Tax return offers lessons on needed next-year changes

By Andrew Leckey

"I have the best news ever," a business associate with a son in college said to me recently, as she clapped her hands with excitement. "We're getting $5,000 back on our taxes because of my husband's withholding at work, and it's exactly what we need with all our bills coming due."

I managed a weak smile to acknowledge her good fortune.

I didn't have the heart to tell her it actually was bad news, because they were receiving their own money back without interest. Even though it was forced saving, it would have been better if everything came out even, with no refund.

Once her euphoria eases, I'll suggest that her husband check with his employer to see how much is being withheld from his salary and make a W-2 adjustment to withhold less in 2006. I'll recommend that he verify those changes to be certain the payroll department made them.

"I always tell clients it's advantageous not to over withhold and to instead put that money to work sooner, rather than waiting a year and getting it back as a refund," said Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional, and president of Lifetime Financial Planning Inc. in Herndon, Va.

Consider tax-free investments

Withholding is one example of what you can learn from your 2005 tax return, which should be a foundation for your 2006 financial planning. It is a reality check in dollars and cents to help avoid repeat mistakes.

"On the first page of your IRS 1040 form, look at interest income, because if you have a lot of it, and you're in a top federal tax bracket, you should consider investing in a municipal bond fund," Knepper said. "That way you'll earn income tax-free and end up with more income on an after-tax basis."

If you also see hefty capital gains distributions from mutual funds you own, consider selling and reinvesting in more tax-efficient funds, he advised...

Money Adviser - When it's you vs. your kids

By Greg Daugherty

...Today's retirees face some tougher trade-offs than their predecessors of just a generation ago.

...Nowhere does the situation become trickier than when you're forced to decide between a child's financial needs and your own. ...The last thing most of us want to do is to become a burden on our offspring in our old age. And our kids probably wouldn't be too thrilled with the idea either. At the same time, most of us feel compelled to help, not just because we love our kids but because our own parents may have assisted us. "A lot of parents will say, 'My parents paid for my college or made the down payment on my first home, and I want to do the same thing,'" says Dean Knepper, a CPA and CERTIFIED FINANCIAL PLANNER™ professional in Herndon, Va. "But things are very different today."

So what should you do? And not do? Here are some suggestions:

Skimp on the sheepskin - ...Steer your child toward a perfectly fine state university, ideally one where you qualify for cheaper in-state tuition rates. One way to rig the decision, from financial planner Knepper: Offer to pay only the kid's room and board and let him or her handle the tuition. Room and board doesn't vary by much ($5,816 a year on average for four-year public colleges during the 2004-2005 school year vs. $6,606 for private ones, according to the College Board), so it won't make a huge difference to your finances either way. However, the gap in tuition ($4,843 a year public vs. $17,270 private) may give both you and Junior a good reason to start humming the State U. marching song.

Don't give that down payment - "If your child has good credit, there are a lot of no-down-payment loans out there," Knepper says. In other words, you may not have to cough up a quarter toward Junior's first home.

Rethink your equity line of credit

By Ellen Beck

Steadily rising interest rates signal it's time to take another look at your home equity line of credit.

These loans, which allow you to borrow money based on the equity in your home, fluctuate with the prime lending rate. That rate has inched up by 2 percentage points in the past two years and is likely to climb further. Federal Reserve Chairman Alan Greenspan said he will continue to allow interest rates to slowly increase.

...Dean Knepper, CERTIFIED FINANCIAL PLANNER™ professional in Herndon, is advising clients to "be proactive and look at the long term." ...Knepper said, while you initially may have a higher payment with a fixed rate loan, in the current rising market you will likely "end up paying a lot more with these floating loans."

HSAs—a healthy alternative to high medical care costs

New health savings accounts offer a different way to pay for medical care.

By Ilana Polyak

No doubt you’ve noticed how big a share of the health insurance burden you’re shouldering these days, regardless of whether you’re paying for your own premiums or are covered under an employer plan. Across the US, health care insurance has been climbing at a double-digit clip for the past few years, causing companies and individuals alike to come up with creative ways to foot the rising bills.

One new way to save some health cash is by opening a health savings account (HSA).

If you’re healthy and you make enough money to want to shelter some of it from taxes, this could be an attractive alternative. At the very least, if you’re paying for your own health insurance HSAs will give you far more choices and greater control over your health dollars.

...Financial planners say the best use of an HSA is to make it a savings vehicle. This is because of the tax advantages—it’s a more efficient way to save, since you won’t be dipping into your gains to pay Uncle Sam. “The power of the tax-deferral is great,” says Dean Knepper, a CPA and CERTIFIED FINANCIAL PLANNER™ professional in Herndon VA.

...Since money is deposited tax-free and accumulates tax-free, an HSA may also be used as a retirement account. It can be used for medical expenses in retirement without paying taxes.

Online calculators play Social Security numbers game

By Joe Rominiecki

For the average American in search of truth about Social Security, further confusion is just a few mouse clicks away.

Claiming to show the exact potential of President Bush’s proposed personal investment plan, a bevy of Social Security calculator tools can be found on the Internet, but they vary greatly in size, complexity and – unfortunately – results.

The Center for Economic and Policy Research unveiled the Accurate Benefits Calculator on Tuesday, which is sometimes offline for final edits. It asks users for age, marital status and salary, among other factors, and compares their monthly retirement benefits under the current and proposed systems.

