The Big House

In the last 7 years, my husband and I managed to buy three houses, remodel two and sell one. It’s not that I am an expert (I do watch lots of HGTV though) but somehow, I now have a pretty clear idea of what I am willing and not so willing to do for my living happiness. Today’s conversation is about housing. How much is too much? Does a big house mean a happier life? And when do you say NO, we can’t afford this house?

I am certainly not going to give you advice or judge any decision. This is a very personal choice but here are a few things to consider as you shop for your first (or next) house:

-How important is a big/expensive house for you? Do you define your success by having a 3,000 sq ft house, by having a pool, and by living next to Kim Kardashian, or do you care less about all that and just want enough space to put your belongings? Most people don’t think about this at length; a nicer house is just assumed to be more desirable. But given that housing will probably be your biggest expense, I would suggest figuring out how much happiness and satisfaction the big/expensive house will bring you and buy right at that price point where bigger and better no longer matters but where smaller and cheaper makes you feel like you just didn’t get what you wanted from life. Look for the point that makes you feel like you got enough without regretting the purchase.

-Consider where you live. I was talking to a friend of mine who lives in Atlanta and who recently bought a 3,000+ sq ft mansion for $400k.  Unfortunately, we are not talking from the same perspective. The same $400k gets me a 1,400 sq ft town home in Los Angeles that is in dire need of a remodel. No matter how much you want that big house, if you live in Los Angeles, Seattle or San Francisco, it may not be that possible. Solution? Consider finding a new job in Missouri. You can exponentially increase your happiness and the housing situation (if that is what is important in your life) by moving. Look at your life as a whole; does getting a new job in a new place will make your situation better? Consider moving if it does.

- Consider what else you want to do with your life. Everyone has heard about being “house poor” and I bet that living it is no fun. Do not take on the full mortgage that you have been prequalified for. Those numbers are ridiculous. Somehow, every time my husband and I were looking for a house, we got approved for about 3 times more than I was comfortable spending. That’s not happening. Do you want to go travelling, buy things, enjoy your life without having to spend 50% of your paycheck on a house? Maybe you should really think what your real max is then. Somehow, no matter what your budget is, your realtor will show you houses right above it.  Know your number and don’t deviate because no matter how much you might like that house (it’s easy to get seduced), if it’s going to become an impediment to the life you want to live, is it really worth it? Be clear what you can and can’t afford and don’t bend your limits.

At the end of the day, some of us see houses as places to live and others, see houses as defining components of their success. Figure out where you stand. Get the house that makes you happy enough to come home every night without inducing the stress of paying for a mortgage you can’t afford. And remember that in some cases, buying a house does not necessarily make sense and it’s ok to rent. 

529 Is Not an Area Code

A few of my friends who just had or are about to have babies are asking me about 529 plans and whether it is worth opening one.  Like everything else in financial planning, it depends, but this would be a great time to discuss what 529 plans are and when it makes sense to open them.

What is this thing?

A 529 account is a savings account designed for higher education. That’s it. It’s that simple. You put some money in, the money grows, and your child uses it years down the road to go to college.  You often hear the words “tax exempt” or “tax advantage” but make sure you are clear exactly what that really means.  A 529 does not work like a 401(k). Your current taxes will NOT go down if you contribute to it. However, as long as you take the money for what the IRS defines as qualified education expenses[1], all the interest that has been accumulated will be tax free. This is a great advantage in some cases.

A 529 is a general blanket term that may refer to a savings plan or a prepaid tuition plan. Above, I am referring to the “savings” plan. Some states have a program where you prepay the tuition and your child can go to any in-state school for free. That is NOT what I am referring to in this post. Here is a good guide the state of FL put for us about the differences. If your state offers both, think about your baby and where he or she will be years down the road before making this choice: http://www.myfloridaprepaid.com/learning-center/savings-vs-prepaid-plans/

Is a 529 plan worth it?

So let’s get back to the 529 savings plan that lets you use the money anywhere you want.  When young parents ask me what’s better, a 529 plan or a savings account, the answer will always depend on “what exactly do you need this money for?” Obviously no one knows; your baby was born 5 days ago but if you are the type of family where going to college is not a choice and the money will indeed be used for college, a 529 open at birth wins.  Why is that?

The primary driver is the time you got on your hands. 18 years of tax free growth is a very long time… assume you deposit $1,000 today, at birth, and earn a pretty low rate of 5%. In 18 years, this amount will be worth 2.41 times more and the extra $1,406 will be tax free.

