Off-topic: Cool travel site

Close Encounters of the Cheap Kind has a new home at www.CheapEncounters.com!

OK, not really personal finance related, but I thought this site was pretty cool. There’s some other crap there too, but the cool feature is that you can create a customized map showing what states and countries you have visited. Mine is below. The site is http://www.travbuddy.com .

My map here!


June 28, 2007 Posted by | Off Topic, Travel | Leave a comment

My Manifesto to the Homeowners’ Association

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Below is my manifesto, delivered to my homeowners’ association Monday night. The text is pretty much self-explanatory, but you can find more background on yesterday’s posting here.


Fellow neighbors,

I come to you this evening to discuss concerns that I have regarding two recent deed restriction violations that have been declared on my property, as well as the current process for identifying and handling deed restriction violations.

With regards to the deed restriction violations alleged on my property at <insert address here>, we have acted in good faith to address these concerns. We were cited as needing to refinish our front doors, which was completed in a timely manner. Additionally, we fixed a rut on the edge of our driveway that was cited by APM, created by soft soil after recent rains and my going off the driveway in my SUV one morning rushing out to work.

We were also cited for two other violations. The first is for a broken drain pipe and stained brick on the side of our home. Please note that there is no true drain on the side of the home, only a small hose to release excess condensation from the air conditioning unit in our attic. Secondly, this entire condition has existed since before we purchased the home in January 2005, but for whatever reason is now considered to be a nuisance by APM and the board. The staining that is being referred to is permanent and despite numerous attempts using various methods to remove these stains, we have been unsuccessful. I have contacted APM multiple times regarding the issue trying to get it resolved, finally being told the last time that I needed to produce pictures of the home from before I purchased it showing the condition and if I did not have that I would need to take it up with the board. Of course I don’t make a habit of taking pictures of homes I don’t own from odd angles, so I stand before you to plead my case on this item. It is also worth noting again that the stain referred to is barely visible from the edge of the property as it is on the side of the home and mostly hidden by vegetation and the small distance between that wall and the neighbor’s home.

It was also alleged that my mailbox was in need of repair and was a nuisance to the community. I disagreed with this assessment and contacted APM to dispute such, and although the brick stain issue was noted in the next follow-up notice sent the mailbox issue was not, leading me to believe that APM had cleared that particular issue. Imagine my surprise when I receive a third notice from APM still noting the stain issue as well as the mailbox issue, and assessing me a $25 fine for the violation. Unfortunately my mailbox was apparently struck with a baseball bat this past week and should now in my estimation be replaced, but it is still my position that this was a non-issue and should have never been cited. I would note that despite my disagreement with both of the forementioned citations, in an effort to appease APM and the board I began work to install a gutter on the side of the house this past weekend and have purchased a new mailbox to replace the current one, although this work has been delayed due to the recent rainfall.

I am disappointed that these issues could not be resolved prior to now, however I am further disappointed that it appears that either APM, the Board, or both have taken a selective approach to enforcing deed restrictions. During my independent inspection of properties in our neighborhood, I found 51 violations using the apparently tough grading standards APM has used on my property. My review was only a quick drive-by of properties, so it is likely a closer inspection would produce more instances. While I realize some of these instances may have already been addressed by APM and the Board, the sheer number of violations leads me to the conclusion that not all properties in our neighborhood are being assessed equally. As a quick overview of the issues I found:

6 properties were found to have signs in violation of the deed restrictions. The restrictions clearly state “no signs of any kind shall be displayed in public view on any lot except one sign of not more than 5 square feet advertising the property for sale or rent.” The violations I noted ranged from political campaign signs to school pride to signs declaring that their home could “talk”. One of my favorites, though, is the “Support our Troops” sign, proudly displayed in front of the home of our esteemed president. I haven’t seen one of these since the first gulf war, probably because they haven’t made them since the first gulf war. Based on the condition of the sign it’s probably been there since then. While I agree with the sentiment, this is a violation and if you wish to display this sign you should formally amend the deed restrictions to allow such. But my absolute favorite is this sign designating Droddy St. as “Elvis Presley Blvd”. I’m sure if the king were with us today, he would be very proud. Of course this 6 doesn’t include the numerous security system yard signs throughout the neighborhood, which would also technically be in violation. I would formally propose that the deed restrictions be revised to allow security system signs, as it seems consistent with the prevailing view of the board and would be agreeable to most if not all residents.

