Yes, but it requires several steps and might take 15 years.
To roll 529 funds into a Roth, three important things need to be true:
The listed beneficiary of the 529 needs to be the same as the owner of the Roth
The beneficiary of the 529 needs to have been the beneficiary for at least 15 years
The specific funds being transferred need to have been in the 529 for at least 5 years
So practically speaking, for most parents considering this, it makes more sense to prioritize rolling your child’s 529 funds into their Roth rather than your own.
How do I work around this?
There are two ways to cleanly transfer your child’s 529 funds into your Roth:
Transfer any of the 529 funds you want to roll over into your your own 529. Wait 15 years and then do the Roth rollover
Make yourself the beneficiary of your child’s 529 account. Wait 15 years and then do the Roth rollover.
In either situation you’ll need to make sure you qualify for all the Rollover requirements.
Beware of “tax hacks” for rolling your child’s 529 funds into your own Roth
Like any tax rule, there are lots of “hacks” online for getting around these requirements. One of the most popular ones I’ve seen is the following:
Open a 529 with yourself listed as the beneficiary when your kids are still young.
Once it’s been open for 15 years, you transfer funds from your child’s 529 into your account.
Your then immediately roll those funds over to your Roth.
For example, let’s say your child is 7 years old today and has a 529 set up for college already. You want to have the flexibility to move any of their excess 529 funds into your Roth once they finish college.
You open a 529 account with yourself listed as the beneficiary today so 15 years from now when your child is 22 you’d pass the 15 year rule.
The main argument here is that technically your 529 account has existed for 15 years and checks the 15 year requirement box.
Hacks like this exist because the IRS hasn’t specified whether this is allowed. But we feel it’s always better to stick to the spirit of a tax rule rather. The IRS has a tendency to suddenly start going after people who use loopholes to work around tax or account requirements.
Use tax hacks at your own risk.
If you liked this article…
Check out some of our other posts on education and child-centric financial planning:
Our firm specializes in working with young families. Reach out to me at my email below if you want someone to help you build the financial strategies to fit the life you want for your family.
Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
Congratulations! The next few months are going to be a whirlwind of new adventures and experiences with your new family member. You’re going to be busy between all the snuggles and diaper changes but make sure you make some time to look into these eleven key items that we’ve split into three categories:
Nailing the basics(The first 30 days): basic admin, health insurance, and tax savings. Focus on getting these items completed during the first 30 days.
Helping them get a head start: which kid-centric savings and investment accounts to prioritize first.
Protecting their future: the three key things to look into to ensure your kids are protected if something happens to you.
Estimated reading time: 5 min
I. Nail the basics
This is the basic financial admin stuff that you’ll need to complete within the first 30 days. These are mostly making sure you get your new family member added to your health insurance and that you’re taking advantage of workplace and tax code benefits from having a child.
Get them a social security number
The hospital probably told you about this already but you’ll need to get them registered for a social security number. You’ll need this before you can complete a lot of the other steps here.
Add them to your health insurance
Don’t forget to let your HR team or health insurance provider know about your new family member. Those hospital bills are going to be pretty expensive without it. Most employer-sponsored health insurance plans require you to do this within 30 days.
Compare your health insurance options
While you’re at it, if you both have employer-sponsored health insurance plans, now is a good time to consider comparing coverage options between plans. The yearly cost difference between family plans could easily add up to thousands a year.
Update your withholdings
Let your HR team know you want to update your withholdings and coordinate with them on submitting an updated W-4. Having a child decreases your withholdings amount meaning you’ll get to keep more of what you earned in each paycheck
Sign up for Dependent Care FSA
If you’re both going to keep working, look into signing up for Dependent Care FSA. This allows you to use pre-tax dollars to pay for necessary childcare like daycare, nannies, etc. Coordinate with your HR team on the specific details of your benefits.
Don’t forget about the Child Tax Credit at tax time
This one doesn’t need to be done in the first 30 days but just remember at tax time you can currently get up to $2,200 in tax credits per child just for being a parent. There are some income restrictions on this so coordinate with your accountant.
II. Helping them get a head start
Start taking advantage of the tax and other benefits on offer for funding your child’s future. There are lots of other accounts and savings strategies out there but these two are the most common ones to get things going.
