Skip to content

College Savings – Coverdell ESA

October 26, 2011

You can thank the gentlemen to your left for making it easier for most of us to save for college.  Paul Coverdell sponsored the bill that allowed for the formation of an investment account specifically for higher education.


The Coverdell ESA is probably the best option for long-term college savings.  Previously known as the Education IRA, the Coverdell ESA was designed to provide a tax-advantaged savings vehicle for college and university expenses.  You can open an account for each of your children, but there are restrictions and some people won’t be eligible.


  • Contributions can be invested in an almost endless number stocks, bonds, mutual funds.
  • Distributions can be made for any qualified higher education expenses, including tuition, room and board, supplies, etc.
  • Distributions can be made for qualified PRIMARY AND SECONDARY education expenses.  (Yes, that means you can use it for private high school tuition.)
  • Distributions are tax-free for qualified expenses.
  • Accounts can be transferred to family members without penalty


  • Contributions are limited to $2000 annually
  • To be eligible, your AGI (Adjusted Gross Income) must be less than $110,000 (single) or $220,000 (married filing jointly).
  • If the funds aren’t used for qualified education expenses, they will be subject to income tax and a 10% penalty.


The ESA, if you’re eligible, should be your first choice when saving for college.  Because of the  flexibility and tax advantages, it’s a great vehicle to provide your children with a head start.  You can open an ESA through almost any major bank or brokerage firm.

On Friday, we’ll take a look at 529 plans…

College Savings – Prepaid Tuition

October 25, 2011

Based on 10-year historical averages, university tuition has increased at about 6% annually. (Last year, it was 7.9% for public universities and 4.5% for private.)  This being the case, throwing a few dollars into a savings account won’t get you very far. There are a number of savings options for college, and we’ll run ’em down over the next few days.  Today, let’s take a look at prepaid tuition


There are only a few states that still offer a guaranteed prepaid tuition program.  Florida is one of those states, so I figured it would be worth addressing.  Prepaid tuition is exactly what you’d expect:  you pay tuition at today’s rates for guaranteed tuition credits in the future.  For example, if you pay for 15 credit hours for your 10-year old this year, that’s 15 hours he or she will have in 8 years when they begin college.


  • Paying today’s rates given rapidly increasing tuition costs
  • Can be transferred to another qualifying family member
  • Can be transferred to out-of-state or private institution


  • Can only be used for tuition and fees. (Florida offers a separate plan for room and board).  You cannot use any of the funds for other college related expenses, such as books and supplies.
  • Though you can transfer credits to an out-of-state university or private school, it will be at a reduced rate.
  • If for some reason your child or children are not able to attend college, you can receive a refund, but it will be with modest interest.


As you’ll see in the coming days, there are better options.  The limited flexibility of pre-paid plans, and a rate of return of 6% (based on annual tuition increases) make it a less desirable option.  I WOULD recommend a prepaid plan if you’re within 5 years of your child starting college and you’re 99.9% sure they will attend a Florida (or state-sponsored) school.

Do you owe your child college?

October 21, 2011

Do you owe your children a paid-for college education? The short answer is no.  However, based on yesterday’s post, you understand the value of that education, and I believe every parent wants to provide their children with an opportunity to succeed. Before you save a dime for college, help them understand:

-College is a privilege, not a right
-They will ultimately be responsible for their education

Even if you can’t provide the financial backing you wish you could, you can instill the values and outlook they will need to succeed. For us, college will be an expectation, and whatever financial support we provide will be contingent on some ground rules.

That being said, where should saving for college be on the list of financial priorities? It’s doesn’t make the top 3, but still should be a goal you are working towards. As we’ve discussed before, here’s how your financial priorities should line up:

1.  Give 10% of your income

2.  Consumer debt paid off

3.  911 Fund (3 – 6 months income in emergency savings)

4.  15% of income to Long-term Savings (Retirement)

5.  College Savings

The investment options for college savings have increased dramatically over the past 10-15 years.  Next week I’ll break down all the options, and which ones would be best for your family and your child…but remember, the best education you can give your children is to SHOW them what it is to be generous and how to create margin in their lives.

