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  • Writer's pictureStephen H Akin

Shop Tax Free

Each year we look forward to the "Back to School" Tax Free weekend.

Mississippi's back-to-school sales tax holiday is on July 28 and 29 this year.


State Sales Tax 7%



The sales tax exemption applies to clothing, footwear, and school supplies with a sales price of $100 or less. However, accessories such as jewelry, handbags, wallets, watches, and the like don't qualify for the exemption. A pdf list from the Mississippi department of Revenue may be downloaded here:


2023 Sales Tax Holiday MS
.pdf
Download PDF • 264KB

Shoppers in South Carolina should plan to buy their back-to-school gear from August 4 to August 6, 2023.


State sales tax rate: 6%


That's when they can avoid paying sales tax on purchases of clothing, footwear, accessories, school supplies, computers, software, printers, and certain bed and bath supplies. The exemption does not, however, apply to sales of jewelry, cosmetics, eyewear, wallets, watches, furniture, or any item to be used in a trade or business. The rental of clothing or footwear is taxable, too. Additional examples of items that are both exempt and taxable items during the sales tax holiday are posted on the South Carolina Department of Revenue's pdf file

here:

SC Tax Free Weekend
.pdf
Download PDF • 248KB

 

Shop Tax Free



Are all 529 plans the same?


Although most 529 plans act similarly, they’re not exactly the same. Depending on which 529 plan you select, you could:


  • Run into different expense ratios for holding the investments within the plan have different asset allocationsQualify for different tax benefits Have to adhere to different usability rules Negatively impact your child’s financial aid eligibility

  • Let’s explore some of these key differences between 529 plans, and what you should keep an eye out for as a financially-savvy parent.

  • Here are some things to watch out for.

Fees & expenses


As is the case with every type of investment account, you’re going to have some expenses associated with your 529 plan. When comparing plans, make sure you keep track of fees. Watch for the following:

  • Management feesEnrollment or application fees

  • Annual account feesFund-based fees (or expense ratios)Account maintenance fees

Ideally, you want all of these fees to be low or non-existent. However, it’s especially important to watch for expense ratios connected to the investment options in your 529 plan. In other words, you want the expense ratios of those investment options to be as low as possible, and ideally, less than 1 % overall.


Investment options and portfolio types


You don’t have to be a professional investor or day trader to take a closer look at the funds in your 529 plan.


There is a range of investment options and different portfolio types available for you to choose from within each 529 plan. Some portfolios are managed based on when your kid is going to head off to college (age-based portfolios), and typically, the risk level will slowly decline as your child gets closer to high school graduation. However there are other types of portfolios available, so if you have questions, you may want to work with a financial planner.


We don’t live in a perfect world, and it’s possible over time for the fund to become over-invested in one type of investment. Now and then, it’s a good idea to take a look at how your assets are being allocated. You can ask your 529 plan provider (or dig in to the information available online). If you have questions about whether or not that allocation makes sense for your goals, this is another good reason to reach out to a financial planner.


Check for tax benefits


All 529 plans offer federal tax benefits. In addition, some state tax benefits may be available for investors who choose to fund a 529 plan. This isn’t the case for every state, however. If your state’s 529 plan doesn’t offer tax benefits, you may want to take a look at other states’ 529 plans – and take into consideration their tax benefits (if any apply), fees, investment options and asset allocation. You may find a better fit for your needs.


Keep in mind that even if your state does offer tax benefits for enrolling in their 529 plan, you should still shop around. If your state’s 529 plan has high fees or expense ratios, the tax benefit you receive for enrolling may not make up for the financial downsides. Always crunch the numbers before making a commitment.


Direct-sold versus consultant-sold plans


When you select a 529 plan, you have two options:

  • Enroll in a plan on your own and manage your account yourselfEnroll in a plan through a broker/dealer (advisor-sold)

  • The lower-cost option is usually a direct plan that you manage yourself. Advisor-sold 529 plans often have higher fees associated with them because you’re paying fees for both the plan and the advisor.

You may want to consider a blended approach of working with a fee-only financial planner to manage the 529 plan you’ve enrolled in directly. The fees you pay your planner will be for a comprehensive plan including cash flow management and investing or savings guidance, and won’t be tied to the sale of the 529 plan.


Financial aid


Be aware that a 529 plan could negatively impact your child’s eligibility for financial aid. The balance could reduce the amount of need-based aid your child can receive, and the distributions could be considered income.


However, there are several strategies for reducing the negative impact, and some states offer a workaround. For example, some states offer a scholarship incentive for students who are enrolled in their state’s 529 plan and are going to an in-state school.


Usability


Some 529 plans offer easy, user-friendly platforms to help parents and students access their funds for qualifying education expenses. However, others make the process much more complicated. I’ve heard some worst-case stories of 529 plans refusing to fund a semester’s tuition because paperwork was submitted late by the school itself. Families in those situations could be on the hook to pay out of pocket or take out loans in order to stay in school.


All of that is to say – choose a plan that makes accessing your funds easy, and learn the process ahead of time. Don’t rely on the plan administrator or your child’s school to do the work for you.


Funding your 529 plan


Once you pick a 529 plan that meets your family’s unique needs, it’s time to start planning ahead. It’s a good idea to set a savings goal that accounts for at least these things:

  • Annual tuition cost (multiplied by 4-5 years in school)

  • Room & board

  • Cost of school supplies and books

If the total figure feels daunting, break it into smaller, bite-sized steps.


How much can you realistically contribute this year? You could consider automating contributions when you can to start moving in the right direction. You can always increase contributions as your income or cash flow grows.


It’s important to not prioritize funding your 529 plan over your own financial needs, now and in the future.


Retirement, for example, shouldn’t take a back seat to your child’s college fund. In the long run, when you’re able to care for yourself, you’re going to be less likely to financially burden your kids – and will be able to continue to financially help them through school and beyond.


Don't forget to shop tax free!


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