Have either of these last two violations resulted in any enforcement action or the assessment of fines by APM and the board? Well, I just happened to have a conversation with an employee of APM calling himself Lee who was conducting this month’s deed restriction violation inspections that answers that question. I was a bit alarmed that he admitted that neither of these two violations had been reported. When I mentioned to him the violation involving our board president’s home, I was told that APM as a matter of policy would not report any violation involving the display of an American flag or patriotic message, as they had done so previously at another community they managed and received unfavorable press coverage for it. While I can understand their concern, in my opinion it is not APM’s place to choose not to enforce our community’s deed restrictions, no matter how politically unpopular the enforcement action may be. This proves that the restrictions are not being equally enforced, and creates further questions as to what other restrictions APM might be choosing not to enforce. For the second violation honoring the King of Rock and Roll, he checked his listing and admitted he hadn’t even noticed that issue previously, which calls into question the quality of these monthly inspections.

I also noted one instance where an obviously disabled vehicle was parked in a driveway with flat dry-rotted tires, and another with an RV parked in the driveway with the awning extended no less. Looks like they are making themselves at home outside the home!

But the violations that I was most interested in and most relevant to our discussion this evening are the ones similar to the alleged violations on my property, namely mailboxes in disrepair and stained exterior walls. I noted 22 mailboxes in some state of disrepair, including 6 that are leaning or otherwise not standing completely upright, 12 that are in need of repainting or replacement, and my favorites are the 4 jungle mailboxes that are in the middle of so much vegetation you can hardly even see the mailboxes. As my mailbox is such a nuisance, I hope the board has pursued action against these 22 other nuisances.

I also noted a total of 20 properties that were stained on the exterior walls. 8 of these had some degree of staining on the side walls, much like my property albeit much more visible from the road. But the most noticeable were the 12 that had some degree of staining on the front, street-facing side of the structure. Seeing that my staining on the side of the property barely noticeable from the road has caught the attention of APM and the board, surely the board has pursued action against these other more obvious violations.

As a service to the community, I have taken photographs of these violations and labeled each with the appropriate property address to allow APM and the board to see to it that proper enforcement action is taken.

Now, my purpose here is not to cause trouble or for the wrath of APM and the board to come down upon my neighbors the way it has come down upon me. I simply seek to resolve these alleged violations, have this ridiculous $25 fine that has been assessed removed from my account, and ensure that all property owners are treated fairly and equally. I feel that my property has been held to an unreasonably high standard, however if this is the standard that will be used I want to make sure that all properties are held to this same standard. To this end, I propose the following:

  1. Details of all deed restriction enforcement actions should be published in the monthly newsletter. This would provide greater transparency to the deed restriction violation process and provide comfort and assurance to all residents that all deed restriction violations are being addressed. It would also give the residents the means to determine if there are any violations that are not being addressed and bring those to the attention of APM and the board. It may also “shame” property owners into addressing these violations. However, the most important benefit to the neighborhood and the board would be that this sends the message to the residents that deed restriction violations are taken seriously and that no resident is immune from enforcement action, resulting in greater compliance to the terms of the deed restrictions.
  2. The process used by APM and the board for handling deed restriction violations should be publicized and distributed to all residents. This would allow everyone to understand how violations are handled and what the consequences of violations are, and when those consequences would come to pass. I certainly would have appreciated being informed that I would be assessed a $25 fine for my non-existent violations instead of being sent a bill along with a nasty note from APM.
  3. A formal deed restriction violation dispute process should be developed and distributed. This would allow an avenue for misunderstandings such as mine to be resolved while minimizing the run-around from APM. As APM seems unwilling to give residents a straight answer on how to go about disputing alleged violations, a direct communication from the association to the residents is appropriate.