Doing college…the right way

October 20, 2011

College might not be for everyone.  But if you can make it work, you should go.  And you should graduate.  Here are just a few reasons why:

-Current unemployment rate for high school graduates with NO COLLEGE – 9.7%

-Current unemployment rate for college graduates – 4.2%

-Average salary for high school graduates with NO COLLEGE – $29,000

-Average salary for college graduates – $46,000

This doesn’t mean you have to go to college to be successful (see Mark Zuckerberg and Bill Gates), but it will greatly improve your chances to earn more during your lifetime.  It also doesn’t mean you go to college at any price.  Please don’t leverage your future with student loans just because of the statistics above.  Adults, I’ll address the options you have to save for your children or future children in tomorrow’s post. Today I want to address students and prospective students.


Yes, I took out student loans.  I wish I hadn’t.  Though I didn’t have much outstanding upon graduation, it was enough to suck up my first bonus check.  Better you take 6 years and work your way through college debt free, than 4 years saddled with debt.  When you take on consumer debt, you’re presuming on the future.  There are some recent college graduates living in a tent on Wall Street right now because they have $50,000 in student loans and no job.  Newsflash – that’s not Wall Street’s fault.  That’s stupid.


If the only way you can attend that prestigious, liberal arts college in the northeast is to take out $80,000/year in student loans, THEN DON’T GO!  Go to a state school.  Go to community college.  Few people care which school you graduated from after you get your first job, they’re more concerned with you as a worker.


College isn’t about what you learn (well, maybe a little), it’s about learning to learn.  Learn to be a lifetime learner.  Learn to be disciplined.  Learn how to study.  Learn how to prioritize.  Learn to be efficient with your time.  Learn how to work hard.  Oh yeah, and work hard at having fun – these can be some of the best years of your life.


There comes that dreaded day when you have to declare a major.  But don’t let it stress you out.  I changed my major twice.  I know a lot of successful people no longer working in the field they have their degree.  Use these years as an opportunity to explore a few options.  You’ll land on one eventually.

GO BULLFROGS…I mean, BULLDOGS  (for those of you that caught Modern Family.)

How to pay for college

October 18, 2011

I look back on my college years with fond memories.  I’ll never forget when Tim (college roommate) and I drove onto the campus of FSU for the first time as freshmen.  Everywhere we looked there were girls. Everywhere.  And they were all dressed up…really dressed up.  Did I mention they were everywhere?  We later realized it was Rush Week, but man, what a way to begin the college career.

That being said, there were other great things about my college experience:

  • FSU National Championship my freshman year
  • finding our photo as “March” in the 1995 Seminoles Calendar
  • lifetime friendships
  • an acquired taste for Hamburger Helper
  • my introduction to They Might Be Giants
  • oh yeah, and a pretty good education

With all the news of Occupy Wall Street and a disgruntled group of post-graduates, I’ll take the rest of this week to discuss how to handle saving for and investing in a college education.  I’ll give you a hint, we won’t be blaming big business, the government, our parents, or anyone else.  At 18+ years old, it’s time to man (or woman) up, and make some choices that will benefit you for a lifetime. And parents, you can make some choices today that will instill the proper perspective and values for your children, and maybe help give them head start.

Until Thursday…Go Noles!!!  (In case you missed it, we took it to Duke on Saturday.  Yeah, we’re awesome.)

What to do with your “underwater” mortgage

October 14, 2011

As I mentioned in yesterday’s post, there are currently over 10 million “underwater” mortgages, where the value of the home is less than the mortgage owed.  If you live in central Florida, there’s a good chance you might be in this situation.

I also depressed you with statistics supporting a slow turn around in the market – probably 4-6 years away.  Certainly not ideal economic times, but this too shall pass. At createmargin, I don’t want to see you make a short-sighted decision that you’ll regret well into the future.  So find your category below, and don’t freak out – it’s going to be okay…I promise.

“Underwater” and CAN’T afford your mortgage

Let me start by saying there’s a big difference between “can’t afford” and “don’t want to pay.”  Be sure you are in the “can’t” category.  If it’s impossible for you to generate enough income and cut enough expenses to make your mortgage payment, then you need to

  1. Hound your bank about every government program, mortgage modification/forgiveness at your disposal.  Be ruthless.  You should be on a first name basis with the guy in India fielding their calls.
  2. Consult a qualified and trusted real estate agent or attorney about a short-sale.  This is where the bank agrees to you selling the home for an amount less than your mortgage balance.  Every state has different rules and every bank has different policies, so it’s important to get ALL the information you can upfront.  You could still be liable for the difference, and might still owe income taxes on the difference.  You want to be protected, so find someone who has experience.
  3. I know there are cases where foreclosure will be unavoidable, just try to let foreclosure choose you, not vice versa.  Your credit will pay dearly – do what you can to exhaust the short-sale option.

