senior people in the vendor's organization, but it is worth the time and trouble.

4. Closing credit cards

It may seem that the best way to sensibly manage your financial situation is to close out credit cards that you're not using. A portion of your credit score, however, is determined by the amount of revolving debt you have (such as credit cards and lines of credit) versus the total amount available to you. The lower the ratio, the more positive the impact on your score. It shows that you have access to credit and aren't using it indiscriminately.

If you close down some of that available room, the ratio goes up and your score goes down. This is especially true if you close a credit card that has a balance. The balance will remain on your report, while the available room disappears. Spread your credit card usage among all of your cards, and be sure to make payments on time to keep your score high.

The bottom line

Your financial habits can have a significant effect on your credit score, and you should consider the impact before making big changes to your debt structure. Get a copy of your credit report at least annually so you can analyze the effect of your money moves on your score.

7-Step Blueprint for A Happy Marriage, Money-Wise

Newlyweds and couples moving toward marriage, take note: Love, as it turns out, is not all you need.

Not if your goal is to avoid the No. 1 reason marriages end in divorce: money problems.

Everyone knows, or should know, this. But love and a reluctance to take a hard look at our own financial habits, often keep us from seeing, much less confronting, potential financial troubles in a relationship.

Failing to do so can lead to serious trouble.

"Mature, responsible conversations about money are a sign of a marriage that's going to be healthy and wonderful and enduring," says Brooke Salvini, a certified financial planner based in San Louis Obispo, Calif. "If you can't talk about money when you are dating, that is a red flag right there."

To get the conversation rolling, here are seven steps experts recommend to steer clear of potential marital money troubles:

1. Disclose Financial Records

Before corporations merge, both sides get a close look at each other's financial records. Take the same approach before you get hitched.

Swap statements for your bank accounts, credit cards, student loans, retirement accounts and so on. Also share credit reports and FICO scores.

"Not only can you start to put together a balance sheet of what the two of you own and what your debts are, you can start to discuss 'do we want to combine our checking account?'" says Salvini.

2. Discuss Financial Goals

A huge part of getting in sync with your spouse begins with discussing major life goals and the necessary financial commitments.

Discuss short-term goals, such as paying off credit card debt or buying a car, and longer-term goals such as buying a house, then craft a budget that sets you clearly on a path toward your goals.

3. Budget Your Spending

Failing to create and stick to a mutually agreed budget can lead to marital strife.

It doesn't have to be complicated. Start by listing monthly income. Be sure to add in interest earned on money-market accounts and dividends from any investments. Then add up expenses, from car payments and rent to groceries, gym membership and utilities.

If you're making more than you spend each month, you can begin planning how to set aside money for an emergency fund, and for long-term financial goals.

If you are spending more than you earn, it's time to consider ways to cut spending.

4. Treat Your Money as Our Money

Many newlyweds see the money they earn individually as their own, much as if they might merely be roommates. They keep separate bank accounts and pitch in, perhaps equally, or not, to pay bills.

But that can lead to problems, especially if one spouse earns a lot more than the other, says Anthony Chambers, a clinical psychologist at the Family Institute at Northwestern University.

If both spouses work, he suggests they arrange for their paychecks to be deposited directly into a joint account used to pay all shared expenses. If they feel they need to have some of their own money in a separate account, that's fine. But Chambers says that money should come from the joint account, so both spouses know where the household's money is going.

5. Keep Credit Cards Separate

It's not necessary to make your spouse a joint account holder on your credit cards, especially if he or she has a poor credit history, which can drag down your own credit rating. Instead, make your spouse an authorized user of your credit cards. This will avoid any potential impact to your credit rating. Authorized users are also able to check account balances and track spending on the card.

6. Don't Split Costs 50-50

In marriage as in most other scenarios, money is power. Although splitting household costs down the middle may work early in a relationship, it can breed resentment in a marriage when one spouse makes a lot more money than the other. It also can foster a sense that the person who pays more should have more say in financial matters.

"Very few things in marriage are exactly 50-50," says Chambers. "And that can really start to bring up all of these other issues of fairness."

Even if costs aren't split down the middle, it's important that each spouse have equal say in money decisions.

7. Talk about Spending

Even after you've reviewed all the financial paperwork, it's even more important to find out how your spending habits match up.