As a concerned resident of this community, I would be more than happy to assist the board in the implementation of the steps I have set forth. I believe these steps would provide greater transparency and integrity to this process. If you ever want the neighborhood as a whole to support the efforts of the association, you must prove that the association isn’t a mechanism used to harass homeowners as many residents perceive it to be but a partner with whom we can improve our community and our quality of life. Until this happens, we will continue to see a neighborhood where the majority of residents view the association with a high level of contempt and want nothing more from the association than to take their yearly dues assessment and leave them alone.

I would ask that the board adopt these proposed actions, as well as to officially clear the alleged violations on my property at <insert address here> and reverse the $25 fine that has been assessed. I look forward to resolving this issue and working with the board for the betterment of our community. Thank you!

June 27, 2007 Posted by | Home Ownership, Homeowners Associations, Real Estate | Leave a comment

Homeowners’ Associations: If You Can’t Beat Them, Join Them!

Close Encounters of the Cheap Kind has a new home at www.CheapEncounters.com!

Well, looks like I will have a lot more material for my blog now. Last night, I went to the monthly meeting of my homeowners’ association to express concerns about the enforcement of deed restrictions. For those of you who don’t have this headache in your life, deed restrictions are often used in residential neighborhoods to limit what you can do on your property and to attempt to keep properties to a minimum standard. Some examples would be rules against parking cars in your front yard, letting your grass grow to two feet tall, and painting your mailbox pepto-bismol pink. Unfortunately, in a lot of instances the deed restrictions are used to harass select homeowners about trivial matters.

Anyway, my property was cited for several violations for relatively insignificant things, such as stained brick on the side of our house (the stain had been there since we moved in and just about permanent) and a mailbox that needed painting and that was leaning. Obviously the type of things that will lead to the end of civilization as we know it. I would call the property management company to dispute the alleged violations and be led to believe that the violations would be removed, only to get another threatening letter. My sense was that as there were many other obvious violations in our neighborhood that had been there as long as we could remember our property was being singled-out for unequal enforcement and others were allowed to get by unharassed. One of these violations was on the board president’s house, no less. The entire situation raised questions in my mind as to the integrity and fairness of the process, and concerns about the lack of transparency in the process of how violations were dealt with and how residents could appeal cited violations handed down by the property management company.

My purpose in going to the meeting was to try and clear my violations and raise these concerns regarding the process. I had three pages of prepared remarks (I’ll post those tomorrow). To my surprise most of them were excited to see anyone come to the meeting and provide comments, although the guy who was in charge of the deed restriction enforcement was rather abrupt and defensive. Based on what they told me, they had had all of about six non-board residents show up to the meetings in the last five years. They also had an opening on their board for a treasurer, and offered me the position on the spot.

I actually did accept the position. My thought is that it is poor form to go and complain but then not be willing to help. The time commitment seems minimal, and it will also allow me to provide direct input into the management of the association and serve as a watchdog.

I guess the moral of the story here is that if there is something you don’t like about the way your neighborhood association is being run, go down to the meeting and say so. You may be surprised at the response you receive.

June 26, 2007 Posted by | Home Ownership, Homeowners Associations, Real Estate | 2 Comments

Making the Most of Your Noncash Charitable Donations

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I posted previously about garage sales and how in many instances you do better simply donating the items to a worthy charity and taking the tax deduction. However, to make the most of your donation you have to be careful and keep good records. Here are a few things to look out for:

