Mid - January Update


New Rules Benefit 529 College Savings Plans As An Estate Planning Tool 

The Tax Cuts and Jobs Act includes a provision to now allow 529 Plans to be used for private elementary and high school expenses, rather than just college related expenses. The new rules are a treat for both parents and grandparents looking for a better way to pay for private educational costs.

Until now, the only plan that allowed for tax-free earnings growth was a Coverdell Education Savings Account (ESA). Limitations on contributions and income has made these plans unfavorable for many families.

A key notable benefit to a 529 versus a Coverdell ESA includes transferability. Funds in a 529 account may be transferred from the original beneficiary to another. Another benefit is the fact that funds in a 529 may grow perpetually, and never have to be used. Some families are using this feature as an estate planning tool, allowing unused funds in a 529 to pass along to future recipients.

The new tax plan does limit the amount used for K-12 expenses to $10,000 per year. Any current funds held in an existing Coverdell ESA account may be rolled over to a 529 plan with no tax consequences.



These plans offer two primary benefits: assets grow tax deferred and come out tax free for qualified expenses; and, contributions made by parents and grandparents are considered a gift, thus proving a tax benefit for some contributors.

Source: IRS, www.congress.gov/bill/115th-congress/house-bill/1

Mid - January Update

Stock Market Continues To Shrink – But it Probably Doesn’t Matter

Over the past 20 years the number of corporations with listed shares traded on U.S. exchanges has actually dropped by approximately 40%. In the 1990s, there were once over 8,800 publicly traded companies with a total market capitalization of about $20.9 trillion. As of the end of December 2017, total market capitalization was $27.7 trillion, yet with 40% less stocks than in the 1990s.

Supply and demand has become a key valuation component of the equity markets, as there are far fewer stocks available, but at higher prices.

Shares have decreased for various reasons, including aggressive share buybacks and higher regulatory costs. Mergers and acquisitions have also reduced supply while fewer firms are willing to deal with the costs and regulations involved in being public. As fewer companies are willing to be publicly traded, more are eager to become private or be acquired by private equity firms.

As the equity markets have consolidated, so have some of the indices made up of these publicly traded stocks. The broadest equity index of all is the Wilshire 5000 index, which no longer includes 5000 companies, but currently includes only 3503 companies (as of September 2017).

This phenomenon has ignited marketers to promote private equity and other less traditional asset classes to the pre-retirees in order to fill the gap, suggesting that the stock market requires it for diversification.  This is probably not necessary because if you need more diversification than 3,503 companies, you need something that almost certainly does not exist.

Sources: Federal Reserve; fred.stlouisfed.org/categories/33194, Wilshire Associates