Media sources who have featured Kevin Bourke. None of these sources are affiliated or sponsored by LPL Financial.
Kevin is featured often in the media, both in print and on TV. He has shared his insights many times on ABC News, Yahoo Finance, Fox Business News, Bankrate.com, the Santa Barbara News-Press, Montecito Journal, Noozhawk, Santa Barbara Wine & Dine Magazine and others. For several years, Kevin was the financial columnist for the Santa Barbara Independent online.
This article originally appeared in the Santa Barbara Independent online on February 1, 2008. To see the PDF of the article, click here.
Financial Columnist Kevin Bourke Gives Lay of Land
By Kevin Bourke
Friday, February 1, 2008
We have four children, ages 2, 5, 6, and 17. We’ve been able to save enough to send the eldest to a private college next fall, but with three little ones to plan for, and with tuition going through the roof, we have no idea how to save enough for all of them. How can we prepare financially?
–Paige in Goleta
Four kids? Yes, that could be very expensive indeed. According to www.finaid.com, a student financial aid information website, college inflation averages somewhere around 8% annually, or more than twice the rate of general inflation. Saving for college is therefore crucial, and you’re doing the right thing thinking about solutions now, rather than later.
With your younger three kids, time is on your side. For example, if you started to invest $100 a month per child, and earned 8% on that investment, when your six-year-old is ready for college, you’ll already have saved over $23,000. Your five-year-old will have over $27,000, and your two-year-old will have over $38,000.
There are many ways to finance a college education. One of the oldest, and least attractive, is through the UTMA, the Uniform Transfer to Minors Act.
A UTMA account is simply a bank or brokerage account in your child’s name with one parent as custodian, but at least three drawbacks exist. First, if you as parents gift a large amount into the account, there may be a gift tax due. Second, UTMA accounts are already subject to high taxes. Third, when your child turns 18, they can do anything they want with that money. There are no strings attached and no conditions on college attendance.
A better alternative may be to open a Coverdell Education IRA. The principal appeal of the Coverdell Education IRA is its tax-favored status. There is no tax deduction for money deposited, but it does grow tax-free if used for qualifying education expenses. The Coverdell Education IRA has the added distinction of allowing the funds to be used for K-12 grade. In fact, funds can be withdrawn tax-free if used for qualified K-12 or higher education expenses. The account value is also removed from the contributor’s estate.
Some disadvantages do exist for high-income earners. They may not qualify to make contributions, and the maximum annual contribution from all sources can’t exceed $2,000. Also, control over the account doesn’t go to the beneficiary until age 30.
Consider the Section 529 College Savings Plan. Named after the portion of the IRS tax code which created them, Section 529 plans are like the Coverdell Education IRA, because they allows contributions to grow tax-free if used for qualifying education expenses. Some states even allow an income tax deduction for contributions. Unfortunately, California isn’t one of them.
But unlike the IRA, a Section 529 plan lets you place up to $60,000 in the account in one year with no gift tax consequence, and anyone can contribute to a 529 plan regardless of income. Some 529 plans can be opened with as little as $25.
The account owner maintains full and complete control over the account regardless of the beneficiary’s age, the account value is removed from the contributor’s estate, and qualified withdrawals may also be used at any eligible educational institution in the country.
The big difference is funds cannot be used for K-12 expenses.
I would recommend this plan for higher-wage earners who want to contribute high-dollar amounts, and who want to remove assets from their estate for estate planning purposes.
Then there’s the Section 529 Prepaid Plan. This option allows the parent to pay for tomorrow’s college tuition in advance, at today’s price. The plus with this option is that funds invested now won’t fall behind tomorrow’s cost of college tuition. It’s a plan that allows for tax-free distributions for higher education, but it’s really for those who know which school they want their child to attend and want to lock in expenses now, and for those who are uncomfortable investing in the stock and bond markets.
California is one of the 33 states that do not offer the pre-paid option, although individual educational institutions might.
Lastly, I’d advise you to look into US Savings Bonds, Series EE or I. The U.S. Government issues bonds that, under certain specific circumstances, pay tax-free interest if used for higher education. The big plus is that they are guaranteed by the government.
But the bond value is still included in the contributor’s estate, and the maximum annual contribution is $30,000 face value. Higher-income earners may not qualify to make contributions, and returns are fixed and might be lower than other investment options.
This is by far the most conservative option available, and people who choose to go this route are generally willing to forgo potential greater returns in exchange for the governmental guarantee.
I’ve only listed five ways to save for college. Let them serve as starting points for you and your family. For more college financing strategies, take a look at:
The big incentive to start saving now is to assure your child the luxury of NOT having to deal with repaying college loans, and being in financial debt, the moment they earn their diploma.
Establishing a plan now to save for educational expenses can help make that a reality. What a truly valuable gift you will have delivered.
This article originally appeared in the Santa Barbara Independent online on September 24, 2008. To see the PDF of the article, click here.
