Friday Financial Five–July 19th, 2013

Friday, July 19, 2013

Dan Forbes, GoLocalProv Financial Expert

 

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Unintended early results of the Affordable Care Act

The RI health care exchange, HealthSource RI, is operational in anticipation of October 1st enrollment, but recent news on the Affordable Care Act hasn’t been all positive. First, there was the one year delay in large employer penalties for not providing coverage. Now there is growing sentiment that the health care act is incentivizing a “part-time” workforce. Companies will save money by giving employees less than thirty hours of work. Union leadership recently penned a letter decrying this unintended consequence, as well as the lack of subsidies for unions that for-profit companies can utilize. It appears corporations and unions agree that there need to be changes down the road.

Separating QE tapering from market reactions

After sending the bond market scurrying recently, Ben Bernanke needs to find a way to ease government involvement from market reactions. The problem is that debt is being used to cure a debt problem. If the economy doesn’t improve drastically, there will not be enough revenue generated to sustain the payment of the debt. But removing the Fed from the equation is easier said than done. Investors drastically overreact to central bank policy instead of positioning portfolios for the eventuality of the Fed’s reduced involvement.

Defined benefit plans continue to dwindle

The percentage of employers offering defined benefit plans has been cut in half since 1990. At this point, one in five companies offer a traditional pension, and a vast majority of the Fortune 100 have switched to a defined contribution plan. Retirement account balances have continued to rise with recent market highs, making it imperative that investors review investment strategies for long term investment.

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Borrowing options for college

Tuition bills are due soon, so it’s time again to run down possible borrowing options to pay for school. As addressed previously, Federal loan rates have jumped precipitously. A primary option, due to the tax benefits, is to borrow against home equity. Cash value life insurance provides another borrowing opportunity, but be aware of the terms. There are PLUS loans, RI based loans and Wells Fargo has an educational borrowing program. Borrowing against retirement plans is also a consideration but withdrawing funds outright should be viewed as a last resort.

Approved 529 plan expenses

For those utilizing 529 plans to pay college expenses there are some limitations on what is covered to qualify for preferred tax treatment. “Qualified Higher Education Expenses”, compiled by the IRS, include tuition, required books, and housing up to the university provided equivalent. From the IRS’ perspective, if it’s not absolutely necessary, it doesn’t qualify, so don’t bother claiming the money for Xbox. Also, keep receipts for all expenses in case of an audit.

 

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected].

 

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