  1. Do you itemize your taxes? If not, than the donation provides you no financial benefit. If you aren’t sure if you will itemize or not, it would be very beneficial to do some quick planning and figure out how much you expect to pay in state and local taxes, property taxes, mortgage interest, and how much you plan on donating in cash to the charities of your choice during the year. A lot of people end up right around the standard deduction anyway, and if so it makes sense to try and lump those deductible items into one year and take the standard deduction the next. You may not be able to time mortgage interest payments, but you likely have some control over when you pay your property taxes and make other charitable donations.
  2. Document, document, document! Make an itemized list of everything you donate. Ideally your list should include what you donated, the condition of the donated items, and how many you donated. You may also want to consider taking a picture of your donated items to support your listing and…
  3. Get a receipt! Basically, any donation of goods over $250 must be supported by a receipt from the receiving charity. Just be sure to take your items to an attended drop-off site (don’t just put the stuff in the bin in the parking lot) and ask for a receipt. The attendant will likely give you a blank receipt and ask you to fill in your name and address and a description of the items you are donating. You don’t have to list everything – just keep it high level (i.e., two bags of men’s clothing). The detail will be on the itemized list you made in step two.
  4. Value your stuff fairly. When most people try to guess the value of their items, they usually grossly undervalue the goods. Remember that you are entitled to a write-off of the fair market value of the item. Just because your t-shirt would only get 50 cents at a garage sale doesn’t mean that is its true value. Programs such as H&R Block DeductionPro are great for providing fair valuations and organizing non-cash donations. If you can’t find the item you donated listed in your program, then you may want to go to eBay to try and determine a fair value for the item. It would likely be worthwhile to print out the source you are using for your valuation.
  5. Keep it small. For noncash donations of a single item or multiple items totaling $500 or more to a single charity on a single day, you must provide information on how you acquired the property donated, your basis (cost) in the property, and when you acquired it. However, for donations under $500 this information is not required. Keeping it small also allows you to work on cleaning out a room or closet at a time and getting unwanted goods out of your home quickly.
  6. Track your mileage, too. Mileage incurred for the direct benefit of a charity, including to bring a donation to the charity is tax deductible, although not at the standard business mileage rate. The charitable mileage deduction is about 14 cents a mile. Not a huge amount, but every little bit helps.
  7. Start a 2007 tax folder now, and put your documentation in it. What good is your receipt and listing if you can’t find it come tax time? Go ahead and start a folder to keep tax-related items (charitable donations, health care expenses, etc.) so you have a head start when it comes time to file next year.

Please note I am talking about donations of small household items only. There are special rules around donations of more valuable property, collectibles, real estate, automobiles, cash, and financial instruments, to name a few. Be sure to do your homework if any of these apply to you, and call a reputable CPA or tax attorney for guidance if needed.

June 25, 2007 Posted by | Taxes | Leave a comment

The Economics of Garage Sales

Close Encounters of the Cheap Kind has a new home at www.CheapEncounters.com!

OK, everyone has either held one or been to one. I’m talking about garage sales, that great piece of Americana where you put all the crap from your house that you no longer want or need out in your garage, driveway, or patio and let a bunch of random strangers come rummage through it and try to negotiate off your marked price of about 5% what you originally paid for the item. FiveCentNickel posted about garage sales this past week which got me to thinking – are garage sales worth the effort?

I think the biggest determinant of that is whether you itemize deductions on your taxes, and if so what is your marginal tax rate? If you don’t itemize or your marginal tax rate is only 10% or 15%, than having a garage sale will probably net you the most money. However, if you do itemize and your marginal rate is 25% or more, you’ll likely do much better just donating the items to Goodwill or another worthy charity and taking the deduction. Using the H&R Block Deduction Pro valuations for used goods, here is a quick breakdown of what a few sample donated items are worth and your tax benefit at a 28% marginal tax rate.

  • Men’s Dress Slacks (Like New) @ $15.10 = $4.23 tax savings
  • Men’s T-Shirt (Like New) @ $6.92 = $1.94 tax savings
  • Men’s T-Shirt (Minor Wear) @ $3.52 = $0.99 tax savings
  • Women’s Dress Slacks (Minor Wear) @ $9.30 = $2.60 tax savings

Clothes (except baby and kids) are usually the things that get the least at a garage sale, so if you have a lot of clothes ask yourself if the price you could get is greater than the tax savings numbers above. Other household items generally sell at slightly higher prices, so it may be worthwhile if you have a lot of random knick-knacks and such. Just remember that with a garage sale you also have the cost of signage, newspaper ads, and the cost of your time to set up and supervise your garage sale.