Given multiple scenarios, it consistently shows Bush’s plan will result in reduced benefits.

In contrast, the Cato Institute, a think tank devoted to Social Security reform, has a calculator that shows the exact opposite.

CEPR’s calculator says a 25-year-old single man making $35,000, about the U.S. average, would get $13,956 per year upon retirement, but Cato’s says he would get $28,970.

For a 35-year-old married woman making $50,000, the predicted yearly benefits are $17,376 and $29,598. For a 45-year-old married man making $80,000, CEPR’s calculator says $21,492 per year; Cato’s says $34,187.

These contradictions are rooted in differing variables – investment return rates, for instance – that the calculators use and keep behind the scenes for the sake of simplicity.

...The CEPR calculator uses an investment return rate of 4.35 percent, while Cato assumes 6.5 percent per year. Dean Knepper, a CPA and CERTIFIED FINANCIAL PLANNER™ professional, said these factors can be confusing. “In general, most of them are being too optimistic. By using calculators, you’re going to get a false impression if (stocks) are safe enough,” he said.

...Perhaps most worrisome about the multitude of independent Social Security calculators is the one thing they all have in common. Given the same information, they all provide estimates for benefits under the current system that are significantly higher than the calculator provided by the Social Security Administration itself. Knepper said that planning for retirement is too complicated to pack into an online gizmo. “If you really want to get a good idea, you need to sit down with a professional,” he said.

Four Moves You Can Make Now to Reduce Future Pain

By Carla Fried

IF your definition of tax planning goes no further than blocking out the weekend before April 15 to slog through your tax returns - or to make a last-minute plea to an accountant - you are probably missing out on some money-saving moves.

Even the most creative tax specialist is limited in what he or she can do for your 2004 taxes, but you can do plenty now to make your 2005 tax bill - and next year's tax season - much less painful.

...TAKE STOCK IN LOSERS AND WINNERS Dean Knepper, a CPA and CERTIFIED FINANCIAL PLANNER™ professional, says strategic tax selling should be a regular part of your investment approach. "Rather than wait until year-end to see if you might have a loss, look for losses throughout the year," said Mr. Knepper, whose advisory firm, Lifetime Financial Planning, is based in Herndon, Va. "Even if you still like the stock, you can book the loss and buy it back in 31 days, but in the meantime you reduced your tax bill." If you owned the security for less than one year, the loss will be deemed short-term and must first be applied to offset any short-term gains.

...Mr. Knepper says that newly self-employed people can fall an often-overlooked tax trap if they neglect to pay Social Security and Medicare taxes when making quarterly estimated income tax payments. In 2005, the 12.4 percent self-employment tax for Social Security is levied on the first $90,000 of income. The 2.9 percent Medicare tax is collected on all income. "That's a nasty surprise we run across a lot," Mr. Knepper said.

Read the entire article at NYTimes.com

Booklet - 50 Steps to a Richer Retirement

#3 - Get a Grip on Expenses

By Greg Daugherty

Whether you're planning your retirement or already living it, a time-honored tool called a spending log can help you get a firmer grip on your finances. Carry a small notebook and jot down every expense during the course of your day, no matter how small. Try to keep it up for a month, then look it over.

"People always find things they can cut back on," says Dean Knepper, a CPA and CERTIFIED FINANCIAL PLANNER™ professional in Herndon, VA. "They end up taking a lot less money out of their ATM each week."

What to do with the extra cash? Knepper suggests that pre-retirees "increase your 401(k) contributions so you at least get the full company match. Then, if you're eligible, fund a Roth IRA." Do that and you won't have to worry as much about your retirement spending when the day finally comes.

Number Cruncher

By Arthur Goldgaber

At face value, monthly and quarterly investment account statements provide a snapshot of the account’s performance. But between the lines, there’s a whole world of data waiting to be unearthed.

...For Dean Knepper, CPA, CFP^®, the expenses charged by the funds in 401(k)s, IRAs and annuities is the No. 1 figure that investors should monitor. Knepper, a fee-only financial planner and president of Herndon, Va. based Lifetime Financial Planning, Inc. uses this example to show how a 0.5 percent difference in an annual fee can have a significant impact on a retirement savings account:

If a 50-year-old investor places $100,000 in a tax-deferred account that earns a before-expense return of 8 percent and carries an annual expense ratio of 1 percent, it will grow to $386,968 over 20 years. If the same person invests in a comparable fund with an annual expense ratio of just 0.5 percent, the investment will grow to $424,785 over the same 20 years — that’s almost a 10-percent difference.

To monitor his client’s expenses, Knepper uses professional portfolio software from Morningstar. ...These tools allow Knepper to prepare a report for the entire portfolio that consolidates all of a clients’ investments and provides additional data like expense ratios and information about the investment’s tax efficiency (if it’s a taxable account).

He also uses these reports to analyze portfolio performance versus a benchmark such a total stock market index. The typical 401(k) investor looks at his quarterly statement and assumes that if the total value of the holdings has gone up, the performance is adequate. Yet, the return may be trailing the overall market by a significant amount.

How to Pay for College - Three Smart Strategies

If your children are under 10, a college savings plan based on your current household income is a good place to start.