The same conversation, however, will be very different with someone who has a freshman in high school. The 3-4 years left before college will usually not give you enough returns and tax benefits to justify locking your money into a very specific purpose. Bottom line, the longer the time between now and college, the more attractive a 529 looks. This means that if your baby was born 5 minutes ago, today is the best time to establish a 529 savings plan. Ok, you can wait until tomorrow; you can have 24 hours with your brand new baby.

What to consider

Assuming that you decide to open a 529 plan, the next question becomes, which one? Every financial institution is going to try to sell you something. As you are deciding between them, here are a few things to consider:

Does your state offer a STATE tax incentive? We already know that the federal government does not, but some states do. See the footnote for a list but I can’t guarantee it’s the most up to date. Please check with your state. I can tell you that California does not incentivize this type of savings behavior.[1] 

What are the investment options (and fees) in that plan? I am much more aware of fees than performance because we all know about the risk-return relationship. Googling “best performing 529 plans” is probably not the way to approach this topic. Just because you live in one state does not mean that you need to open a 529 account with that state. Actually, in many cases, you should not. I am a big fan of Utah’s plan but the first few ranked Google searches didn’t even show me that one. Michigan, on the other hand, appears in many rankings and yes, it is a great plan too. Be aware of fees and be aware of what you invest in (you know I am not a fan of target or age-based plans). An extra 0.10% in costs over 18 years makes a big difference and in many cases, the difference is much more impactful than the tax savings at the state level.  If you don’t know how to approach this, find a fee-only advisor who can help you out for a few hundred dollars. It is so worth the cost of having a few thousand dollars more in the end.

Consider what would happen if Little Johnny doesn’t go to college. You do have options. The money will not be lost. The easiest is to roll it to another beneficiary. If you have multiple kids, the problem is pretty much solved. One of them will probably use it. It does not have to go to a child. Here is a list of relatives it can go to (see under members of beneficiary family): https://www.irs.gov/publications/p970/ch08.html#en_US_2015_publink1000178530https://www.irs.gov/publications/p970/ch08.html#en_US_2015_publink1000178530

But what if no one can use it, can you take the money back? Yes, you can but anything you take out that is not for education expenses will be taxed and penalized by the IRS.

One of the arguments I hear against 529 plans is that you will minimize your FAFSA financial aid. Will it impact financial aid? Probably. It will impact the expected family contribution (EFC). Should you be concerned? I am not so sure about that. You need to think about your tax bracket and if it even matters for your family. I am pretty sure if I ever open any 529 accounts for my kids, it will not make much difference given my income and plans for their college. But you should be aware of this possibility so it does not take you by surprise.

Questions? Anything else I missed? I say, if you have a new baby, go for it, open a 529 plan and ask all your relatives to deposit money into it for birthdays and Christmases. Right now, Little Jonny might not appreciate the effect of compounded interest but in 20 years, he will understand what a great parent you are. That 529 plan will certainly be worth more than another firetruck or reindeer. And yes, my baby will be getting a 529 plan as soon as he is born. He is also (hopefully) going to save it for medical school because he will get enough AP classes to skip the first 2 years of college and go to whichever in-state public school I work for free for his undergrad. But that’s my plan. You can call me in 18 years and asked me how it worked out. 

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[1] http://www.savingforcollege.com/compare_529_plans/index.php?plan_question_ids%5B%5D=437&mode=Compare&page=compare_plan_questions&plan_type_id=  and here is a nice, color coordinated map to show you which states are the best at this: https://www.google.com/imgres?imgurl=https://dj2ioc7lf8iun.cloudfront.net/images/articles/original-20160811-state-tax.jpg&imgrefurl=http://www.savingforcollege.com/articles/how-much-is-your-states-529-plan-tax-deduction-really-worth-733&h=2127&w=3156&tbnid=YtG59Oz5R79xYM:&tbnh=143&tbnw=214&docid=U0UqZWtbIpcx7M&usg=__MgB3qJKVQBoiLuOYmywhJMu7bz8=&sa=X&sqi=2&ved=0ahUKEwi7xZqd59HPAhUCyWMKHdG3D1kQ9QEILDAA

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[1] See the section below what constitutes qualified education expenses https://www.irs.gov/publications/p970/ch08.html

Tax Loss…. What?

