Friday, April 19, 2024

Termites: Tiny bugs can cause BIG problems

  Hey there, house hunters and happy homeowners! As your friendly neighborhood realtor, I'm here to talk about a topic that can strike fear into the hearts of even the bravest residents: termites. These minuscule munchers can wreak havoc on your home's structural integrity, leaving you with a sinking feeling (literally, in some cases!). But fear not! By understanding prevention and action steps, you can keep these creepy crawlies at bay and protect your precious property.

Prevention is Key:

Think of your home as a termite fortress. The first line of defense? Eliminating moisture – their lifeblood. Here's how:

Fix leaky faucets and pipes: A dripping faucet might seem like a minor annoyance, but for termites, it's an invitation to a moisture party.

Direct downspouts away from the foundation: Ensure rainwater flows away from your home, not towards it.

Maintain proper ventilation in crawl spaces: Good airflow discourages moisture build-up.

Trim back landscaping: Don't let bushes and shrubs hug your foundation – create a barrier of at least 18 inches

Tip: Do not put pavers/hard landscaping around the house touching the foundation. Leave 18 inches of space with gravel to allow for termite treatment around the foundation. 

Schedule regular inspections: Yearly professional inspections are crucial for early detection. Most termite treatment companies offer free yearly inspections.

Tip: Take advantage of them by setting a recurring reminder on your calendar.

Signs of Trouble:

Even with precautions, termites can sometimes be sneaky. Here's what to watch out for:

Mud tubes: These winding pathways on your foundation walls are a telltale sign of subterranean termites.

Hollow-sounding wood: Tap lightly on wooden beams or floors. If it sounds hollow, it could be termite damage.

Swarmers: Seeing winged termites near your home indicates an active infestation. Don't squash them – call a pest control professional immediately!

Taking Action:

If you suspect termites, don't panic! Here's what to do:

Contact a qualified pest control professional: They'll assess the situation and recommend a treatment plan. Arizona Department of Agriculture has a lot of information on termites on their Pest Management Division (PMD) website below. 


Before hiring a professional - check their license status and any violations reported against them here -

Pest Management   -> License Search   (check their license status)

                                 -> Complaints        (any violations reported)

Search by property address if termite infestation was recorded with PMD below before buying a property.

Termite Records 

Follow their recommendations: Treatment options like bait stations, soil treatments, or fumigation might be necessary. 

There are 2 types of warranties these pest control companies offer. 

   1) Retreatment plan: The pest control company is not liable for damages caused due to the termite infestation but they will treat the infestation under warranty and typically offer free yearly inspection. Usually cheaper to get these plans.

   2) Damage repair plan: The pest control company inspects before giving this plan and they cover damage repairs due to termite infestations up to a certain dollar amount. some companies won't cover the damage if they can prove that the infestation started before their contract start date. Usually, these are expensive plans but pest control companies are on the hook for damages so they have skin in the game. 

Maintain vigilance: After treatment, stay alert for any signs of returning termites.

Remember: Early detection and action are crucial. By following these tips, you can keep termites at bay and safeguard your home – your biggest investment!

Bonus Tip:  When buying a home, factor in a termite inspection as a contingency. This can give you peace of mind and potentially identify any lurking termite troubles before you close the deal.

With a little knowledge and proactive measures, you can outsmart these tiny terrors and ensure your home remains a haven, not a termite hotel.

Now go forth and conquer those creepy crawlies!

Monday, May 29, 2023

529 College savings plans

Hope you are enjoying Memorial Day and remembering to honor the sacrifices of men and women who served in the United States Armed forces. 

If you noticed the date on the calendar today, it is 5/29 and so thought of talking about 529 (college) savings plans.

Today, I will cover these topics below. Please feel free to jump to the section of your interest if you already have the basic understanding of the college savings plan.

  1. What is a 529 savings plan?
  2. Tax benefits of a 529 savings plan
  3. 529 savings plan investment strategies
  4. Common misconceptions and myths about 529 savings plans
  5. Understanding the financial aid impact of having a 529 plan
  6. Rollover 529 savings plan into Roth IRA* 
  7. Conclusion 

1. What is a 529 savings plan?

A 529 savings plan is a state sponsored savings program designed to help parents save/invest funds for higher education expenses(Mostly used for college but can also be used for K-12). This plan gets its name from Section 529 of the IRS code, which authorizes these types of tax-advantaged savings plans. The funds deposited into the 529 account grow tax-deferred and can be  withdrawn tax-free for eligible education expenses. Some states also offer tax incentive(State income tax exemption) upfront up to certain amount as well. Unused funds can be moved between beneficiaries like siblings, nephew, niece and/or to your self, your spouse , grand children etc to support their education goals. But you will pay 10% penalty and taxes on the withdrawals if you need to take it for ineligible expenses(non education related). Please do not forget to read section below for recent changes with SECURE Act 2.0 which can be rolled over to Roth IRA with some additional eligibility rules.  

2. Tax benefits of a 529 savings plan:

The 529 savings plan provides a variety of tax-related benefits, including:

a. Tax-deferred growth:

One of the primary advantages of a 529 savings plan is tax-deferred growth, meaning the account balance grows on a tax-free basis until distribution. This feature can significantly accelerate savings growth over time.

b. Tax-free withdrawals:

When the time arrives to pay for higher education expenses, the account's funds can be withdrawn without incurring federal taxes if used for specific expenses such as qualified tuition, fees, room, and board, among others. Additionally, some states may also offer tax-free or tax-advantaged withdrawals.

c. State tax deductions(only some states offer this):

Account owners may also be eligible for state-specific tax advantages related to the contributions they have made to the account. 