Another good thing to do whether you plan to have a garage sale or donate is to check to see if you could get more for items on eBay. If it is a higher-value item that could be easily shipped, you’ll likely do better on eBay than selling at a garage sale or taking the tax deduction.

If you decide to have a garage sale, be sure to check out FCN’s garage sale tips here.

June 22, 2007 Posted by | Taxes, Tips | Leave a comment

Super Deal on Diapers at Target!

Close Encounters of the Cheap Kind has a new home at www.CheapEncounters.com!

Since the CVS ExtraBucks deals lately have been crap I haven’t had much to post in the deals department, but here’s a great one on diapers at Target. There is a coupon available online for $3 off any package of Luvs diapers. There is also a coupon for a free Luvs Mega pack when you buy the same. Most Targets are pricing them at $9.99 each, so if you use a $3 and a BOGO coupon in the same transaction:

$19.98 – $9.99 (BOGO) – $3.00 = $6.99/2 Mega Packs

So have said they were able to use a $3 off coupon on each plus the BOGO:

$19.98 – $9.99 (BOGO) – $6.00 ($3 x 2) = $3.99/2 Mega Packs

Of course, some have said that they got shot down just using one $3 coupon with the BOGO, and other said the Luvs are out of stock in their area, so YMMV.

SlickDeals discussion here

June 21, 2007 Posted by | Deals | 1 Comment

Take me out to the (cheap) ballgame!

Close Encounters of the Cheap Kind has a new home at www.CheapEncounters.com!

Looking for a cheap evening out with the family in the Houston area? Try taking in an Astros game.

Think I’m crazy to call that cheap? Well, not if you do it on Tuesday nights. I didn’t realize until we went to a game Friday night that for Tuesday home games you can get 2 Outfield Deck seats for just $2 with a proof of purchase from a 32oz. Powerade. Here are the details:

Get 2 Outfield Deck tickets for only $2, a $14 value, with the presentation of a proof of purchase label off of a 32 oz. PowerAde bottle.

This promotion is available strictly through the Minute Maid Park Box Office. Tickets are available 4 weeks in advance of game date (ie. Tuesday, July 5 game goes on sale Tuesday, June 7.)

Box Office hours are 8:30 a.m. – 5:30 p.m. Weekdays and 9 a.m.- 3 p.m. on Saturdays, plus on all game dates until 30 minutes after the final out.

Game Dates: 4/3, 4/17, 5/1, 5/15, 5/29, 6/12, 7/3, 7/24, 8/7, 8/21, 8/28, 9/11, 9/18 (available 4 weeks out)

If you have kids, there are other deals available as well. Kids 12 and under can join the Astros Buddies Club and get a coupon for 4 View Deck I or View Deck II seats on selected dates (Friday, April 27 vs. Brewers, Thursday, May 17 vs. Giants, Sunday, June 3 vs. Cardinals, Thursday, June 14 vs. Athletics, Sunday, August 26 vs. Pirates, Wednesday, September 12 vs. Cubs) plus a cap and other assorted crap for $10.

Kids can also get free tickets for perfect attendance (pre-K through 5th grade), honor roll (6th-12th grades), and for joining the Astros Summer Reading Program. You can find more information on these programs here.

Remember just because the tickets are cheap doesn’t mean the concessions are! The Astros raised concession prices again this year, so make sure you eat before you go.

June 20, 2007 Posted by | Deals | Leave a comment

All Gas Stations NOT Created Equal

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Sorry for the last of posts over the last couple of weeks. We have just had a lot going on around our house to keep me off of the computer.

