March 2023 | KMH Wealth Management

Spring is a time of growth and renewal. I always enjoy seeing our flower beds come back to life in the spring after a cold winter. One springtime tradition that my family has is to take a road trip to enjoy the Texas wildflowers in full bloom (and often some Texas barbeque). One of our favorite flowers is the state flower of Texas – the bluebonnet. One interesting fact about bluebonnet seeds is that they germinate in September through December – in the middle of winter! These seeds go through the winter months growing below ground while our plants above ground are freezing and dying. That process of growth beneath the surface produces the abundant flowers that we enjoy in spring.

Establishing good financial habits can be like planting bluebonnet seeds. It should be done early, can grow “beneath the surface” for a season, but provide stunning results once mature. Here are a few good financial habits to consider this spring that can lead to future financial growth:

1. Start Saving Early
One of the best financial habits that you can develop is to start saving early. Whether it’s for a rainy-day fund or for long-term goals like retirement or a down payment on a house, the earlier you start saving, the better off you’ll be in the future. Even small amounts of savings can add up over time with the power of compound interest. Even the mighty oak started out as just an acorn!

2. Build Good Credit
Credit is essential for many aspects of your financial life, including buying a house, getting a loan, or even renting an apartment. Building good credit takes time, so it’s important to start early by making timely payments on your credit cards, loans, and other bills. Keep your credit utilization low and avoid opening too many credit accounts at once. Good credit is like using good soil – it’s the foundation that the rest of your goals like buying a home or car can be built.

3. Invest in your education
Investing in your education is one of the best ways to improve your earning potential over the long term. Whether it’s going back to school for a trade or degree, or taking courses to enhance your skills, investing in your education can pay off in the future by opening up more career opportunities and increasing your earning potential. A good education is like Miracle Grow – and it’s a miracle how much it can make your income grow!

4. Develop a budget
Developing a budget can help you stay on track with your finances and avoid overspending. Make a plan for your income and expenses, and stick to it! This will help you develop good financial habits and avoid debt. I personally use an app for my budget that I can check daily to see if I’m on track. Like a well-planned garden, a budget can keep your spending on track and within expectations.

5. Practice smart spending habits
It’s easy to get caught up in the latest trends or to spend money on things you don’t need. Practicing smart spending habits, such as shopping for bargains, buying used items, and avoiding impulse purchases, can help you save money and avoid debt. One tactic that companies use extensively today is to sign up for a “free trial” or subscription to use their products. A recent study showed that 51% of Americans have unwanted subscriptions. Get out your pruning shears and cut back those weeds so your financial health doesn’t get choked out by unnecessary subscription fees.

Planting these seeds now can lead to a financial future that is in full bloom. If you want the help of a professional along the way, consider hiring a CFP® professional to help your plant the seeds for tomorrow’s financial success.

Published in the Victoria Advocate

David Faskas is a CFA and CFP® professional with KMH Wealth Management, LLC. He specializes in investments and portfolio management. He is the Chief Investment Officer, Chief Financial Planning Officer, and a managing member of the firm.

As a mom of young children and a CERTIFIED FINANCIAL PLANNER™, a thought that’s always at the front of my mind is how to best set my children up for their futures, especially in regards to their education. Before my kids were walking, they all had a savings account. Personally, my husband and I selected 529 college savings accounts. A 529 plan boasts plenty of advantages: tax free growth, tax-free withdraws for qualifying educational expenses, and high contributions limits just to name a few.

The one catch is the term qualifying educational expenses. If you’re a fellow parent, you know that no two children are the same and trying to assume the educational path of a babbling toddler can be tricky. If you do decide to invest for your child in a 529 plan and your child ends up only needing part or none of the funds you’ve saved, you are left with few options on how use these funds without being subject to a 10% penalty and paying taxes on the earnings. Luckily, recent legislation under the SECURE Act 2.0 may have provided parents a backup plan for leftover 529 funds by way of a rollover into a Roth IRA. Of course, this won’t come without a hefty list of stipulations to do so.

When this rule within the SECURE Act 2.0 goes into effect in 2024, unused funds have the option to be rolled into a Roth as long as: the 529 plan has been opened at least 15 years, the Roth IRA receiving the funds is in the same name as the 529 beneficiary, and the beneficiary has earned income at least equal to the amount being transferred. The Act goes on to state that the current lifetime transfer limit is set at $35,000, the annual transfer limit is the annual Roth IRA contribution limit, and only contributions and earnings made more than five years ago can be transferred.

If that sounds like a lot of hoops to jump through, it’s probably because it is. But a few extra hoops could result in setting your child up for success far beyond their (potential) college years. Similar to a 529 plan, all growth within a Roth IRA is tax-free for qualified distributions. With a 529 rollover into a Roth IRA, the funds for one child could essentially receive tax free growth for decades.

Here’s an example: Bob and Sue have a child, Grace, in 2023. They open a 529 savings account and begin to contribute monthly. They stick to their goals and in 2041 when Grace reaches age 18 they have saved $200,000. Grace receives a scholarship to cover her first two years’ worth of tuition. Bob and Sue realize they are going to have an overfunded 529 plan. Grace had a part time job at 18 and continued it throughout her college career. Because of this, Bob and Sue are able to rollover the maximum Roth contribution amount of $6,500 each year that Grace has earned income from the overfunded 529 into a Roth IRA for Grace. Within six years, Bob and Sue have reach the maximum 529 to Roth rollover amount of $35,000 for Grace. If Grace doesn’t touch this account until she reached age 59 ½ and receives a 5% annualized return, her Roth IRA, started from funds when she was just a baby, would be worth approximately $190,000 and without ever paying taxes on the growth. This won’t fund Grace’s retirement, but definitely is a great gift started by her parents almost 60 years prior!

With that being said, does legislation mean that everyone should run to put funds into 529’s with the thought of rolling them into Roth IRAs in fifteen years? No, probably not. Is there potential value to be added under this new regulation? Absolutely. The reality is that both 529s and Roth IRAs could have a place in your child’s financial future. Navigating education funding and planning for the next generation should be handled on personalized level, not a one size fits all box. Work with a CFP® professional to learn what options work best for you and your family.

Published in the Victoria Advocate

Sara Potts is a CFP® Professional and Operations Manager with KMH Wealth Management, LLC

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