It’s been a while and today I am back with a pretty technical topic but it is a topic that can make a big difference in your returns. The topic of the day is Tax Loss Harvesting. In its basic definition, this consists of selling an investment (like stocks/ETFs/ Mutual Funds) at a loss. Why? So you can use the loss to offset a gain in some other investment. While you sell you loser investment, you also buy something very similar. This way, you maintain your desired asset allocation while paying less in taxes. Remember that portfolio of 80% stock and 20% bonds we originally established? That’s your allocation.

By now, you are probably thinking: “Why in the world would you torture me with such a boring topic?” Here are a few reasons. #1: It is a really good way to pick up extra returns = make more money (read on for more on this one). #2: It is 2016 and there is no excuse not to do it. And #3: It will take 10 minutes to read this and you will learn something new that might help you make more money in the future. The younger you are when you start doing this and the higher your tax bracket is, the better your life will be as a result.

The tax loss harvesting works best with funds. A large cap funds? Well, I am pretty sure I can find another one that is not that different from the one I just sold. Individual stocks? Selling Apple and buying something really close to Apple that’s not Apple? That’s harder to do.  

Sounds like I am on my way to paying less taxes. Ssssweeett. But you need to remember that (1) your investment losses can offset up $3k of ORIDNARY taxable income per year and (2) the IRS has caught up to you and you cannot engage in a “wash sale” (more on this later) when you sell and buy back a “substantially identical” investment.

Ok, fine, sounds important. So how do you actually engage in loss harvesting? You get involved with a robo advisor and let them do it for you. You do not do this manually! To max your losses and increase efficiency, you need to do it EVERY DAY. Some advisors will sell you this service but unless they outsource it to a robo advisor (like I do), it is impossible for a human to compete with a machine.

What does this mean in terms of returns and is this whole exercise worth it? It will depend on your portfolio and market conditions but Betterment[1] (which I do use in my practice and which I think has a one of the best, if not the best tax loss harvesting out there) estimates that for a 70% stock portfolio, harvesting adds about 0.77% in return per year. Some estimates go as high as 1.30% (for a much larger account). Considering that you are paying an advisor 0.75%-1% and getting back 0.77% in tax loss harvesting, well, that is pretty amazing. Throw in the effect of rebalancing, and you pretty much get someone to manage your money and do your financial planning for free.

Now, here comes the hard part. You didn’t think it was this easy, did you? Here are a few things to be aware of:

1. Avoid short term capital gains. Here is the dilemma and what happens. First, if you sell something and buy it back within 30 days, the IRS does not consider the loss. This is called a wash sale. Let’s say Apple dipped by 10% in a day. You sell it and plan to use the loss to offset some gains.  2 weeks later, you change your mind and buy some shares of Apple. Well, your 10% loss is no longer a loss. You have now created wash sale and the IRS treats the loss like it has never happened.

So you are thinking: “Great, I will just wait for 30 days and buy it back but then”. But this is how you the possibility of short term capital gains, which might negate the whole point of tax loss harvesting.

Some other “smart” person might say “Let me sell the stock in my taxable account and instead, buy it in my IRA”. This is a big No, No, No. This might lead to a permanent wash sale. If you care to understand the details, just ask me privately, but if you, or the person managing your money, are not too familiar with these rules and attempt to manually tax loss harvest, you should be careful.  This might result in one expensive tax loss harvest.

2. If you do not have all your accounts in one place, then it is really easy to create wash sales and get in trouble. Betterment is very good at harvesting across ALL their accounts but they still can’t trade in your IRA with Fidelity or Vanguard. This also includes spouse’s accounts.

However, just because you have the same investment somewhere else, you do not get in trouble. Problems come up when you sell something and then turn around and buy some more of a “substantially identical” security (like automatic reinvestment of dividends in your IRA). So be careful, don’t buy the exact same “thing” or one that is very similar. Well, what is very similar? If you sold an index fund that tracks S&P 500, don’t buy another one that tracks the same index. Go and buy something that tracks a different index.

Let’s say I convinced you, you are all for it, especially if you already have (or are considering) a Betterment account. So what happens if you turn tax loss harvesting on but have other accounts in different places? Before you turn it on, check to make sure you do not have similar ETFs/ Mutual funds you already own somewhere else and figure out what your outside investments track[2].

Bottom line is that tax loss harvesting can and should reduce your taxes.  If you have IRAs in other places, roll them other to whoever you plan to use for tax loss harvesting. Same goes for old employer 401(k)s and 403(b)s.  The problem arises when you have current 401k(s) and most of us do have those because well, because we are not ladies of leisure and we have jobs. So those current employer accounts need to be checked before you turn the tax loss harvesting on and if your advisor uses this feature, make sure she understands the implications and what needs to be check for.