By Joan Caplin, Penelope Wang, and Cybele Weisser

...Your income: Over $150,000, your goal: Focus on your tax-free saving

Financial assistance is probably not in the picture - though you should run the numbers anyway - so do the bulk of your investing in tax-free accounts. Stash your first $2,000 in a Coverdell, where you can choose any low-cost fund, and the rest in a 529 savings plan. To choose one, look first at the fund company's performance and ethical reputation - avoid those involved in the fund scandals - then at expenses. Don't get carried away by state tax breaks. You may have to pay back your tax benefit if you roll over your account to another state. And unless you receive a hefty deduction, you're likely to come out ahead by simply choosing the best, low-cost plan, especially if you're investing a large lump sum.

Consider this example from Dean Knepper, a financial adviser and CPA in Leesburg, Va. The expense ratio for a Vanguard balanced fund in Virginia's VEST 529 plan is 0.93% a year - $465 annually for a $50,000 investment. Residents can deduct $2,000 in contributions a year form their state income tax, saving $88.25 [in net taxes for someone] in the 25% [federal] bracket [assuming they itemize on the federal return]; that brings the Virginia plan's cost down to $378.75. By contrast, the same fund in Utah's 529 plan costs 0.35% a year - just $175 on that same $50,000. That's a better deal for Virginians, even without a tax break.

The ABCs of IRAs

By Roderick Boyd

...The Congressional Research Service recently estimated the average retirement savings of households headed by 55 to 64 year olds to be $55,000. Convert this into an annuity, and the retiree gets only $408 per month, taking the gold out of "the golden years."

...But before you cut back to two meals a day and disconnect the cable, there are several cures for the retirement blues, found in individual retirement accounts. IRAs, as they are universally known, offer the ability to invest money with a degree of shelter from taxes. Precisely how much shelter is a function of the specific IRA, as well as your family's income.

The most popular IRA is the Roth IRA, named after the late Senator William Roth, who championed its passage into law. A CERTIFIED FINANCIAL PLANNER™ professional with Lifetime Financial Planning in Herndon, Va., Dean Knepper, said that Roth IRAs offer the opportunity for a couple to invest up to $6,000 ($3,000 each) in separate accounts tax-free. And, if the couple is age 50 or older, they can each invest up to $3,500 a year. Even better, starting in 2005, they will be able to add an additional $1,000 each, making it an $8,000 annual nest egg [$9,000 if age 50 or older].

Mr. Knepper said the Roth IRA allows our fictitious couple to grow assets without having yearly tax bill worries. If they wish, they can start taking withdrawals at age 59 1 /2. If they don’t want to touch it for whatever reason, they don’t have to, as there is no mandatory withdrawal age.

Of course, Mr. Knepper said some clients don’t concern themselves with those attributes, focusing on the fact that income withdrawn from the Roth IRA is tax-free. Tax-free, as in, no taxes to be paid. So Roth IRA income will not send an otherwise low tax-bracket couple careening into the Donald Trump bracket. In short, it is like finding a lot of money in your pants pocket every year.

Financial Planning: A Means to What Ends?

Identifying, clarifying, and prioritizing goals require conversations and calculations.

By Michael G. Stevens

Accountants and other practitioners have embraced financial planning. There is a wide range of advice available from people with a wide range of backgrounds. No matter what your training and experience may be, there is one thing that all advisors must do: systematically learn the client’s goals. If done correctly, then the advisor will help the client better understand his or her own values and priorities. If this is not done thoughtfully, then the ultimate service provided will be suboptimal.

Talk, More Talk, and Questions

...“Usually by the time clients come to us, they know what their goals are. Our job is first to determine how important a particular goal is. We ask them to rank their goals in order of importance. Then second, we need to determine whether a particular goal of the client is realistic given the client’s financial situation and deadline for accomplishing the goal,” says Dean Knepper, CPA, CFP^®, managing member of Lifetime Financial Planning, a fee-only planning firm in Herndon, Va.

Knepper indicates that it is then incumbent on the planner to determine if the client is willing to change his or her current lifestyle and spending habits to reach a particular goal, as well as to adjust his or her tolerance for risk. This is to gauge whether the investment allocation required to reach the goal in a given time frame is something the client is likely to stick with. Finally, the planner, according to Knepper, needs to resolve any conflicts that exist among the goals. This may necessitate a discussion concerning compromise on the various goals.

Juggling Act

...“If the conflict is between two goals such as retiring early or paying for college, then we have to determine which one is most important and to what degree,” concurs Knepper. This may involve evaluating options such as deciding whether to retire at age 60 and pay very little towards college costs, or to work to 65 and pay a larger portion, or to work until age 70 in order to be able to pay for most of it.

Spending After Retirement

...“Normally clients say they want to retire by a particular age. We found that most people in retirement will spend as much then as they did before, they just may spend it in different ways,” says Knepper. Instead of commuting costs, maybe that money will be spent on travel or entertainment. “We assume the same level of spending. Then if they want to retire at a given age, we explore how willing are they to reduce spending now to contribute more, and how much are they willing to reduce their lifestyle long-term to do that,” says Knepper.

Financial Forecast 2004

Where to Put Your Money Now

By Paul Barr

...Many investment professionals are very comfortable with the outlook for stocks, bonds and mutual funds in the coming year. But if the economy dips unexpectedly, all bets are off, and stocks and bonds could be hurt.