Financial Advice Columnist Kevin Bourke Says It’s Time for a Checkup
By Kevin Bourke (Contact)
Wednesday, September 24, 2008
Oil Price Prediction: In this column dated July 12, 2008, I mentioned that the demand for oil was down in the U.S. and globally, yet the price was up. My point in the column was that the price of oil must follow the law of supply and demand. I don’t claim to be a prophet, clairvoyant, seer, or in any way gifted with foresight, but as it turns out, the week of the column proved to be the peak for the price of oil – near $147 per barrel. Now it rests under $100 per barrel. Common sense finally prevails.
Forever Young?: The article on young people and their finances stirred up much discussion and feedback from many readers. The most common response was “I wish someone had told me that when I was young. Of course, I wouldn’t have listened anyway.”
If you have a young person or couple in your life who needs some gentle prodding, perhaps email them a link to that article. From the responses I’ve received, it may help to move someone inexperienced along the path toward financial independence.
Elephant in Room: The elephant in the room is the state of the economy and the capital markets. What is going on with the stock market? As of this writing, the media was reporting that Treasury Secretary Henry Paulson is considering the formation of a vehicle similar to the Resolution Trust Company (RTC), which operated in the late 1980s and early 1990s.
If you’ll remember, the RTC purchased hundreds of billions of dollars worth of soured real estate investments and mortgages and liquidated those positions over several years.
The news of something similar sent the stock market soaring to one of its biggest one day gains ever. The Fed has certainly demonstrated their concern and interest in containing the damage done in the capital markets.
Forgive the pessimist in me, but selling off real estate in the 1990s is considerably different from selling esoteric investment vehicles in the 2000s with arcane acronyms like SIV and CDO. The investment vehicles in question are more complex and convoluted. It remains to be seen how the government will choose to unwind these positions.
Thankfully, it may not matter because ultimately it’s the confidence that investors have in the U.S. government’s willingness to support the capital markets that will make it all work. Lack of confidence would sound the death knell for financial markets like nothing else could.
By brokering the deal between Bear Stearns and JPMorgan, by rescuing the two mortgage giants Fannie Mae and Freddie Mac, and more recently by injecting billions into AIG, the Federal Reserve has shown that it will go to great lengths to protect the stock and bond markets.
What should you be doing? It’s at times like these that most investors decide not to log onto their accounts or to open the envelopes containing their brokerage statements. That is probably not the best choice. Just as a serious ache or pain would prompt you to call your doctor for a checkup, call your financial advisor and ask him or her what you should be doing. Is your portfolio performing better or worse than the market and why? When the market recovers, are you in a position to benefit from the rebound?
What have you learned from this very difficult time in the stock market? Traditional wisdom and history teach that if you are in it for the long haul, you can afford to ride out the inevitable rough patches in the market. But if you find yourself worrying, losing sleep, fighting with your spouse, or kicking the family pet, then perhaps a review of your risk tolerance is in order.
Take stock (no pun intended), regroup, and review your financial plan to ensure that you are on track to reaching your goals.
This article originally appeared in the Santa Barbara Independent online on July 23, 2008. To see the PDF of the article, click here.
By Kevin Bourke (Contact)
Kevin, I read in the paper that the government is reporting house prices as having declined 3.1% from the first quarter of 2007 to the first quarter of 2008. They said this was the worst decline in the history of the index. It seems to me that houses have declined much more than 3.1%, so how is that possible? – John from Goleta
Great question, John. There are so many government reports on so many subjects, and they all seem to be contradictory, we tend to ignore them after a while, don’t we?
The index you are referring to, I believe, is the OFHEO, or the Office of Federal Housing Enterprise Oversight. The report for April of 2008 can be found here:
The report states that California, Nevada, and Florida have seen the biggest declines, but that overall, housing prices are down 3.1% year over year, as you wrote.
A clue to the answer to your question can be found in this quote from OFHEO Director James Lockhart, who said, “While house price declines are widespread, homes financed with prime, conforming mortgages continue to hold up better than those financed with other types of mortgages.”
So when we dig a little deeper, we find that this index only analyzes house prices that are financed with prime, conforming mortgages, which are not the main cause of the market decline.
Rarely does a day go by that we don’t hear the phrase “sub-prime” in the news. Sub-prime mortgages, those mortgages used by individuals with poor credit, seem to be the culprit behind house price declines.
So, it’s no wonder that the OFHEO index has not declined substantially, since this index does not include subprime mortgages.
What then, is the real picture? Why does the pain feel like so much more than 3.1%?
We need to look elsewhere for the answer. Another respected index of house prices, the Standard & Poor’s/Case-Shiller index, tells a different story. While this index does not cover the broad geography of the OFHEO index, it does include other portions of the real estate market, including subprime. This report can be found here:
So, while the S&P/Case-Shiller index includes only 20 major metropolitan areas spread across the country, it gives a broader picture of housing in general.
According to the S&P/Case Shiller index, the housing market saw a 15.3% year-over-year decline nationwide on average. Los Angeles, -23.1%. The worst showing? Las Vegas at 26.8%.
It sounds like your instincts were right, John. The housing market does indeed seem to have declined more than 3.1% year over year overall.
The good news? Many families that have been priced out of the housing market are beginning to see the possibility of owning a home. The bad news? House price declines will likely dampen the economy for some time to come.