One last thought. Someone asked me if they could tax loss harvest in 401(k)s and IRAs… not really.  Those accounts are already tax free to tax advantage so what exactly will we harvest? The harvesting is all about taxable accounts but having IRAs and 401(k) may interfere with the harvesting success so you still need to be aware of how this whole thing works. 

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[1] Here is a good white paper by Betterment on the topic. Please be aware this is how the company does their harvesting. It may not necessarily mean that everyone does it this way: https://www.betterment.com/resources/research/tax-loss-harvesting-white-paper/https://www.betterment.com/resources/research/tax-loss-harvesting-white-paper/

[2] Here is a quote from Betterment that explain this issue very well: “For example, VTI, one of the ETFs we purchase and harvest, tracks the CRSP US Total Market Index. So does the mutual fund VTSAX, also from Vanguard. Despite the fact that they are different types of investments, selling the ETF at a loss while purchasing the mutual fund inside the wash sale window could trigger a wash sale. Another example is any fund that tracks the S&P 500. The large cap funds in Betterment's portfolio track value-tilted indexes, so a fund that tracks the S&P 500 index with no tilt should not be problematic (e.g. VFINX, VFIAX, SPY, FUSEX, FUSVX and many more).”

Should you be Skeptical of Some (Many) Financial Advisors? Yes You Should, and Here is Why.

Sometimes, you get an article across your desk that is so biased, you can’t pretend like it doesn’t exist. I read such an article earlier this week and I feel I owe it to the uninformed public seeking genuine financial advice to make a few comments about it. So today’s lesson is really not about Cal State benefits; it is about how to become an informed consumer of financial products without getting a distorted view. I don’t know the financial advisor spotlighted in the article, nor do I know the reporter who wrote the article. For that matter, I didn’t know where Suwanee, GA was until last Thursday (I did Google that one).  This is certainly not a personal attack but when people put themselves out there, well… then I can use this as a teaching moment.  This type of financial advice happens every day in Anytown, America. This could easily happen to you.

I am a financial advisor. I do understand the industry and its faults. Overall, it is a pretty misunderstood industry when it comes to consumers. What concerns me in this article though, is a number of statements that are not quite what they seem to be. Reading this article, I got the impression there are tons of insurance salesmen out there offering to take care of all of you for free. 

And that is simply, not true.

To understand where I’m coming from, please see the original article first: http://suwaneemagazine.com/financial-fitness/ and then read my comments. Here it goes; let this be an educational opportunity. Keep reading, the last point is by far the best and most misleading.

#1: “Don’t wait to start planning for retirement when you are about to retire” Hill advises…. That is a very good point and is absolutely correct. By the time someone is about to retire, there is only that much can be done. Retirement planning earlier in life is much more useful. I completely agree with the article so far. - Trust has been established.

#2: “Unfortunately, the employee turnover rate of Financial Advisors is among the highest of any service-based industry in the US”. Ok, this point needs some explanation. I, frankly, despise the term “financial advisor” because there is no official definition for it. Anyone can call themselves a financial advisor but the depth and coverage of some financial advice out there is debatable. So I would really like to see some facts included with this quote.  What segment (sub-segment) of the financial service industry is included in this statement?  I agree, if you look at the insurance industry (which the adviser represents), the turnover rate is enormous. This is because of the compensation structure of the industry: you eat what you kill. You work mostly (if not entirely) on commission and there are only so many 22 year olds who can sell enough whole life policies to survive. The insurance companies also tend to hire everyone who is willing to try and when the selection process is not really that selective, turnover rates are high (I do place my graduating students so I see how gets hired where; I am fully aware of the hiring process).

I am having a really tough time getting any real turnover rates for different segments of the industry but if nothing else, from my personal experience of working with financial planning students and placing them in their first jobs, I can promise you that the turnover rate for independent RIAs and salaried (think of banks) financial advisors is much lower than what we see on the insurance side. -I’m becoming a little skeptical of this article now.

#3: “Hill has been recognized as one of the Top Long Term Care leaders for NY Life”. Well, that’s a nice statement, but what does that mean? How does this accomplishment translate into being a good financial advisor? How does this translate into being a comprehensive financial planner who takes care of your entire financial future? And if that’s not what you do then how do you know what’s best for me? Long term care is a very small area of a financial plan. A proven track record in Long Term Care (or life insurance or investments) does not necessarily mean that an advisor is good at everything. And from the way this article was written, I am also asking myself whether being a leader implies deep knowledge or top sales. – Now I feel like I’m being sold.