“Underwater” and CAN afford your mortgage

Take a deep breath.  Count to 10…slowly.  And say “don’t worry, be happy.”  This really isn’t a big deal.  Real estate prices WILL RECOVER.  Just like any investment, real estate will have its ups and downs, but its a great long-term investment!  Why?  There’s a limited supply of land, and population growth means demand (long term) will continue to rise.  That’s a recipe for increased values.

So yes, while it might be frustrating to see your monthly mortgage statement, or homes selling for 50% of what you purchased for, eventually values will begin to rise.  And if you continue paying your mortgage, your balance will continue to go down.  That combination means before you know it, you’ll be “above water.”.  Right now, your loss is just on paper.  Stay the course and you’ll be fine.  If you’ve signed a contract and you can pay, then pay.  Let God handle the stuff you can’t control.  Really, it’s gonna be okay.

Looking to buy a home

If you’re in the market for a home, God bless you.  This is definitely a buyer’s market, and it will continue to be a buyer’s market for the next few years.  So my advice to you is this:

  1. Be patient.  Be picky.  Don’t buy the first, second, or even fifth property you see.  Take your time.  Find the perfect house for your situation and your income.  Be willing to wait on the long process that comes with purchasing a short-sale or foreclosure.  You make a wise purchase now, you could be in a great financial position early in your life.
  2. Save at least 10% (20% is my personal recommendation) for a down payment.  The reason many people are in the above categories is because they didn’t make a substantial down payment.  Remember, prices will remain low for a long time.  You’re not going to miss out on a great deal if you don’t pull the trigger right now.  If you can’t afford to buy now, then save for the next two or three years, and buy then.

Regardless of your category, I’m praying for you.  I hope we’re all able to keep things in perspective, and remember we have it pretty good in the U.S. of A.

The imploding housing market…and what to do about it.

October 13, 2011

We’re used to fast.  There will be nothing fast about the housing market turning around.  Here’s why.

  • Currently 10 million home owners owe more than their house is worth.
  • There are approximately 6 million distressed loans (loans that are 3 payments or more behind.)
  • Foreclosures are now averaging 599 days.
  • Estimated annual demand for housing is 1.2 million units.
  • 1Q 2011 home values saw the steepest decline since 4Q 2008.

So, simple math.  In the next 3-4 years (remember the 599 day foreclosures!) we have potentially 6 million distressed homes that will be coming to market.  Even if some of these loans recover, there will be A LOT of inventory hitting the market in the coming years.  If annual demand is 1.2 million units, we’re looking at another 4 years, give or take, where supply will be outpacing demand.

If you’ve taken ECON 101, you know that when supply is greater than demand, prices have to drop.  Don’t expect housing prices to increase anytime soon, I would anticipate a further drop in values.

To make matters worse, the federal government is doing everything they can to artificially inflate demand, but it’s not working. You can now find 30 year fixed rates less than 4%.  This is primarily due to a tremendous increase in government backed mortgages.  From 1990 – 2003, government backed mortgages accounted for 50% of originations.  In the last 3 years (2008 – 2010), it’s close to 90%.  Because very few of us are in a position to purchase homes, they’re trying to force us to buy.  They can’t sustain this, and one day, rates will have to return to fair market levels.

So, if you’re banking on a recovery in the next 24 months, sorry to burst your bubble (no pun intended).  However, there is hope. Tomorrow I’ll tell you what you can do about this not-so-great news…


My half-ironman experience

October 11, 2011

Sorry about the month layoff from social media.  We’ve been adjusting to our new schedule and though we’ll never be fully adjusted (who really is!), we seem to have our arms around the craziness – glad to be back.  So here we go…

A few weeks ago I was able to check off a goal I had set for myself last year – complete a half-ironman in under 6 hours.  It has been a rewarding, challenging, and relentless process.  Here are a few things I learned and experienced along the way (and of course, they can all be tied to your financial future!)

