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Determining How Much To Contribute To A 529 Plan: Too Much No Good!

Posted by Financial Samurai 107 Comments

Determining How Much To Contribute To A 529 Plan

Because of the SECURE Act, the 529 plan has received a functionality boost in 2020 and beyond.

A 529 plan can now be used for:

  • All college tuition and qualified expenses
  • $10,000 a year for K-12 tuition and qualified expenses
  • Apprenticeship programs and qualified expenses
  • $10,000 to pay down a qualified education loan repayment for each of a 529 plan beneficiary’s siblings

Given these benefits, if you have kids, contributing to a 529 plan makes even more sense. Always maximize the purpose of your money by taking advantage of any benefits the government throws our way. Goodness knows they tax us hard-working citizens enough!

After a strong 2019, I decided to take a look at my son’s 529 plan. Although it underperformed the S&P 500, it still reached a level that made me question whether it’s possible to contribute too much.

Perhaps you’re wondering the same thing.



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Why Preschool Is Worth Every Penny And More!

Posted by Financial Samurai 67 Comments

The first day of preschool was tough. Not so much for our boy, but for my wife and me.

My immediate thought was, so this is where creativity comes to die. My wife and I spent three hours a day with him for the first week to help with the transitioning process.

During this time, I observed how other kids of varying developmental levels behaved. I saw kids having to wait their turn, listening to instruction, and trying to communicate with other 2.5-year-olds who weren’t good communicators.

As I thought about my negative reactions while soaking in the hot tub, I came to realize what I disliked about preschool was exactly what I disliked about work.



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Examples Of Good Resumes That Get Jobs

Posted by Financial Samurai 159 Comments

Climb The Corporate Ladder

Climbing The Corporate Ladder

With cashed up corporate balance sheets and strong earnings growth, employment levels continue to improve across America. The latest unemployment rate has declined to 3% as of January 2020.

It’s in the first half of the year where ideally all hiring shall be done because: 1) The best available people are still available. There is a bias against people looking in the 3rd and 4th quarter because rightly or wrongly, companies will be wondering what’s wrong with you for not having found something earlier; 2) Companies need to spend their budgets while they are still available. There’s no time like the present; 3) Hiring an employee at the start of the year gets the most out of the employee, especially if there is a guaranteed compensation package.

If you find yourself looking for a job in the second half of the year, it’s important to hustle a little more or prepare for activity to pick up in the spring. Don’t give up hope. Use this time to plan more thoroughly.

I’ve seen over 10,000 resumes in my career and hopefully this article and subsequent articles linked within can help you out. An excellent resume should be standard.

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The Importance Of Money And Status For Getting Into Private School

Posted by Financial Samurai 50 Comments

If you have a baby or toddler or are planning to have a baby, this post is for you. I’ve been running an interesting, real-life, real-time experiment on how hard it is to get ahead if you have below-average money and little status.

In 2017, we ended up applying to three preschools that accepted toddlers as early as two for the 2019/2020 school year. We then applied to five more preschools between SF and Honolulu that accepted toddlers after three for 2020/2021. We didn’t know what we were doing so we decided to play it safe.

Private schools are always stressing diversity and inclusion. Unfortunately, diversity and inclusion are theoretical goals made difficult to achieve because they are stymied by deep-rooted admission practices such as legacy admissions, bribery, and quid-pro-quo legal donations.



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How To Get Financial Aid Making Multiple Six Figures A Year

Posted by Financial Samurai 107 Comments

How to get financial aid making multiple six figures a yearDespite earning a six figure household income, many parents struggle to pay for their children’s education without going into debt. This post highlights how you can qualify for tuition assistance despite making $300,000, $400,000, or even $500,000 a year.

I was talking to a parent of four who used to send his kids to a private grade school K-8 about the makeup of families who pay $30,000+/year in tuition per child. I cherished my time growing up in Africa and Asia up until middle school and enjoyed my experience attending a public high school in Virginia. To have my son attend a homogenous school where everybody looks the same and comes from similar economic backgrounds would be a shame.

The dad mentioned the school tried to diversify its student body through financial aid. When I asked how the school determined which families got financial aid, he said something surprising.