Sign them up for a Trump Account
If your child is born between Jan 1, 2025 and Dec 31, 2028 you’ll get $1,000 from the government to kick things off. The $1,000 isn’t automatic, you’ll need to enroll and your child needs to be a US citizen with a Social Security number. Whether you contribute more than that depends on how you feel about the account’s disadvantages and the other savings options available to you.
Start saving for college. Your contributions to the 529 grows tax-free and remains tax-free if you use the funds for qualified education expenses. Many states also offer state tax deductions for contributions though each state has slightly different rules.
Make sure you have a plan in place for taking care of your kids if something happens to you. These are the big three to nail down:
Look into getting term life insurance
Protect your family in the event something happens to you. Be wary of insurance sales people trying to convince you to get anything more complicated right now.
Get a will
What do you want to happen if you pass away? Who would take guardianship over your children?
Take it a step further and set up a trust
If you want to avoid probate or have more control over how your assets will be distributed over time.
I have two young kids and specialize in helping young families navigate the money, career, and family tradeoffs that come with this stage of life. Reach out to me at my email below if you’d like someone to help with the items in this post or with your broader financial planning needs.
Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
The 1.0% advisory fee your wealth manager said they were charging you may not be the full story. Many financial advisors double dip by also accepting commissions and other pass backs from the products they recommend.
Mutual Funds are a major profit center for many of these kinds of advisors. These commissions and fees can quickly add up to thousands a year on sizable portfolios (and they are paid out of your assets). We start by showing you how these fees get hidden and then detail five steps for finding out how much extra you may be paying your advisor.
Estimated reading time: 6min.
How do I find these hidden Mutual Fund fees on my statement?
Note: All returns and figures in this post are illustrative and for educational purposes only.
Mutual fund commissions and additional fees your advisor is pocketing do not typically show up as a line item in your statements. Advisors who take commissions and other mutual fund payments often just report a Net Performance number that looks something like this:
Net Return(%): 8.0%
Net Return($): $80,000
Is that a good return?
It’s hard to say because what you need to see is the Gross Return, which is what your assets delivered before any fees were taken out. Advisors are not required to report this number in their invoices but do have to provide it if you ask for it directly.
A Gross Return might look like this instead:
Gross Return(%): 10.0%
Gross Return($): $100,000 <- the missing piece of the puzzle
Now you can see you lost $20,000 somewhere along the way. Maybe your advisor quoted you 1.0% as their advisory fee at the start of the relationship. How could they be making closer to 2.0%? Those are from hidden fees.
To be fair, your advisor may not be pocketing all of those additional fees. But reporting only Net Return and not breaking out their commissions and additional fees makes it incredibly difficult to figure out how much they are actually making off your assets.
So how do you figure out how much my advisor is making from mutual fund fees?
Step 1: Find the fund’s Prospectus
In most cases, you will need to get the fund’s Prospectus directly from the fund provider (or ask your Advisor to send you the latest).
These are publicly available on most fund provider websites. Just search for the fund name and ticker. Once you are on the fund’s page, look around for something called the Prospectus. There’s usually a link to download it as a PDF.
This document provides all the fund’s fee details, including what they pay to advisors.
Step 2: Figure out what Share Class you own
Mutual funds are split by different tiers called a “Class“. Each Class has a different fee structure that is broken out in the Prospectus. You’ll need to figure out what Class your specific fund is before you can figure out what fees you’re paying.
Pull up your paper statement or login to see your holdings.
Look through your list of holdings and you should see something like “FUND NAME, CL A” or “FUND NAME, CL B.” The CL is short for “Class” and the letters after are the specific tier you have.
Alternatively, you can search online for the fund’s symbol. Each Class has it’s own ticker symbol.
Step 3: Find the Fees and Expenses section in the Prospectus
Once you’ve figured out which Class you own, you can look up the fees in the Prospectus.
Each Prospectus has an upfront Table of Contents. You should see a section called “Fees and Expenses” high up in the list of items. Go to this page.
Step 4: Calculate the sales commissions
Usually (but not always), any mutual fund that pays an upfront commission to the advisor is labeled as “Class A.” These are called “Sales Loads” or “Sales Charge” rather than commissions in most Prospectuses.
You’ll see something like this
Class A
Class B
Class C
Max upfront sales load
5.75%
0.0%
0.0%
Max deferred sales charge
1.0%
5.0%
1.0%
There are all kinds of commissions that get charged, but from what we’ve observed, most advisors who pocket commissions use upfront commissions since they get paid those immediately. There is a wide range of commission rates, but it is not unusual for Class A funds to have an upfront 5.75% sales fee.