Anyway, yesterday as I was filling my gas tank at Sam’s Club, it occurred to me that perhaps not all stations are created equal. No, I’m not trying to feed you that line of bull that the gas sold by Sam’s, Costco, etc., is somehow inferior to that you purchase from one of the big name brands. I worked for one of those big names for three years and can assure you that all gasoline sold by anyone has to meet minimum standards and the only difference is any additive that is put in. Almost all gas has additives in it, and the difference between brands and non-brands is virtually nil.

No, I am talking about the way your credit card company treats the purchases you make at traditional gas stations versus warehouse club and grocery store gas pumps. Simply put, the credit card companies normally consider gas purchases at warehouse clubs to be in the same category as the purchases you would make inside the store. This doesn’t really matter unless you have a rewards credit card that pays a higher reward rate for gas purchases than other categories. For instance, my Chase Cash Rewards Plus card pays 5% for purchases at traditional gas stations, but only 1% for purchases at Sam’s Club (including gasoline).

Because of high gas prices right now, in many cases it is actually cheaper to buy gas at a traditional gas station with a rewards card than at a warehouse club. Take my fill-up yesterday. My choices were a Shell station at $2.859 or Sam’s Club at $2.789.

Shell @ $2.859/gal minus 5% credit card rewards on gas station purchases of $0.143/gal = $2.716 net price/gal

Sam’s Club @ $2.789/gal minus regular 1% credit card reward of $0.028/gal = $2.761 net price/gal

So in this instance although the posted price at Sam’s was lower, the price after credit card rewards was 4.5cents cheaper at Shell. For a 20 gallon fill-up that is 90cents difference. Filling up once a week at that rate the difference would add up to $46.80 over the course of a year. Obviously not a large sum of money, but if you saw it on the ground you would certainly pick it up.

June 19, 2007 Posted by | Automotive, Credit Cards | Leave a comment

Economic refugees from the state of Louisiana

Close Encounters of the Cheap Kind has a new home at www.CheapEncounters.com!

The inspiration for this post is from what on the surface is a pretty light and off-topic comment to my recent post about my eBay crap:

Stumbled upon your website today and then was looking at your recent posts, clicked on your ebay items and say your name at ebay is lsutigerfan…Go Tigers! Originally from LSU and now in Orlando.. waiting to go home one day! Good luck with your blog here.

Normally this type of comment would be the type to bring a smile to your face but not something worthy of its own posting in reply. However, being originally from Louisiana myself and having just helped my brother-in-law (also from Louisiana) and his wife move into their apartment here in Houston, I thought it would be a good opportunity to post about what I call the economic refugees of Louisiana.

Nowadays when you hear about people from Louisiana that have settled elsewhere many assume that we were displaced by Hurricane Katrina and had to start our lives anew because we had nothing left there to go back to. There were many that were in that situation, and our hearts go out to them, but I am talking about others who left Louisiana not due to the damage caused by a natural disaster but the damage caused by the disaster of the state’s reputation of political corruption and poverty. Louisiana was going down the tubes well before Katrina. And with the destruction of infrastructure and the continued political leadership of such characters of Kathleen Babineaux Blanco (you can’t run a state like you do a tourism campaign), the indicted US Rep. William Jefferson, and Mr. Chocolate City himself Mayor Ray Nagin, we are certainly not on the road to an improvement of that situation.

I left Louisiana in 2001 upon graduating from LSU because I couldn’t find suitable employment in Louisiana. My wife left Louisiana in 2003. My oldest brother-in-law left in 2006, the next oldest moved out just a few weeks ago for the same reasons. Of my friends from college, only one has stayed in Louisiana. All of the others left Louisiana upon getting a degree to pursue opportunities elsewhere. So many LSU graduates have left Louisiana for Houston that there is now a Houston and a North Houston LSU Alumni Chapter, as a single chapter could not meet the needs of all of the alumni here.