That means the conventional wisdom of not putting too much of your savings into any one type of investment holds especially true in 2004. "Investors should stay diversified and have a stock/bond allocation that they will stick with each year," says Dean Knepper, head of Lifetime Financial Planning LLC in Leesburg, Va.

The last couple of years, when stocks fell sharply in price, a lot of people went overboard by selling completely out of stocks, and they missed the recent rebound. That's why a balance of stocks, bonds and other investments works best.

...dividend-paying stocks are a recent choice to add to the mix [due to more favorable tax rates under tax legislation passed in 2003]. ..."I would caution people not to dump their bonds for dividend-paying stocks if they can't stomach the risk," Knepper says. "There's less volatility involved in bonds."

But the change in the tax laws for dividends [and capital gains] underscores a philosophy he recommends for investors with money in both tax-deferred and taxable accounts. Knepper says investors should keep their stock holdings [as much as possible] in taxable accounts because of the tax benefits.

FAMILY FINANCE: Saving for College

How families can plan for their children’s higher education.

By Kevin Self, Editor

Sending children to college can be one of the most financially challenging times for a family. Parents want the best for their children, but the cost of living—let alone higher education—is not getting cheaper. For a child born today, a four-year, Virginia state college education is estimated to cost over $40,000 per year. Loudoun Family Magazine spoke with Dean Knepper, a local financial expert and the founding principal of Lifetime Financial Planning, based in Leesburg. Knepper, a CERTIFIED PUBLIC ACCOUNTANT and CERTIFIED FINANCIAL PLANNER™ professional, answers questions concerning the best ways for families to save money for college and gives practical advice on how to get started now on your children’s college fund.

Higher Cost of Saving Doesn’t Stop Parents

By Kathleen Johnston Jarboe, Daily Record Business Writer

Buying prepaid tuition plans to Maryland’s universities just got as much as 28 percent pricier for parents and others planning ahead.

The 21 percent to 28 percent increases to pay now for tomorrow’s college costs come as the state-sponsored College Savings Plans of Maryland have struggled to adjust to skyrocketing tuition rates and a growing program deficit in the past year.

But savings experts don’t expect the higher enrollment prices to curb enthusiasm for the program, which offers state and federal tax deductions. Instead, they say the high costs have only made parents and other caretakers more interested in the plans.

Parents are concerned about how they’re going to be able to pay for all of it, said Dean Knepper, a CERTIFIED FINANCIAL PLANNER™ professional at Lifetime Financial Planning LLC in Leesburg, Va.

Finds DCA Strategy Lacking

Letter to the Editor - Published in the September 2003 Issue of Journal of Accountancy

I’m surprised that the article “Investing After 50” [June 2003 Issue of Journal of Accountancy] included dollar-cost averaging (DCA) among the recommendations for CPAs who advise clients age 50 and over. Academic research over the past 20 years has shown that a DCA strategy does not result in superior returns even after adjusting for risk. The following is an excerpt from Dr. Moshe Milevsky’s book Wealth Logic: Wisdom for Improving Your Personal Finances:

“DCA is an inferior strategy. Alternate strategies result in greater expected wealth for the same level of risk or identical wealth for lower risk.

“Replacing one major investment decision with many smaller ones does not make the final outcome any safer. Therefore, if you have the money now and you have the choice, it is best to pick an asset allocation that you are comfortable with—and live with it. If you don’t have the money now, invest it as soon as it is available without using an averaging strategy.

“If you use DCA as a savings strategy, then you are essentially investing when you have the money, and forcing yourself to save, which is a good thing. The conscious decision to split your investments over time is the problem.

“Saving money on a regular basis is a wonderful idea, unfortunately investing it isn’t.”

Dean Knepper, CPA, CFP^®
Managing Member
Lifetime Financial Planning LLC
Herndon, Virginia

Save Now So You Can Pay Later

By Paul J. Lim and James M. Pethokoukis

As tuitions escalate, parents are finding themselves more and more stretched to pay for their children's college educations. Luckily, there are a number of terrific savings vehicles to help. (It should go without saying, of course, that the earlier you begin to stash your cash, the easier the task will be.) U.S. News consulted financial experts to get the skinny on the plan best suited for your situation:

...COVERDELL EDUCATION SAVINGS ACCOUNT

Parents can contribute up to $2,000 a year to a Coverdell ESA. Earnings grow free of federal income tax and can be used to pay for qualified education-related expenses--including items like computers--from kindergarten through college.

Who benefits: "A couple whose child is likely to go to college and who is expected to be ineligible for financial aid," says Dean Knepper of Lifetime Financial Planning a fee only financial planner in Leesburg, Virginia. Contributions can be made by married taxpayers with adjusted gross incomes as high as $220,000 and by single taxpayers with incomes as high as $110,000. Parents also retain [some] control over the assets [until the child is 30 years old]. For example, the parents can change the beneficiary to another family member if they wish.

...ROTH IRA

First introduced in 1998, Roth IRAs have been a favorite of savers, thanks to the tax-free growth of earnings. Like traditional IRAs, contributions are currently limited to $3,000 per year ($3,500 if you're age 50 or older). However, there is no mandatory withdrawal age.

Who benefits: Parents who establish individual Roth IRAs for themselves will benefit the most since the money is held in their personal account. If the money is not needed for college expenses or the child skips college, a parent can use the money for retirement. "So Roths are most beneficial to someone who would not otherwise contribute to a Roth except to save for college," says Knepper. "For anyone saving for retirement, I would recommend using the Roth for that purpose and use a 529 plan, which has the same tax-free advantage, to save for college."