#4: “You might notice the multiple designations following his name, signifying the advanced degrees”. Let’s talk about those. My first observation is: where is the CFP®?  This is the golden standard for financial planning. For being such an expert, why would you not become a CFP®? I won’t speculate about that because I simply don’t know. However, I did research the other 4 designations to figure out what they require. 

• CLU® - Chartered Life Underwriter. This is an insurance designation and probably the best one to have.  The designation provides advanced insurance knowledge. You go to a college (aka the American College in PA because they pretty much own the designation), you take a number of college classes and you get the designation.  At the very minimum, you have to have at least 3 years in the industry to be designated a CLU®.
• ChFC® -called Chartered Financial Consultant. This is supposed to be an alternative to the CFP® designation but few people out there see it as such. As Investopedia puts it “The biggest difference is that it does not require candidates to pass a comprehensive board exam, as with the CFP®.”
• CASL® or Chartered Advisor for Senior Living. Provides training in the special needs, issues, and decisions facing senior citizens. Basically the same process for designation as the above. Requires 5 classes (15 semester hours)
• LUTCF® - Life Underwriter Training Council Fellow. Never heard about this one but it looks like it requires 3 eight week courses and again, is focused on insurance.

These designations took time, effort, and determination, however at the end of the day, this is no CFP®, with a third party, 6 hour comprehensive board certified exam. You also do need to be aware that the curriculum for these designations is very similar and if you go to the American College, you can kill many birds with one stone. After having all these designations, it would take little effort to have the educational requirement complete and be eligible to sit for the CFP® exam as well, so why not do it?

Additionally, there seems to be some implication in the article that passing the series exams (7 and 63) are huge accomplishments. Ok, let’s define what these really are. These are job requirements that salesmen need in order to sell specific products i.e. insurance, stocks, bonds etc. So if you can’t sell, you can’t do your job. Let’s not make them sound fancier than they are. They do require time and effort but, in my opinion, are not very difficult to obtain. – Now I’m really skeptical. I’m being duped with titles and trickery.

#5: “I don’t want to wake up in the middle of the night worrying about my client’s account because of a stock market crash”. Neither do I, but there is a direct relationship between risk and return. Making it sound like a conservative approach towards asset allocation is always appropriate is misleading. There are many risk vs. reward strategies available and everyone’s portfolio should be based on unique situation and goals. – Low risk, high reward? Apparently I was sleeping during my Ph.D. in Finance.

#6. Here is the major red flag (and the BIGGEST misrepresentation) is in the last paragraph: “Hill does not charge his clients a fee, a testament that his true motive is educating them”. This is simply not true. On the surface he may not be charging them a fee, but whatever product they are getting is certainly not for free. As a New York life agent, he is getting paid based on what he sells (in various forms of commissions for insurance, long term care, investments etc.). The devil is always in the details, and nothing is ever for free. – Now I realize the severity of the situation. The trust is gone and it’s not because I don’t like free things.  

After reading this article, here are a final few questions I would really like answered as a consumer, and frankly, so should you: 

• Can you explain exactly how you earn a living, because the article is implying that you work for free? 
• Are you a fiduciary, in other words, would you always do what is in the consumer’s best interest, and are you willing to put that in writing?
• Would your firm’s compliance department be willing to sign the same document?  
• Finally, if you are representing yourself as fee-free financial advisor (who came up with that term by the way?), how do you personally pay for all those carefully planned vacations mentioned in the article?

I want to emphasize again that I am not trying to attack or discredit this specific adviser. He is just a representative of an industry that selling products to consumers. I want to be very specific here, there is nothing wrong with insurance and securities sales, as long as you understand what you are paying for and what you are getting in return. Usually when I want a specific product, I call a specialist. If I need insurance, I call an insurance salesman, but if I need financial planning, I would call a Certified Financial Planner™.

With that being said, it is not honest to claim that consumers will not be charged fees for services. Consumers beware, you are being charged plenty and you might not see it in a transparent way. If you have no idea how much you are paying right now for your investments, let me know. I will run the numbers for you and hopefully, you will become a more informed consumer.  And let me say it again, if you are looking for financial advice, please find fiduciaries who actually work for your best interest rather than in the interest of the company whose products they sell. 