This 5.75% sales fee means for every $100,000 you hand over, a $5,750 commission is immediately chopped off the top to pay the brokerage firm and your advisor.
You won’t receive an explicit bill or invoice for this. It just gets deducted from your cash on the day of purchase.
So of the $100,000 you put down, you only have $94,250 working for you in the market. You are technically starting off with a hidden loss of 5.75%.
This loss won’t even appear as a negative return on your performance dashboard. Your account will show a 0% return on day one and your total value will show up as $94,250 despite you putting down $100,000.
Step 5: Find the ongoing fees
Next you’ll want to look for something called “12b-1” fees. They may also be described as “Distribution and Service” fees. The table may look something like this:
Class A
Class B
Class C
Management Fees
0.37%
0.37%
0.37%
Distribution / Service (12b-1)
0.25%
0.75%
0.75%
Other Expenses
0.31%
0.31%
0.31%
If you own the Class A share of this fund, you could be paying your advisor an additional 0.25% every year in addition to the 5.75% sales commission they pocketed on Day 1.
This is applied to the amount that’s actually invested in the fund post sales commissions.
If you have $94,250 invested after a 5.75% initial sales charge, your 12b-1 fee in the first year could be an additional $235.63 per year (0.25% fee * $94,250).
Beware of other hidden fees
The “Sales Load” and “12b-1” fees are the key numbers to track down to figure out how much your advisor may be profiting from mutual fund recomendations they make. Your advisor may not be making the full amount listed in the prospectus as the specific fee arrangement may differ from firm to firm.
There are many other ways your advisor makes money from recommending mutual funds but these are harder to identify and may be benefits provided to your advisor’s overall firm:
Revenue Sharing: A fee paid by the mutual fund to the firm for making it onto the list of “approved” mutual funds. This can be very difficult to track down.
Soft Dollar Benefits: Free market research, access to tools, etc. that firms would typically need to pay for but is being provided as part of the relationship with the mutual fund company.
And more like Sub Accounting, Brokerage, Account Maintenance, Record-Keeping fees, etc.
How to avoid advisors who make hidden profits
Not every advisor accepts commissions or hidden profits from products they recommend. An entire, official category of advisors known as “Fee-Only Fiduciaries” charge only for their advice and services.
And that’s what we are. Kangpan & Co. is a proud Fee-Only Fiduciary. We do not accept commissions or any other pass backs for the investments we recommend. We want our clients to know that when we recommend an investment, it’s because we feel it’s the right thing for their portfolio, not because we somehow profit from doing so.
If you’re not sure whether your advisor is secretly profiting off your assets, email me at [email protected] for a complimentary Hidden Fees Audit. I’ll help you identify charges and profits your advisor may be hiding and benchmark your overall portfolio’s performance to see what else your advisor may be leaving on the table.
Our Complete Portfolio Tune-Up: a structured review of your portfolios across 17 diagnostics for a one-time fee of $399. No ongoing commitment required.
Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
The 4% Rule is a popular benchmark for figuring out how much you can safely withdraw from a portfolio each year without running out of money over a 30-year retirement. I specialize in helping mid-career professionals retire early from the corporate world and the 4% Rule is one of the most common numbers people ask about. In this piece we’ll get into:
What it is
Where it came from
Why it’s popular
Five places where it falls short
My personal POV on the 4% rule
What is the 4% Rule?
The 4% rule says you can:
Withdraw 4% of your portfolio’s value in your first year of retirement
Adjust that initial dollar amount for inflation every year after…
While having a reasonably high probability of not running out of money over a 30-year period
For example, if you retire with a $1,000,000 portfolio, that’s $40,000 in year one, then $40,000 plus inflation in year two, and so on for the next 30 years and you’ll have a reasonable chance of not running out of money during that time period even with the market’s ups and downs.
Where did the 4% Rule come from?
The rule is credited to Bill Bengen based on a piece he published in the Journal of Financial Planning in 1994 where he looked at different withdrawal rates across multiple US stock and bond market return periods. His main conclusion found a 4% withdrawal was the highest “safe” number that held up in the vast majority of the tested time periods.