Three Families, Three Smart Ways to Save for College

It's never too early - or too late - to begin saving for your child's education. Financial experts show three families, at three different stages of life, how to make the most of their assets.

By Walecia Konrad

...The family: Mike, 37 a financial executive, Jean, 39, a stay-at-home mom, Mickey, 10, Kathleen, 6, and Maggie, 2. They live in New Jersey. The financial picture: Household income: between $120,000 and $130,000 a year, depending on Mike's bonus. ...Retirement savings: Mike contributes 7% to 8% of his salary to his company's 401(k). Looking ahead: ...Once the youngest child is in school full-time, Jean may return to work part-time.

What they've done so far: Until two years ago , the sum total of their college fund was about $1,000. ...Home renovations, family visits and presents ...and the general expenses of raising kids had easily consumed the bulk of Mike's paychecks until he landed his current position. "It seemed like we never had any extra money," says Jean. The birth of their youngest child was the wake-up call. "Suddenly Mike and I knew we had to get serious if we were ever going to put three kids through college," she says.

The couple has saved $10,000 from Mike's bonuses and tax refunds over the past couple of years in an account earmarked for college investing. Mike and Jean would like to put that money into a 529 savings plan, but the rocky market over the past two years has stopped them form taking the plunge.

What the experts suggest: First things first. "Mike should contribute the maximum allowed to his 401(k) account, which is $12,000 this year," says Dean Knepper, a Leesburg, Virginia - based CERTIFIED PUBLIC ACCOUNTANT and fee-only CERTIFIED FINANCIAL PLANNER™ professional specializing in college planning. "You should always contribute the most to your retirement fund first because you can borrow for college tuition later. If your retirement funds do well, you can help your children down the road." What's more, retirement accounts are not considered part of the parents' assets when they apply for financial aid, so maxing out a 401(k) account serves as a shelter of sorts. In addition, ... both Mike and Jean should also consider opening a Roth IRA account and each contributing the $3,000 maximum.

...Mike and Jean need to take the investing plunge now. They should consider putting their $10,000 college stash in a 529 account for their children, suggests Knepper. New Jersey's plan does not offer a tax break for residents, so Mike and Jean may want to choose another state's plan with lower fees and more options. ...As a result, Mike and Jean may want to look closely at the plan offered by Utah. It has low fees and a range of index funds that can work well for college savings, says Knepper. Balancing stock index funds with bond index funds will reduce risk and help build a portfolio that works well for all three of their children, despite their range in age.

How they can save more: With Mike's increased income, the couple should continue stashing his bonus money in their college accounts, says Knepper. In addition, they may want to return to the budget they lived on when Mike was making less and see if they can save the difference each month. And if Jean returns to work part-time in a few years, she can put her earnings into a college account.

Loan Debt the Norm for College Students

By Mark Helm - Hearst News Service

With tuition on the rise, students increasingly finance their dream of a college education through loans, leaving millions of graduates burdened with debt.

In 2002, the average student graduating from a four-year university had amassed $ 18,900 in debt, a 66 percent increase from five years earlier when that amount was $ 11,400, according to a survey by Nellie Mae, a leading student-loan company.

Along with rising debt levels, the number of students taking out loans also has increased sharply, from 46 percent of graduating seniors in 1992 to 70 percent in 2000, according to the National Center for Education Statistics.

Pomp, Circumstance and Tax Shelters

By Susan Garland

Ask teachers what they most value, and they'll likely name education and family. Starting a college-savings plan is a good way of addressing both priorities. Retired teachers can help with their grandchildren's college costs while also leaving a legacy of learning-and they may also reap some tax benefits for themselves.

...No matter which plan a grandparent chooses, warns Dean Knepper, a fee only financial planner at Lifetime Financial Planning in Leesburg, Virginia. "I would advise them to have, at most, 60 percent in stocks during the early years and no more than 20 percent in stocks as the child nears college."

Leaning Curves

For financial planners the three Rs of 529 plans are finding the right state, rewarding investments, and some form of reasonable compensation.

... actions by individual states cause the various programs [529 plans] to vary widely. For planners to match the right plan with the right client, knowing and keeping up with many state plans will be essential.

...Planners' compensation can raise concerns, according to Hurley [Joe Hurley, founder of Savingforcollege.com]. "When your client's home state offers its own 529 plan that is direct-sold, or is broker-sold but not available through your own broker-dealer, you may have a problem," he notes. "The state may be offering financial incentives to its residents, such as state income tax deductions for contributions, that don't come with your out-of-state 529 product." In such cases, planners might run into conflict-of-interest charges if they sell a client a commission plan from out-of-state rather than a no-load home-state plan with tax breaks.

...Of course, not all planners will receive commissions for helping clients select 529 plans and not all program managers will offer load products. Brent Hillhouse, a principal at Vanguard, says that his firm has no interest in selling loaded 529 plans. "Our idea is to sell through RIAs and fee-only advisers, keeping our plan simple, transparent, and low-cost."

Planners who receive fees rather than commissions must come up with ways to get compensated for putting clients into 529 plans. Some, like Gary Schatsky of New York, charge annual retainers, which cover the provision of 529 advice, while others, such as Dean Knepper, a fee only financial planner in Virginia, bill on an hourly basis. "We give clients recommendations and detailed instructions," says Knepper. "It's quite simple for them to make the applications themselves."