Is Your Child Worth Your Retirement?

The simple answer it NO, no matter how much you love your child, trading in retirement savings for the cost of your children’s tuition is a pretty bad idea, especially when there are alternatives. This is usually the case when one of the child’s parents is a professor. So today, I am going to focus on the financial aspect of getting your child a college degree. Obtaining a deeply discounted (if not free) college education for your children happens to be a benefit many professors already have available. Let’s look at how this benefit works and what you can and can’t do with it.

Today’s focus is on the fee waiver/tuition reduction benefit.

Here is a real story. This weekend someone came to me for a financial decision analysis. Let’s call her Julie. Julie has a daughter who would like to go to the University of Arizona next fall as a freshman. The out-of-state tuition is a little over $30k per year. Alternatively, Julie’s daughter could also attend a school in the Cal State system (she is a professor here) and use the fee waiver benefit. For anyone who is not current on the Cal State costs, the academic year is about $6,500 including fees, but if you are a Cal State employee, you can pass on up to 6 credit hours to your child for almost nothing. This means the academic year will cost you around $3,400. So Julie came to me to ask what the impact of sending her daughter to Tucson would have on her life.

Before we move on and look into the details of the fee waiver benefit, let’s do a quick calculation. Let’s say Emily will be at Arizona for 4 years. I will assume the cost of living is the same as it would be if she went somewhere in the system, say Bakersfield. If mom, who is in her mid-fifties, has about 15 years to retirement and can earn a conservative 5% return, we are looking at about $190k in additional retirement savings over the next 15 years. Is Emily’s desire to go to Arizona worth $190k? I say, not so much. This is where we might differ, but I am pretty sure that the undergrad education from Arizona is not that different from Cal State and is probably not worth the price of a house somewhere in the state of Texas.

Ok, fine, you convinced me. Sending my child to a big state school and paying out of state tuition may not be optimal for my own finances. Now, give me the details. How can my child actually use this fee waiver benefit? 

• Here is where you find the discounted fees: http://www.csun.edu/financial/employee-dependent-program-fees
• What exactly is waived?  Three things are waived: tuition, application fee, and ID card fee. You still have to pay all the other fees, which end up being about $550 per semester. You, as an employee, do not have to pay these fees but your dependents do.  
• Who can use the benefit?  You (as the employee for really, really cheap), your spouse, or domestic partner, and your children are allowed to use it, assuming you satisfy the following eligibility: Tenured and Probationary faculty unit employees (excluding coaches), and temporary faculty unit employees with three-year appointments pursuant to Article 12 of the CBA.  Coaches must have at least six (6) years of full-time equivalent service in the department.
• How many classes can my child take at a time?  Either 2 classes or 6 units, whichever one is greater. Your child can certainly take more but you will pay the difference in tuition (that’s how I came up with the $3,400 in my original example). If your child only takes 6 credits, you are looking at $550 per semester. For more than 6 credits, you are looking at $1,695 per semester…. This is SO CHEAP. By comparison, look at the most expensive in-state schools in the country and ask yourself, is UC Davis worth almost 4 times the cost of Cal State? http://www.huffingtonpost.com/2014/07/02/most-expensive-public-colleges-2013_n_5552031.html 
• Can I get any degree this cheap? No, you cannot. These rules only apply to state-supported programs, not to self-supported ones. It is hard to find the list of all self-supported programs by campus (at least I was not successful so far but I am still looking; if you have a handy link please post it) but usually, if a program is online, through the extended college, or is a professional degree (like MBA), it’s not eligible for discounted fees. You should not have this problem with most of the undergrad programs. 
• What else do I need to know? 
• While you can take basket weaving classes just because it sounds like fun, “the spouse, domestic partner or dependent child must be matriculated toward a degree or the attainment of a teaching credential in the CSU and the course(s) enrolled in on a fee waiver basis must be for credit toward completion of that degree or teaching credential. 
• Your dependent must be a CA resident.
• The eligibility can be transferred to only one person at a timeà2 kids in college at the same time is a problem. If both parents are professors, you can work around this issue; each of you can pass the benefits to one of the children. Or, you can pass 12 credits to one child and not have to pay the $1,700 difference per semester.
• There is paperwork to complete and deadlines to adhere to every semester. For example, to set yourself up for the spring semester you should have done the paperwork by October 24^th, 2015. Some advanced planning might be required.