Often those habits are developed early and are entrenched. One person might have grown up in a family that counted every penny. Another might part far more easily with money because shopping became a hobby.

Beyond how much someone likes to spend, there are potential conflicts over what we see as a must-have.

Even small differences can become wedge issues.

"The central task of marriage is the management of differences," says Chambers. "So you want to be able to know early on what those differences are."

10 Insurance Mistakes to Avoid

Insurance can help protect your finances in case of an emergency. But you shouldn't pay more than you have to for this protection. Whether you're buying a policy for the first time or have had coverage for years, you can keep insurance costs under control by avoiding these ten common mistakes.

Setting Low Deductibles

With low auto and homeowners insurance deductibles, you often pay more in premiums than you can recover in claims. Low deductibles also encourage you to make small claims, which could cost you a claims-free discount or prompt your insurer to drop you. Boosting your homeowners deductible from $500 to $1,000 could reduce your premiums by 25%; increasing your car insurance deductible from $200 to $1,000 could save you 40%. Add some of that savings to your emergency fund to cover the extra out-of-pocket expense.

Failing to Ask for Discounts

You won’t get credit for some discounts unless you let your insurer know that you qualify. The list varies from company to company but often includes installing a home alarm system, adding storm-proof shutters, taking a job with a shorter commute (or not commuting anymore), carpooling and even working at certain occupations.

Giving in to Inertia

The insurer that offered you the lowest rate a few years ago may no longer have the best deal. Get price quotes from several insurers whenever you experience a major change -- for example, if you get married, move to a new state, buy a new car or your teenager starts driving. Also go shopping if you’re hit with a rate hike. Get quotes at, or in­surers’ sites. You can find an independent insurance agent at

Ignoring a Bad Complaint Record

It’s a good idea to shop around every few years, but switching insurers just to save a few dollars can backfire if the new company hassles you on claims. Look up the insurer’s customer-service rating through the National Association of Insurance Commissioners’ Consumer Information Source, and avoid companies with a higher-than-average complaint ratio.

Assuming That Group Life Is Cheaper

Free group life insurance from your employer is a great benefit. But if your boss offers extra life insurance for an extra charge, don’t automatically say yes. Insurers that offer group policies assume that people who are not in the best health will apply. They also tend to boost their rates every five years instead of locking in a fixed rate for 20 or 30 years, says Byron Udell, of If you’re healthy, you can generally get a better deal on your own.

Dropping Long-Term-Care Insurance

Many people with long-term-care policies were recently stunned by rate hikes of 40% to 90%. If your insurer notifies you that your premiums are about to soar, you might be tempted to drop your policy. But because you’re older, a new policy will usually be more expensive than the old policy, even with the rate hike. Plus, rates for new policies have been rising even faster than rates for older policies. You can make the premiums more manageable by reducing the benefit period to three years, which is the average claim.

Signing up for COBRA

Under the federal law known as COBRA, employers are required to let you continue on their group health insurance policies for up to 18 months after you leave your job. But you have to pay 102% of the cost yourself (most employers pay 60% to 75% of the premiums for their employees). If you’re healthy and live in a state with a competitive insurance marketplace, you could get a better deal on your own. Get price quotes at or find policies in your area at

Relying on Life Insurance Rules of Thumb

The standard advice is to get enough life insurance to equal eight to 12 times your annual income. But two people who earn the same income may need very different amounts of coverage -- say, if one is the sole earner in a family with several young kids and the other has a working spouse and children in college. Instead, you need to consider what your family’s income and expenses will be after you die.

Insuring Your Home for Its Market Value

The market value and the insurance value are not the same. You need enough insurance to pay to rebuild your home if it is destroyed. But you’ll still have the value of the land, which is part of the market value. Run your numbers through the calculator at ($7.95) for the same rebuilding-cost estimates that insurers use.

Picking a Health Policy Based on Premium Alone

In addition to boosting premiums, health insurers have also been raising rates in less-obvious ways -- such as by increasing coinsurance rates (the percentage you pay for doctor’s visits and procedures) and adding new pricing tiers for prescription drugs. You could also pay a lot more in out-of-pocket costs if your doctors aren’t in your plan’s network. Compare overall costs and limits, make sure your doctors are in-network, and check out the insurer’s complaint record (