“Households qualify for financial aid if they don’t make at least $100,000 a year per child.”

In other words, if you have four children, you qualify for financial aid if you make $390,000 a year. Financial aid consists of low interest rate loans, but mostly free grant money. I thought this was a high threshold because $390,000 is right around the top 1% income level in the country.

Nobody needs to send their kids to private school given every child can go to public school for free. Further, I’m not sure if too many folks decide to have four children if they can’t afford to raise them. Sure, one or two children may be unplanned. But having four is definitely intentional.

Because the dad and mom could not afford to continue paying $120,000+ a year in after-tax tuition for their kids, they moved their family to the suburbs to attend free public school. Ah hah, at least they decided to take action instead of complain why life was so hard making $500,000 a year!

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To MBA or Not To MBA: Deciding Whether Business School Is Worth It

Posted by Financial Samurai 19 Comments

I remember the moment I got my college diploma, I swore I’d never go to school again. At the end of the day, we forget the majority of things we learn and who wants to do homework anyway?

All this changed when the Dotcom bubble exploded and I was left wondering whether I’d be the first person let go given I had recently joined my current job in 2001. Last in First Out, or LIFO as they say.

We had gone through 5 rounds of layoffs in 1.5 years, and I heard the 6th one was just right around the corner. As long as the firm would have me, I’d keep on working, but just in case, I needed a backup plan. I decided that surfing back home in Hawaii was not the proper backup plan so I came to a compromise and applied to the nearest part-time MBA program, which so happens to be ranked Top 10 in US News & World Report and the WSJ.

The program promised the rigors of the full-time program, with the same professors and international opportunities all within 3 years. Upon looking further into my company’s policies, they offered to pay for my MBA so long as I was in good standings. The MBA program was a hedge, just in case I was one of the casualties, as one could potentially transfer to the full time program once accepted.

The 6th round came and went, and I was still left standing. Unfortunately, the company tuition reimbursement policy was canceled just two weeks before my acceptance. I decided to join anyway b/c at the end of the day, the economy was still shaky, and I didn’t want my application time spent go to waste. What the heck I thought. Be grateful for the opportunity.

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Everything To Know About The 529 College Savings Plan

Posted by Financial Samurai 126 Comments

Everything you need to know about the 529 college savings plan

The College of William & Mary

Updated for 2020: Under the latest tax plan, up to $10,000 of 529 savings plans can be used per student for public, private and religious elementary and secondary schools, as well as home school students. In other words, a 529 plan isn’t just for college tuition anymore. This is HUGE!

The best gift any parent can give a child besides unconditional love is a great education. A 529 college savings account is a solution that is designed to help families tax-efficiently save for future college costs.

You contribute after tax money with the benefit of paying zero federal and state income taxes on the profits when it’s time to use the funds to pay for college. If your child does not end up going to college, you can either name a new beneficiary (different kid) or just pay the taxes on profits.

My goal is to max out my son’s 529 plan before he turns 18 so he can focus on his studies and graduate with zero student debt. The various complaints I read today about student debt holding young adults back from saving for a house, saving for retirement, accepting a job they like that might not pay as well, or starting a family are disheartening.

Below are the most important pieces of information you need to know about making the best 529 plan decision. Feel free to provide feedback at the end on anything that I may have missed. I’ve tried to cover all the questions I had before opening up an account.

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Child Millionaires: Not Necessary Thanks To Canceling All Student Debt

Posted by Financial Samurai 144 Comments

One of the things many responsible parents are doing today is saving for college. Not saving for college and expecting a student loan bailout in the future is bad planning. The same goes for not saving for retirement and hoping the government will take care of you once you can no longer work.

Do you really want to take that chance? I don’t think so.

Given college tuition is rising by roughly 6% annually a year, by the year 2033, the cost for one year’s worth of public or private school tuition may approach $54,070 and $121,078, respectively.

Add on expenses for room, board, travel and miscellaneous stuff and the annual cost of college could easily be 50% – 100% higher.

Meanwhile, according to the National Center for Education Statistics, just 41% of first-time full-time college students earn a bachelor’s degree in four years, and only 59% earn a bachelor’s in six years.