One of the things I observed by talking to a few people at Cal State is the misconception that they can only send their children to whichever campus they happen to work at. This is not true. Eligible dependents may use the tuition fee waiver at another CSU campus. This is a very strong argument against the “but I don’t want to live at home and go to the school my mother works at”. Now you can tell your children they don’t have to. There is always some other campus 5 hours away to attend.   

On a different topic, a great resource to look into all things college is the College Solution. There are a number of rankings and lists of schools that are generous and not so generous with financial aid. If you have children who will be going to college in the next few years, it is a good resource to check out: http://www.thecollegesolution.com/

Finally, here is my side rant for the day.  Look, I am not going to tell you what to do but I have seen parents going the two extremes. Some want to pay the out of state Arizona tuition (for no good reason) and others say the children should learn the value of money and finance their studies by taking student loans.

But the other extreme is also not good. Student loans are bad. Forget about the “investment” in yourself argument, especially if your child will most likely be going to grad school. I constantly work with people who have way too many student loans because it is so easy to take those without realizing what you are doing. Most 18-year-olds are not equipped with the skills to calculate the impact of those loans on their post-graduation life.  $50k of student loans is detrimental to the life of your child for years to come. And although a 17-year-old may not comprehend the true gravity of those student loans, we know better, so let’s help the child out.  Bottom line: send your child to the cheapest legitimate (not University of Phoenix) school you can afford without altering your own life or your chance at retirement. 

#3: How Do We Survive All These Investment Choices... and a BONUS: Upcoming 403(b) Changes.

It’s been a while. I was trying to figure out the best way to walk you through making investment choices within your 403(b), 401(k) and 457 accounts, but given the big change coming up in April, I am not sure we even need to discuss the current 403(b) nonsense. So instead of giving you investment advice (I really can’t do that legally), I will make a few points that might help you with retirement related choices. Think of this as a mailbag episode. When it comes to the voluntary plans at Cal State (and at your old jobs), here are some things to be aware of.

#1. The most frequent question I get is “How do I invest my 403(b)?” This is not a short conversation. It usually takes me 2-3 hours to do an analysis.  I actually wrote a basic guide walking people through the 5 steps so they can do it on their own. However, I am very weary of posting a link here because someone is going to see it as me soliciting business (I do run my own financial planning practice after all). If you are interested in the guide, let me know privately, and I will send you the link.

#2. Big changes are coming to the Cal State 403(b) plan on April 1^st. Right now, there are FIVE 403(b) providers. In April, there will be only ONE. And that will be Fidelity. You have probably been getting letters about this if you are enrolled in the 403(b) plan. If you are not sure how to feel about it, I am going to tell you right now: you need to feel GREAT. This is especially true of people who are not currently participating in a voluntary plan but are thinking about doing it in the future. Your life will become so much easier as the result of this consolidation.  

Back in November, I was wining about how I love Fidelity but how I had to decide against them, and go for the Savings Plan 401(k) because of the expensive investment options within Fidelity. Well, my friends, that is changing. This is a big enough change to make me wish I got hired about a year later and you should appreciate this big moment. A few things you need to know about the change and what it means to you:

A.    Here is the link that will give you more info on the transition: https://nb.fidelity.com/public/nb/calstate/transition-home

B.     If you are a current participant in the 403(b), you will get information sent to your house in February.

C.     There will be workshops and educational resources available on campus between February and April and you better go!   

D.    The investment choices are getting expanded and for someone (me), a passive investor who believes that a 403(b) account is not the place to do active management, this is really exciting. Starting in April, there will be 5 index funds you can use to build a really good diversified portfolio. All the available choices are on the website I mentioned above. Take a look and celebrate (just make sure you press the investments tab to see all the choices).

E.     This consolidation is REALLY good for you because now, instead of getting sales pitches, you will be getting education advice. The 403(b) market is pretty messed up because the “advisors” you see on campus are really salesmen trying to convince you to choose their provider over the other  bunch (see more on this on #4). When you only have one provider, it is so much easier to do what is best for employees.  Fidelity will no longer have to put its efforts into snatching you as a customer from Voya or MetLife. Instead, it can focus on helping you understand what is going on in that 403(b) of yours. This is really good news.

F.      On a related note, next time when you are power walking, listen to this podcast: http://teachandretirerich.com/podcasts/ Episode 13 in an interview with Fidelity going through the consolidation for 403(b) providers in the marketplace in general and it can explain many of the things you will be experiencing soon. I don’t want to hear that you don’t have time for this (there is always that one hour of Real Housewives of Atlanta you can trade for some 403(b) fun)!   