3. 529 savings plan investment strategies:

 Saving for college is rarely enough to cover the expenses and so the money needs to be invested properly. The correct way to invest in 529 savings vehicle is to use age-based index style portfolios with low fees. Age-based portfolio funds are similar to “Target date retirement funds” for retirement. As the student gets closer to the college age , investments steadily gets less aggressive i.e stocks to bonds/cash ratio decreases over time. With any investment, time is your friend and so the earlier you can invest the better the return is going to be.  As you are investing in index style funds, there is not a lot of activity like selling/buying the securities and picking the right stocks at the right time which can help keep the fees low and provides the market like returns. 

4. Common misconceptions and myths about 529 savings plans:

  1. 529 plans are only for college savings.
    • Reality: 529 plans can be used for a variety of qualified education expenses, including trade schools, vocational programs, and even K-12 tuition.
  2. 529 plans can only be used at in-state schools.
    • Reality: 529 plans can typically be used at any eligible educational institution nationwide, including out-of-state colleges and universities.
  3. Opening a 529 plan limits financial aid opportunities.
    • Reality: While 529 plans are considered parental assets for financial aid calculations, they have a relatively low impact on aid eligibility compared to other assets like income. Additionally, saving in a 529 plan demonstrates financial responsibility, which can be viewed positively by financial aid offices. Please read the next section for more details on this. 
  4. You must be a parent to open a 529 plan.
    • Reality: Anyone can open a 529 plan as an account owner, including grandparents, relatives, or even family friends.
  5. 529 plans are limited to traditional four-year colleges.
    • Reality: 529 plans can be used for a wide range of educational programs, including two-year community colleges, technical schools, and graduate programs.
  6. If your child doesn't attend college, you lose the money in the 529 plan.
    • Reality: If the intended beneficiary decides not to pursue higher education, you have options. You can change the beneficiary to another eligible family member or use the funds for your own continuing education. Check out the next section for rollover options into Roth IRA.
  7. 529 plans are only beneficial for high-income families.
    • Reality: 529 plans offer tax advantages and savings opportunities for families across income levels. Even modest contributions can accumulate over time by investing correctly as described on the above section. 
  8. 529 plans have high fees that eat into savings.
    • Reality: While fees vary depending on the plan, there are numerous low-cost options available that minimize expenses and maximize savings potential. Researching and comparing plans can help you find the most cost-effective option.
  9. You can only contribute to your state's 529 plan.
    • Reality: While contributing to your state's plan may offer additional benefits like Tax savings, you can choose from any state's 529 plan, regardless of where you live.
  10. 529 plans can only be used for tuition expenses.
    • Reality: Qualified expenses can include tuition, fees, books, supplies, equipment, and even certain room and board costs.

5. Understanding the financial aid impact of having a 529 plan:

While 529 plans offer significant advantages, there are a few potential disadvantages when it comes to financial aid. One of the main concerns is that the savings held in a 529 plan may be considered as assets when determining eligibility for need-based financial aid. The higher the assets, the potential reduction in aid eligibility.

  1. (Good news!!!) There is no impact on Merit-Based Financial Aid. If the student gets Merit based scholarship, the amount of scholarship can be withdrawn from the 520 plan without penalty.  
  2. Impact on Need-Based Financial Aid: 

Colleges and universities assess financial aid eligibility through the Free Application for Federal Student Aid (FAFSA) or other institutional aid applications. They take into account the Expected Family Contribution (EFC), which considers various factors, including parental assets such as 529 plans. Typically, Maximum of 5.64% of the parental 529 account assets are considered for the  Expected Family Contribution (EFC). Who owns the actual 529 account plays a role on how much of the assets are counted as EFC. If a grand parent owns the 529 plan, the assets are not considered for EFC but the distributions are considered as Student income which in-turn can reduce the financial aid by up-to 50% of such income where as If parent owns the 529 account, distributions are not considered income. 

 As this is more complex than a sub topic on this blog, i will consider presenting detailed content on this concept in future blogs(!!!Keep an eye out!!!).  

6. Rollover 529 savings plan into Roth IRA*:

If your student gets Merit scholarship or not needed the money from 529 plan, Congratulations!!!! Now with the new SECURE Act 2.0, you can now rollover this money into Roth IRA for the beneficiary with some Eligibility criteria outlined below. 

  1. This option will be available in 2024 onwards*.
  2. The 529 plan must have been open for at least 15 years (so open as early as possible!!!).
  3. Contributions made in the last 5 years are not eligible for Tax-free transfers into Roth IRA, (Don’t worry they will become eligible eventually!!!).
  4. Owner of the Roth IRA you are transferring into should match the beneficiary name on 529 plan you are transferring from.
  5. (Not so good news!!!) The amount rolled over is included in the Roth IRA yearly contribution limit for that year.
  6. Total cap on the life time rollover is only $35,000.

7. Conclusion:

The tax advantages of a 529 savings plan make it an attractive choice for parents looking to save for higher education costs. By taking advantage of tax-deferred growth and tax-free withdrawals, account owners can watch their account balance grow and use the funds to pay for qualified expenses, including tuition, fees, room, and board. Additionally, at the state level, users may be eligible for additional tax deductions during the year of contribution making it Triple Tax-advantaged. How you invest inside of the 529 plan is even more important than how much saved to be able to pay for the expenses and so invest wisely. Knowing the reality by busting Myths is helpful to get started on this 529 plan with confidence in achieving your students college savings goals. Understand the impact of the 529 assets on financial aid and setup the accounts in a way that is suitable for your needs. Lastly, any un-used money from 529 plan can be rolled over into Roth IRA with the SECURE Act 2.0. 

I really hope this information will help you to get started with 529 college savings plans for your kids bright future.