Therefore, it is only logical that all of todays’ new and future parents should try to save about $1 million for each child’s college education. If a family has a “trophy kid,” then the family should save $4 million and so forth if college is the desired path. Going into debt to buy a depreciating asset like a car or a college degree is fiscally unsound.

No parent should expect their child to be brilliant and get scholarships. Nor should any parent expect their child to be sensible and attend a public institution to save on costs. High expectations lead to disappointment.

No matter how many articles I write about the depreciation of a college degree, not enough people will listen because the desire for status is too strong. We also all believe that we are more talented and smarter than we really are.

Parents can hope for sensibility, but should still plan to spend the big bucks.

However, to save for our children’s college education often means that we are unable to save as much for our own retirements. This, in turn, may cause financial anxiety and unhappiness within the household.

Perhaps the Cancel Student Debt movement is a solution. Probably not.



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The Best Life Hack For Americans: Taking Advantage Of Canada

Posted by Financial Samurai 118 Comments

The Best Life Hack For Americans: Taking Advantage Of Canada

I’m always looking for arbitrage opportunities to help readers make more money and live better lives.

My favorite arbitrage opportunity for the next couple of decades is investing in non-coastal city real estate due to lower valuations and higher net rental yields. Technology is accelerating the flow of capital towards attractive real estate opportunities, and I want to get in front of that wave.

Recently, I found another multi-decade opportunity by looking north towards our friends in Canada. Despite the frigid weather for four months a year, Canadians have a lot going for them.

Their GDP per capita is a respectable $45,000. Few people go through medical bankruptcies because healthcare is heavily subsidized. Meanwhile, the average annual tuition for Canadian universities was only $6,571 for the 2018/2019 academic year.

Let me share how one Canadian friend is taking advantage of America and how we, in turn, can take advantage of Canada.



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It’s Time To Ban The SAT And The College Board

Posted by Financial Samurai 80 Comments

It's Time To Boycott The SAT And The College Board

When I was 16, I took the SAT test for the first time. My idea of test preparation was going to the library and flipping through a $20 test prep book.

The result? A mediocre 1,040 out of 1,600.

My parents were disappointed so they encouraged me to actually buy a test prep book and this time take all the practice exams since I couldn’t write in the library book. After a couple of months studying I took the test again.

The end result? A better-than-average 1,160. However, my goal at the time had been to get a 1,200 or higher because that was the cut off level to be eligible for the best schools according to the data and the recommendation by my college counselor.

When I asked my parents whether I should take the exam again they said it was up to me. The test was three hours long and cost about $50 in today’s dollars to take the exam each time.

When I asked my parents whether I could take one of those private Princeton Review Courses that cost $500, they were not enthusiastic about the idea.

At the time, I couldn’t understand why they weren’t willing to pay to help me score better. I remember a rich Lebanese classmate telling me his parents paid $1,500 for SAT tutoring, so I thought $500 was a bargain. He ended up getting a 1,360 after he first got a 1,040 like me.

What I now realize as an adult is that money doesn’t grow on trees. When you don’t have an endless amount of money you’ve got to find a level where you must accept “good enough.”

The more time and money you can throw at the SAT, logically, the higher your SAT test score. I’m absolutely sure if my parents had spent $500 – $1,500 on SAT tutoring I would have gotten at least a 1,200 on my SAT.

I’m also sure that if I spent $1,500 and took the SAT exam 30 times, at least one of the top six scores accepted would have been higher than 1,200 as well. Heck, I might have even gotten a 1,400+ and gotten into Harvard to only get rejected by the investment bank I ended up working at!

But due to our financial circumstances, we decided a 1,160 SAT score was good enough for a kid who came to America at 14. I was already aware we didn’t have much money given we drove around in a seven-year-old Toyota Camry and lived in a small townhouse.

It’s not like I was going to attend a prestigious private university and pay $25,000 a year in tuition, equivalent to $50,000 a year in today’s dollars. Instead, I applied to in-state schools: Mary Washington, UVA, and William & Mary. For $2,800 a year, tuition at William & Mary was a bargain based on its ranking, so I went.



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