...Will investing in a 529 plan reduce eligibility for financial aid?

..."Federal law doesn't say anything specifically about 529 savings plans and financial aid," says Joe Hurley, founder of Savingforcollege.com. "The U.S. Department of Education is telling applicants and school financial-aid officers to treat 529 plans as parental assets, which is good news because parental assets are assessed at a much lower rate than student assets."

...Because 529 plans don't generate current income, any inside buildup won't affect the aid formulas. What happens, though, when money is withdrawn to pay college bills?

"Currently, distributions from 529 plans aren't counted as a student's income, but that may change in the future," says Dean Knepper, a fee only financial planner in Virginia. "If those distributions must be included, one strategy is to minimize distributions until January of the student's junior year. After that, no more financial aid forms need to be filled out, and the income won't be counted."

Education - On Course for College

With returns down and costs up, following the right strategy is critical.

By Penelope Wang

FEW INVESTORS have been hit as hard by the market free-fall as parents saving for college. If you were stashing money in stocks, you have been set back two or three years - and you may have only a short time to make up your losses. To make matters worse, as colleges struggle with shrinking endowments and reduced government support, they are levying steep tuition increases.

...It's time to face the truth. Open your account statements and check the state of your savings, then double-check how much more you need to put away to meet the total cost of private or public school; you can use savings calculators on the Web, such as those found at www.collegeboard.com, www.finaid.com or www.money.com. That's likely to be a big number - even bigger than it was the last time you looked. But stay calm. You can still keep college affordable by putting away at least half the cost, says Dean Knepper, a fee only financial planner in Virginia, and making up the difference with financial aid and loans.

To find out how much aid you might receive, you can calculate your expected family contribution (EFC), the amount colleges will expect you to pay based on your income and assets; use an EFC calculator at www.finaid.com or a worksheet in a college planning handbook. If your children are young, you can make only a rough guess, but by the time your oldest is a high school sophomore, you can fine-turn your estimates.

...Chances are you and your child will have to borrow. Fewer than half of students from families earning over $100,000 receive any financial aid, and that's mostly in the form of loans. Fortunately, federal student loans are a great deal right now. Recent interest rates on Stafford loans were at all-time lows - 3.46% (for subsidized loans, which are awarded to needier students) and 4.06% (unsubsidized).

You can also get attractive deals on loans - a good thing, since borrowing limits on Staffords are too low to cover high-priced private colleges. Among them: a home-equity loan or line of credit (rates now average just 7.36% and 4.49%, respectively, and are deductible to boot) and federal PLUS loans (Parent Loans for Undergraduate Students), with a recent rate of 4.86%.

Advice a la Carte

A network of fee-only financial planners provides affordable services for every size pocketbook.

UNTIL RECENTLY, first-rate financial planning was like J.P. Morgan’s yacht: If you had to ask what it cost, you couldn’t afford it.

You can now feel free to inquire, because some fee-only planners are offering as-needed service at affordable hourly rates. Their target client: the overworked do-it-yourselfer who is in need of expert, unbiased advice. Does this sound familiar?

…Sheryl Garrett, a Shawnee, Kansas, adviser who is an ardent proponent of hourly financial planning for the middle class, estimates that fewer than 300 firms nationwide are structured to provide fee-only advice to middle-income Americans. Many of them are members of the Garrett Planning Network (GPN) an organization she established in 2000.

…Her firm is designed for clients who need objective advice to help them manage their own finances rather than for those who want to turn everything over to an expert. “I think most Americans want to consult a financial planner periodically the way they’d consult a doctor or dentist,” she says. “The comment I hear most frequently from my clients is, ‘I just want to know if I’m doing things right.’ ”

…Most GPN members are CERTIFIED FINANCIAL PLANNER™ professionals, which means they have passed a rigorous two-day exam, meet a continuing education requirement, and abide by a written code of ethics. As GPN advisers, they also agree to work on a fee-only basis, and may not require account minimums or long-term contracts for the majority of their clients.

…GPN members remain independent professionals, but in exchange for enrollment fees and annual dues, they receive practice management tools – time tracking and billing software, marketing materials and support, and educational courses – as well as unlimited access to a network of their colleagues. All of that benefits the GPN clients, too, of course: They get a counselor whose credentials have been examined by a knowledgeable third party, whose business is likely to run efficiently an profitably, and who can brainstorm with peers on a regular basis.

GPN now numbers 115 members. They are all generalist financial planners but come from a wide range of backgrounds including tax accountancy and insurance, as will as investment management. The GPN Website (www.garrettplanningnetwork.com) lists the members by region and by 21 areas of expertise, including employee benefits; stock options; divorce planning; corporate severance plans; and college, tax and retirement planning.

[Quotes from GPN Members Interviewed for the Article:]

[J. Jay Hurford, CFP^®, CIMC, CLU, ChFC - on Insurance] …A financial planner who is acting as your fiduciary has an entirely different perspective than one who is selling products, says Hurford. Clients often ask him whether they should buy long-term care insurance, for example. “Many people feel they’re doing something wrong if they don’t have this coverage, because of the way they’re approached by insurance agents,” he says. Hurford’s immediate response is a question that you’re unlikely to hear form a salesman: Can you afford the premiums – not only now, but after you retire? If not, he says, you shouldn’t buy it. “For many people, these premiums are a stretch, even while they’re working. The last thing you want is to retire and be unable to maintain the policy and have it lapse.”