The issue has been noted amongst columnists and journalists in Louisiana for years. In 2002, The Baton Rouge Advocate ran a twelve-part series discussing the loss of the best and brightest of Louisiana and the impact it would have in the years to come. Unfortunately their archives online don’t go back that far so I can’t post it here, but it is a great read for anyone interested in the subject. There was also a column by Dr. Chris Warner on PoliticsLA.com in 2003 discussing the topic, which is linked here. One of the overriding themes of the piece is that one of the big factors in the exodus is the lack of jobs, which was explained with the following:

Chief operating officers of firms looking to locate or relocate their business operations normally focus on four distinct areas of location criteria: 1) An equitable tax structure that does not overly tax business; 2) A well-educated work force; 3) A quality of life that is attractive for the firm’s upper-level managers and their families, 4) and a sound infrastructure that enables them to transport their goods and services efficiently.

In Louisiana, it is debatable whether or not we have any of the aforementioned criteria for business location met.

A couple of interesting quotes from the article:

Chief Legislative Fiscal Officer Johnny Rombach: “Right now, the 22 to 30 year olds are the ones leaving Louisiana. However, during the next 5 to 10 years, it’s going to be their retiring parents–the baby boomers—who will be leaving. People stick around in Louisiana for basically two reasons—the jobs they have, and their families. Many of the boomers’ kids have already left the state. Where do you think the parents are going to go once they retire?

Former Louisiana Governor Buddy Roemer: “An entire generation now—it’s been over 25 years since the rise of Edwin Edwards in Louisiana–and we continue to see the net migration of our brightest professionals; of people voting with their feet. In many ways, Louisiana is a better state to live in, than to work in.”

That Louisiana is a better state to live in than work in is a sentiment shared by many of us originally from Louisiana. The people and culture of the state of Louisiana make it a wonderful place to live, but it is hard to take advantage of that when you are paid 20-30% less for the same work as you would be in Texas, if you can even find work.

“Waiting to go home one day”, as my reader said. Many of us feel the same way, but until there is something for us to go home to, we’ll be waiting it out elsewhere a LONG time.

June 5, 2007 Posted by | News/Trends | 2 Comments

Learning about 529 plans

Close Encounters of the Cheap Kind has a new home at www.CheapEncounters.com!

Over the last week or so, I have started reading up on 529 plans. For those of you who don’t know, 529s are tax advantaged accounts for college savings. There are lots of details available, but essentially it is the college savings equivalent of the Roth IRA. You contribute after-tax dollars into the account and, when used for qualified expenses, you can withdraw the principal and interest tax-free. Additionally, many states offer a state tax deduction to residents who contribute to their state’s sponsored plan.

In addition to the tax benefits, another attractive feature of the plans is that the account is considered the property of the account owner, not the beneficiary. There is some comfort if you are a parent in knowing that in the case that your child is fiscally irresponsible, they will not have unrestricted access the money you have saved over the years. Another advantage to this arrangement is that when applying for financial aid the student’s assets are weighted much more heavily than the parents’ assets when calculating the expected family contribution.

Even with the advantages, there were still some unanswered questions in my mind, but research has put my mind at ease:

  1. What if my child doesn’t go to college? If the child doesn’t go to college, the funds can be withdrawn as a non-qualified distribution in which the earnings would be subject to income tax as well as a 10% penalty. However, you are allowed to change the named beneficiary on the account in hopes another child will be able to use the funds.
  2. What if my child gets a scholarship? If your child gets a scholarship, you are allowed to make a withdrawal from the account up to the amount of the scholarship without penalty. However, the earnings are still subject to income tax.
  3. So what are “qualified expenses”? Qualified expenses generally include:
    • tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution;
    • room and board for students who are at least half-time; reasonable costs incurred for room and board while attending an eligible educational institution not to exceed the allowance for room and board included in the cost of attendance as determined by the eligible educational institution or, if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged for room and board costs; and
    • expenses for special needs services in the case of a special needs beneficiary
    • which are incurred in connection with such enrollment or attendance.
  4. Where can I get more information on 529 plans? Try these links:

June 4, 2007 Posted by | College Savings | Leave a comment