G.    The crazy idea that the more providers you can offer within your 403(b) plan, the more diversified your retirement plan is, can finally die. Having 1 or 55 providers is irrelevant; the choices you have within the provider is what matters and now you got good choices.

#3. The second most popular question I get from people about their 403(b)s is “What should I do with the funds when I leave a job?”. There are a few options and the right choice will depend on your new provider, your old provider, and on the workings of your new retirement system. Here are your 4 main choices:

A.    You can leave that money where it is. Don’t do anything. Just make sure you are aware there is some account out there you need to keep track of. Do this [only] if the choices in the old plan are amazing.

B.     You can roll the money into the new job plan (maybe; that’s not always possible).

C.     You can roll the dollars to an IRA on your own and go wild buying gold and oil (don’t do that please).

D.    You can hire an advisor to manage your money and roll it to an IRA with that advisor.

The option that works best for you will depend on how much money you can roll and the investment choices available at the old and new plan. These days, financial advisors will offer you full time financial planning services (and be on call for you all the time) if you can roll between $200-250k (that’s pretty much where they can start making money, although you will find plenty of advisors who will take even less than that). These advisors will make their money by charging you between 0.7%-1.0%, on average, from the funds you brought over. Is this a lot? It depends. If you are paying 1% right now for some crappy target date fund in an old plan, paying the same 1% and but having full financial planning and investment management service is actually a pretty sweet deal. However, if you are paying 0.05% for a Vanguard fund and are happy with it, then no, paying an advisor 1% may seem very expensive.

If your new plan has fantastic investment options, you may also be able to roll it to the new workplace. Just make sure you don’t roll it into a plan that has ridiculously expensive choices. I saw a plan last week in a FL college (let’s not name it) that was so bad, it made me weep.

#4: How do you find a good financial advisor? This is also a very common question. I promise, this is also related to your retirement.   I am a big proponent of getting good help but it is really hard to figure out what a good advisor is. Again, if you have never read any of the http://www.403bwise.com/home.htmlhttp://www.403bwise.com/home.html website, you probably should (and no, I have nothing to do with it, I just think it is really good advice for college employees). They have a number of good questions you should ask when interviewing your future advisor. 

But here are my 2 cents: when it comes to advisors, you need to understand the difference between fee-only, fee-based and commission. These terms have to do with how these people get paid. A fee only person gets paid by you. A commission person (think Northwestern Mutual or Edward Jones) gets paid by what they sell you. Do you really think they will be selling you cheap Vanguard funds? Noooo, they will not. They will be selling you whatever they are getting paid to sell. A fee-based advisor gets paid from both sources, from you and commissions.  A few good sources to find advisors are:

A.    NAPFA http://www.napfa.org/index.asp (I am a member so I can tell you more if you have questions). You will see all kinds of advisors there, some who work with high net worth individuals and some who do not, but they all charge based on advice and not annuity sales.  

B.  Garrett planning Network http://www.garrettplanningnetwork.com/(I am not a member) but they charge hourly and project based fees so if you have a few questions and only need a few hours of work, this is a good source to check out.

C.     The XY Planning Network /http://www.xyplanningnetwork.com/consumer/find-advisor/ (I am a member).   Most people charge hourly, from assets or a monthly subscription fee, just like the gym membership. It caters to the younger planners and younger clients but again, all the payments are based on advice, not product sales. 

Can an advisor really help you? It really depends on your situation, your interest in this topic, and your commitment to do the best.  I personally think retirement planning is very important and if someone can spend 2 hours and dig out a few thousand dollars from under ground, it may be worth your time and cost. For example, a basic review of your benefits and the 403(b) plan may cost you $500-$1,000 but it can save you many, many dollars in the long run. I am currently knee deep into a research project on 403(b) investment choices. Oregon State was nice enough to provide my co-author and myself with their employees’ investment choices for the 2 providers they use: Fidelity and TIAA-CREF. What I see in their makes me want to cry every single day when I open that data to run some more statistical tests. If you want to get a better idea about what’s going in those accounts, take a look at my rant here: https://www.linkedin.com/pulse/dont-401k-loser-inga-chira-ph-d-cfp-?trk=prof-post 

I have no idea how Cal State employees invest their 403(b), 457 and 401(k) but I really hope it’s better. This may be a project for the future. If you ever wondered what finance professors do research on, now you know.