[Mark Barrish, CFA, CFP^®, CMFC, ASA – on Investing] …GPN advisers say their clients usually aren’t looking for someone to manage their money. On the contrary, they want to handle their own finances, says Barrish.

…Few people for example, actually know how to build an investment portfolio, Barrish claims: “If the 401(k) plan offers five funds, for example, they’ll just put 20 percent of their money in each fund.” He designs a diversified portfolio based on his analysis of the client’s goals and risk tolerance, and suggests specific products.

[Dean Knepper, CPA, CFP^® - on 401(k) plans] …Undiversified 401(k) accounts are often the result of inadequate investment menus. Most plans have very limited choices, says Knepper, a Virginia fee only financial planner. “It’s a big problem. The typical 401(k) I see is mostly large-cap funds, for example. And on the bond side, the only choice is usually a long-term bond fund.” Knepper helps clients compensate for their 401(k) plans’ limitations. In some cases, he might advise them to contribute only enough in their 401(k) plan to get a matching contribution from the employer and to concentrate on saving for retirement in IRAs and/or in tax-managed or index funds. As Knepper points out, these are effectively tax-deferred until they’re sold – and then taxable at low capital gains tax rates.

[Glenda Moehlenpah, CFP^®, CPA – on Debt Management] …Some of her clients have no investable assets. “I see lots of people who spend more than they earn,” she says. “Often, they’re young couples who have grown up never knowing what it’s like to do without. They have champagne appetites on a beer income – and an ‘I deserve it’ mentality.” Moehlenpah finds it enormously rewarding to teach these clients how to get out of debt and start saving: “It feels awesomely good to make huge changes for small clients – better than making incremental changes for big ones.”

[Rich Chambers, CFP^® - on Investing] …”My most requested service is to look at current investments and recommend replacements,” he reports. Like many of these advisers, Chambers finds that those people who have suffered the worst losses are often reluctant to diversify out of highly concentrated positions. They’re so focused on the investments themselves that they’ve lost sight of the larger picture, he says: “The healthiest attitude is to focus on where you want to get and what you need to get there. The investments are just a vehicle.”

[John Pochodylo, CFP^®, CRPC^® - on Retirement Planning] …These days, many people walk into his office with heavily damaged portfolios. “Almost all of them were 100 percent invested in stocks or stock funds,” he says. “They thought the market was an actuarial table – you put money in, you get 15 percent.” In addition to recommending reallocated portfolios, Pochodylo searches for ways they can reduce or eliminate debt and also cut their investment expenses. “When you’re playing catch-up, it’s even more important to pay attention to what you pay to the intermediaries, or the croupiers, as I call them,” he says. “It’s the tyranny of compounding – paying an extra 1 percent a year on an investment over 20 to 30 years adds up to a lot.”

Financial Fortress or Cash Cow

With stocks sunk, tapping your homeowner equity is tempting.

By Brock N. Meeks

With the stock market on a long march to nowhere, home owners are increasingly looking to their homes as a source of quick cash or a hedge on the retirement life-style they once believed their technology stocks would provide. Experts say tapping the equity in your home or selling it now in a white hot market to capture large gains isn’t the slam dunk decision it seems at first blush.

...It’s elementary, but people should always keep in mind that by tapping the equity in their homes, they are at the same time putting their homes at risk, says Dean Knepper, a CERTIFIED FINANCIAL PLANNER™ professional that runs Lifetime Financial Planning in Leesburg, Virginia.

“I recommend people pay off a mortgage over a shorter period of time using money that would otherwise have gone to the conservative portion of their portfolio,” Knepper said. “Especially now there isn’t anywhere else you can get a guaranteed return of say six percent which is what you’re doing by using funds to pay down your mortgage.”

Ways to Beat the 'How to Pay For Graduate School Blues'

FISCALLY FIT

By Terri Cullen

There's nothing like a recession to shove a would-be job changer off the fence. More than 1.5 million jobs have been lost since the beginning of last year, and the sluggishness of the economy has some people thinking about going back to school to find a new career. According to the Chronicle of Higher Education, applications to law and other graduate schools is up 18% from last year's large crop of applicants.

...Education is a long-term investment in yourself, so it might seem like a no-brainer to tap your 401(k) to pay for it -- whether you stay with your current employer or not. But borrowing from your retirement savings should be tapped only when all other financial options have been exhausted.

"I don't advise borrowing against a 401(k) to pay tuition costs because you're paying an opportunity cost -- you're not only cashing out in the midst of a bear market, but you risk missing out on any recovery," says Dean Knepper, CERTIFIED FINANCIAL PLANNER™ professional and CPA with Lifetime Financial Planning in Leesburg, Virginia. "It's better to keep that money earning tax-deferred interest."

Cover Story - Will You Ever Be Able To Retire?

With STOCKS PLUMMETING and corporations in disarray, Americans' financial futures are in peril. Here's how to make the best of it.

Everyone, Back In The Labor Pool

By Daniel Kadlec

....Ratcheting down risk by adding bonds to a portfolio—and saving more—is a great start, says Dean Knepper, a fee only financial planner at Lifetime Financial Planning in Leesburg, Virginia. "Taking additional risk in an attempt to catch up," he says, "will not work if the individual becomes uncomfortable when the market is down and sells the investment."