1.  Easy rarely satisfies

I have a tendency to take the path of least resistance.  If you do that your whole life, you will learn very little, experience very little, and grow very little.  Sometimes choose the path with the wall…then climb over it.

2.  Goals worth chasing require discipline

Overnight success is the biggest myth out there.  It doesn’t happen. What might seem like quick success is long-term success, you just missed the beginning of the story.  Financial freedom will come only as a result of discipline – making the small wise choices day after day.  The training plan I followed was 5 months.  One workout didn’t help me achieve the goal…but the slow, incremental changes that resulted after 150 days did.

3.  It always takes a team

I got to cross the finish line…my wife and kids cheered me on.  I can’t even begin to count the sacrifices Amanda made so I could get my training in.  Behind every success there’s a team.  When it comes to creating margin, get your spouse on board, have friends and family that can keep you accountable and offer encouragement.  You can’t do it on your own.

 4.  You will want to quit…but don’t

It’s inevitable.  If you have a worthy goal, things will get difficult.  The last month of training was so challenging.  With the change to our schedule, kids back in school, busy time at work – I was over it.  Then during the race, things got difficult for me between mile 10 and 11 of the run.  I was almost there, but my body was screaming at me to stop.  I lost some time those last 3 miles, but I kept moving forward (albeit, very slowly!)  When it comes to creating margin, you will face your share of setbacks, but you have to keep moving forward.  The finish line will be that much more satisfying.

So…what challenging goal have you set for yourself in the next few months.  No goals…No growth!

How to avoid financial disasters

September 13, 2011

Not sure if he’s responsible for the phrase, but I’ll never forget attending a meeting with Jim Seneff, CEO of CNL Financial Group, when asked to sum up the CNL investment philosophy, said “protect the downside, and the upside will take care of itself.” Brilliant.  That has stayed with me, and has been a phrase we’ve tried to build our personal financial decisions on.  Here’s how…

1.  Avoid all non-mortgage debt

The moment you take on debt, you presume upon the future.  You assume your income will be there.  You assume you won’t have large, unexpected expenses.  You assume you’ll always be in position to pay.  This is not protecting the downside.  This is opening yourself up to potential financial disaster.  (Hint:  You’ll never have to file for bankruptcy if you never have debt!)  Even what might seem to be manageable debt, can quickly become unmanageable should you lose a job or face a medical emergency.

2.  Be conservative with your mortgage/rent

The largest expense you have is your housing.  Because it will be such a large percentage of your budget, and will be fixed, it’s always wise to be conservative.  If your situation improves and you want to upgrade, no problem.  If you do face some hardships, you’ve kept the largest part of your budget manageable, and can more easily weather the storm.

3.  Build an Emergency/911 Fund

You should save 3 – 6 months of income to help fund the dreaded financial emergencies (medical, lost job, blown a/c, etc.)  You will sacrifice a little to get there, but then the downside is protected, and, you guessed it, the upside will take care of itself.

Protecting the downside doesn’t mean you have to live this safe, risk-free life.  I believe we’re all called to live on the edge of faith, to take chances when we’re uncertain of the outcome, to pursue dreams that are big and dangerous.  But this is a case of both/and.  You can protect your downside by being wise with your financial decisions, while at the same time taking a leap of faith as you pursue your dreams.  Take your risks making a difference in someone’s life, not by buying the largest house you think you can afford.

Is your hand out?

September 8, 2011

Sometimes I feel I deserve certain things.  If I work hard, I expect results.  If I pray, I expect to be blessed.  If I treat others with respect, I expect it in return.  But we all know, the world doesn’t play by our rules.

Sometimes I feel I deserve certain things financially, and it gets me in trouble.  My peers have nicer vehicles, therefore I deserve one.  My parents go on exotic vacations, therefore I deserve to.  I just got a raise, therefore I deserve a larger house.

Entitlement is your enemy.  You must fight against it.  You must remind yourself that everything you have is a gift from God.  Your physical ability to work, your aptitude, your intelligence, your family, the very fact that you live in one of the richest nations in history. All a gift.

With those gifts come responsibilities, not entitlement.

%d bloggers like this: