Your Child’s Education Can be Expensive, Duh

In our last blog, we discussed custodial accounts, which can be an effective way for families to save for their children’s education. Here’s another idea to consider—a Coverdell Education Savings Account (CESAs), formerly known as an Education IRA.

With college costs increasing at twice the rate of inflation, it’s important to start saving early, whether you currently have children or not. Interest working for you now in a regular savings program is far better than interest working against you in the future in the form of education loans.

Titled for a guy named Coverdell (actually the late Senator Paul Coverdell of Georgia who sponsored the legislation), Coverdell ESAs help families save money for the cost of elementary, high school or higher education for a designated beneficiary. Money grows tax deferred and proceeds can be withdrawn tax-free for qualified education expenses at a qualified institution.

If your modified adjusted gross income is less than $110,000 (or $220,000 if filing a joint return), you may be able to establish a Coverdell ESA. Contributions of up to $2,000 in total can be made per child under the age of 18, no matter how many accounts have been established. Only cash can be contributed to a Coverdell ESA and the contributions must stop after the individual turns 18, unless he/she is a special needs beneficiary. The deadline to open and fund a Coverdell ESA is April 15th for any tax year.

Here are some of the qualified education expenses a Coverdell plan:

• Tuition and fees

• Books, supplies, and equipment

• Academic tutoring

• Special needs services for a special needs beneficiary

• Room and board

• Uniforms

• Transportation

Not to confuse things, but many of you may have heard about a 529 plan, which is also a popular investment vehicle to save for your child’s education. The main difference between a Coverdell ESA and a 529 plan is the way you invest the money. With an ESA, you can choose almost any kind of option—stocks, bonds, mutual funds. You can't do that with a 529 and assets in that plan can be used only for higher education.

To learn more and get started on a Firstrade Coverdell ESA, click here to apply.

International Account Holders Can Now Enjoy Unlimited Fund Transfers For Free.

Did you know that you can transfer funds to and from Firstrade for free using ACH, even if you live outside the U.S.?

If you have a U.S. bank account, you can now link it to your Firstrade account to set up online ACH Fund transfers. Once you complete the setup, you can enjoy unlimited fund transfers, without fees or restrictions.

Here’s how it works:

On your desktop computer:

1. Log in to your Firstrade account, go to My Accounts > Deposit/Transfer, click Bank Profile and Setup a Bank Profile

2. Request a verification code through text or email.

3. Select your bank and link it to your Firstrade account. (If you cannot find your bank on the initial screen, please click on Search for more banks.)

4. If you don’t see your bank on the list, you may link it to Firstrade manually.

5. Fill in your bank information

6. Confirm your bank information and click Submit.

7. Firstrade will send two micro deposits to your bank account within 2 business days. Be sure to return to this page within 10 calendar days to confirm your ACH bank profile.

8. Congratulations, you’re all set!

3 Tips For Managing Traditional and Roth IRA Tax Implications

IRAs and Roth IRAs offer tax advantages that allow you to save more and give Uncle Sam less over time, but certain actions can trigger major tax bills in a given year. If you have either of these retirement accounts, here’s how to get the most out of them and prepare for any related personal income taxes that you might owe this year.

Maximize Contributions Before Filing Taxes

To get the most benefit from your IRA or Roth IRA, make sure you contribute the full amount that you’re allowed to. The contribution limit for 2019 is $6,000 for people under 50 years old and $7,000 for seniors age 50 or older. This is an individual limit, so spouses can each have their own account and contribute the maximum allowed.

Moreover, these contributions don’t have to be made by the end of the calendar year. As long as you make contributions before filing your 2019 personal income taxes, those contributions can be counted on your return. The deadline for filing this year is April 15, 2020.

Plan for Taxed Roth IRA Contributions

While Traditional IRA contributions are tax-deductible and will lower how much you owe for the year’s income taxes, the same isn’t true for Roth IRA contributions. Whereas contributions made to Traditionals are pre-tax, anything put in a Roth is post-tax income. As a result, you’ll have to pay income taxes on contributions made to a Roth if you haven’t already.

For some people, this is a moot point because contributions are made from paychecks that have already had income tax withheld. If you’re self-employed or use a non-salary/wage income for these contributions, though, make sure you keep enough to pay the income taxes that will be due.

Reserve Some Withdrawals for Taxes and Penalties

Neither IRA or Roth IRA accounts are intended to have money taken out of them before age 59-1/2 , but you can access the funds in your account should you need to for an emergency. For

example, sometimes people make early withdrawals to avoid bankruptcy, prevent foreclosure or pay unexpected medical bills.

Should you take an early withdrawal, you might be hit with a substantial income tax and penalty depending on how much and what exactly you take out. The implications are as follows:

• Early withdrawals from Traditional IRAs are taxed at your income tax rate and assessed a 10-percent penalty.

• Withdrawn earnings from Roth IRAs are taxed at your income tax rate and assessed a 10-percent penalty.

• Withdrawn contributions from Roth IRAs aren’t taxed or penalized, because you’ve already paid income tax on this money.

Because withdrawals are usually made for financial emergencies, they’re frequently substantial. If you made an early withdrawal this year, reserve some of the funds to pay any taxes and penalties that you need to.

Time is Running Out: Make Your 2019 IRA Contribution

With Tax Day-- April 15-- rapidly approaching, there’s still time to lower your taxable income and save for your retirement as well with a Firstrade no-fee traditional or Roth IRA. A win-win, as they say.

If you already have a Firstrade Traditional or Roth IRA, good for you! You already know all about the great value of IRA investing. But don’t forget, you’ll still eligible to take advantage of 2019 tax benefits by making additional contributions to your IRA before April 15, 2020. You can log in now to start your contribution. (If you’re age 50 or under, you can contribute up to $6,000, and $7,000 if you are age 50 or older.)

If you don’t have an IRA, now’s the time to get started to reduce your taxable income for 2019 and save for your retirement. And best of all, Firstrade’s no-fee IRAs mean that all the money you contribute begins working for you immediately. Don’t delay, to open your no-fee IRA, go here for the application. 

2019 and 2020 IRA Contribution Limits and Deadlines: 

*You can also make an additional early contribution now for the 2020 tax year. 

We’ll be talking more about the many tax benefits of an IRA in an upcoming blog. Stay tuned.

New IRA Changes Make It a Great Time to Open an Absolutely No-fee IRA At Firstrade

As financial consumers, we face many choices on how to invest our hard-earned money for retirement. But save we must. Firstrade’s absolutely no-fee IRA allows all of your funds to work for your retirement only with maximum tax advantage.

Studies have shown that one-in-five Americans have no retirement savings at all, while one-in-three who are close to retirement age have less than $25,000 saved. Given that many of us will likely live longer than past generations, this is pretty scary stuff.

Are you prepared to live comfortably in your retirement?

IRAs are among the most well-known and popular retirement investment products available to consumers today. With a range of choices from a traditional IRA to a Roth IRA, millions of Americans are saving for their future by opening IRA accounts.

And now, new reforms are making it easier and more appealing for Americans to invest and save for retirement. The two key changes:

• Increased Required Minimum Distribution (RMD) Ages – Previously, with a traditional IRA, an account owner would have had to begin taking required minimum distributions (RMDs), the minimum amount you must withdraw from your account each year,  when reaching age 70½. This age has now been raised to 72, providing more time to save with tax deferral.

• Removes Age Limitations on Contributions – Formerly capped at age 70½, maximum age limits on retirement contributions have been eliminated allowing investors to continue to contribute to an IRA throughout their lifetime and save even more.

Of course, the existing benefits to an IRA still apply— for a traditional IRA, for instance, your money grows tax-deferred and your contributions may be tax-deductible. And you can contribute up to $6,000 a year or $7,000 if you’re age 50 or older. With a Roth IRA, you pay taxes when you put your money into your account. The contributions and earnings including capital gains, dividends and interest income are considered after-tax money, so when you withdraw the money years from now, you won't have to pay federal income tax on it.

IRAs are great vehicles for you to sock away money for your retirement years! At Firstrade, we make it easy to open an absolutely no-fee IRA. That’s right. No annual fee, account set-up fee, or maintenance fee. And, you can trade stocks, ETFs, options and mutual funds in your IRA with zero commission trading.

Check here for more detailed information about the benefits of IRAs and to open an account!