Knepper asks his clients to fill out a daily spending log. "They are often shocked at how that morning espresso and evening iced latte add up," he says, advising that if you cut $10 a day from spending, you can accumulate enough each year to make the maximum $3,500 annual contribution to an over-50 IRA.

[Reporting by Melissa August]

How to Play the College Financial Aid Game

Many parents who plan to send – or help send – their children to college are likely to be concerned about those ever-rising tuition bills that lie ahead. To meet the expense, mom and dad can put money each year into 529 plans or other education-related accounts. But there's another side to the paying-for-college equation: financial aid.

....Parents' assets: While 35 percent of student assets are counted as part of the family contribution, less than 6 percent of parental assets are counted in the contribution. In other words, 35 cents of every dollar in savings a child accumulates is knocked off the eligibility. So it's better to have assets in a parent's name than the child's name.

In addition, parents should use their savings to reduce consumer debts and loans, or shift the money into assets not included in the aid calculation, says Dean Knepper, a CERTIFIED FINANCIAL PLANNER™ professional in Leesburg, Virginia. Pay off credit-card debts, car loans, and life-insurance policy loans, since the net-cash value of such policies is excluded from the aid formula, Mr. Knepper says.

....Another tip: Avoid transferring investments into custodial accounts for the student. "Investments transferred into a custodial account are irrevocable gifts and can't legally be transferred back to the parent," Knepper says. "It doesn't matter if the money is to be used later for the child's benefit."

....Relatives other than a parent who want to contribute to college savings should consider setting up a 529 plan with themselves as account owner, and naming the student as beneficiary. That way, Knepper says, the value of the account is not included as an asset in calculating financial aid.If possible, Knepper advises deferring taking distributions from any savings plan until January of the student's junior year of college. That way, the earnings are not included as income on the financial-aid form, which is submitted annually.

What Ever Happened to...

By Amy Joyce

Loudoun Extra often profiles new businesses or those in transition. In an occasional feature, we check to see how those companies have fared and how life has changed for their owners.

Lifetime Financial

Dean E. Knepper doesn't know why he didn't do it sooner.

Last year, the Leesburg accountant [CPA and CERTIFIED FINANCIAL PLANNER™ professional] opened his own business, Lifetime Financial Planning LLC, designed to help middle-income Americans manage money. "I would find it hard to go back and work for someone else now," he said, citing the freedom to do things his way.

.... Knepper set out to help people who might have been turned away from larger investment advisory firms because they lacked the minimum amount of money to invest.

Click here for quotes from the original featured story "For the Not-So-Rich, A New Kind of Asset - Financial Counselor Changes His Focus"

Planning Ahead for the Financial Aid Process

By K.C. Swanson

It's the time of year when millions of Americans hunch miserably over government forms, painstakingly filling in little boxes with the details of their family finances. No, we're not talking about taxes -- it's that unhappy season when parents fill out financial aid forms for college. Many colleges, especially private schools, require aid applications to be handed in by the spring.

If you're in the midst of this joyless process now, good luck -- it's probably too late to do much to make things easier. But if, on the other hand, you anticipate applying for aid in the next year or two, financial planners say there are a few steps you can take now that could help increase your family's eligibility for aid.

....Families can also take advantage of extra cash or short-term investments to pay down debt, advises Dean Knepper, a CERTIFIED FINANCIAL PLANNER™ professional and CPA with Lifetime Financial Planning in Leesburg, Virginia. "Those assets will count against aid eligibility. But if [families] use that money and pay off consumer debt, it increases their eligibility for aid."

Read the entire article at TheStreet.com

Meet Dean Knepper, CPA, CFP® - Lifetime Financial Planner

By Mary Chadsey

Interviews with Small Business Owners in the Reston Virginia Area

RW: What is your business?

DK: Lifetime Financial Planning is an hourly fee-only financial, tax and investment advisory firm serving all of Northern Virginia. LFP is unique in that the firm focuses on meeting the needs of middle-income Americans on an as-needed basis for an hourly fee.

Our mission is to help our clients solve their financial problems and reach their most important life goals by providing sound, straightforward and unbiased fee-only financial planning and advice.

RW: What's the most interesting part of your business?

DK: Meeting and helping a diverse group of clients from all over the U.S. and other countries who have relocated to Northern Virginia

For the Not-So-Rich, A New Kind of Asset

Financial Counselor Changes His Focus

By Sarah Schafer

Leesburg financial planner Dean E. Knepper has only one question, and here it is: "Where did it all go?"

Knepper says too many clients he has counseled over his long career have asked that one, and he'd love to know the answer. Not much keeps him awake at night, but if anything comes close, it's hearing that question from people who can't afford to replace the money they've wasted -- let alone figure out where it went.

That's why Knepper founded Lifetime Financial Planning LLC. After years spent figuring out how to manage money for the wealthy, he wanted to focus on helping middle-income Americans manage theirs. "It's an area that's vastly underserved," he said.

...."If you're in the middle-asset area, with less than $250,000 to $500,000 to invest, it's going to be difficult really to get a lot of attention from a planner," said Stephan Cassaday, president of the Financial Planning Association of the National Capital Area. Visiting a fee-for-service company "is a good alternative for middle-income clients," he said.

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