It’s simple. It’s a single number that turns the complicated question of “how much do I need to retire” into a problem that can be solved on a post-it note.
All you need to do is take your expected annual spend in retirement, divide by 4% (or multiply by 25) and you have a target portfolio size needed to support your retirement. When your portfolio reaches that number, you are theoretically ready to retire.
For example, if you anticipate spending $150,000 in your first year of retirement, the 4% rule implies you can leave the working world once your portfolio hits:
$150,000 in spend / 4% = $3,750,000target portfolio value
You don’t need a complicated spreadsheet and you don’t have to make all kinds of assumptions about future market performance.
Five places where the 4% rule falls short
Like any single number applied generically to all situations, the 4% rule is either too conservative or not “safe” enough. Researchers since the original study argue both sides with ranges between 3-5% being safe number. Here are some of the arguments across those ranges.
The 4% rule was calculated for a 30-year retirement. The original study modeled someone retiring at a traditional age and living another 30 years. If you’re aiming to retire before 50 like many of the people we work with, your retirement could easily run 40-50 years. The study doesn’t say whether the strategy fails past 30 years, it just doesn’t go that far out.
The rule assumes a steady withdrawal amount year after year. This isn’t how people budget in retirement. People adapt. They adjust their spending down in a bad market. A rigid rule that inflation-adjusts a fixed withdrawal every year doesn’t reflect how a thoughtful retiree actually behaves.
It’s based entirely on historical U.S. market returns. Past performance modeling has an obvious limitation. The next 30-50 years may not look like the time period in the original study. Modeled future returns dramatically impact what the safe number actually is. But nobody knows, because nobody can predict what the markets will do in the future. Even if your name rhymes with Barren Wuffett.
It doesn’t account for other income sources. A single 4% number ignores things like social security, passive real estate investments, or even part-time work throughout retirement. This can mean the rule is overly conservative if additional income sources will cover a portion of your spending needs.
It doesn’t solve for sequence of returns risk. A market downturn in your first few retirement years can significantly impact the success of your overall strategy.
For example, let’s say you need $100k a year and you retire with a $2.5m portfolio ($100k / 4%). The first month after you retire, the markets drop 50%. Your portfolio is now worth $1.25m. Your $100k withdrawal is now 8% of the portfolio.
The 4% Rule accounts for this somewhat by design (it was tested against periods that included bad early sequences), but it’s still the single biggest reason a “safe” withdrawal rate can turn out not to be safe for a specific person’s specific timing.
How I think about the 4% Rule
I applied the 4% rule to my own finances when I left a C-level corporate career at 38. I closely monitored and managed my expenses and resigned from my job when the value of my portfolio blew past 25x my expenses.
I have yet to find a better starting point for retirement readiness calculations than the 4% rule. But it doesn’t account for how long you’ll be retired, your mix of fixed vs. variable expenses, other income sources you have available, and what happens if the markets tank those first few years of retirement.
It’s a very blunt tool but that doesn’t mean it’s a bad starting point. The more common issues I find with people trying to retire early is that they:
Don’t have an accurate read on what their spending needs will be once they leave corporate and they often forget to include healthcare, changes in tax situation, etc.
Aren’t prepared for a huge market drawdown within the first few years of retirement
Count on assets locked in 401k or IRA accounts without a plan for accessing those funds
Reach out if you’d like a second opinion on your retirement calculations
I specialize in working with people who want to or have already retired early. I’ve developed a range of strategies over the years for analyzing and then mitigating the risks associated with blindly using the 4% Rule.
I’d be happy to to help you look over your early retirement assumptions.
If you liked this piece, you might want to check out:
Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
Yes. HSA funds can be used tax and penalty-free to pay COBRA premiums, but not marketplace health insurance premiums. That means for anyone retiring early, it’s worth looking at the numbers behind using HSA funds to pay for COBRA first, before moving on to a marketplace plan. This can protect the funds you’re using to support the first phase of your early retirement before you can fully access the rest of your accounts at 59.5. Here’s how all this works.
Health Insurance Is One of the Largest Costs in Early Retirement
Most early retirement strategies focus on overall costs and safe withdrawal rates relative to the portfolio. Healthcare is typically one of the largest components of those expenses. However, our experience is that very few early retirees accurately model healthcare expenses or even develop an approach to tackling these costs until well after they’ve left their corporate jobs. Planning out an approach before you leave your job can protect your core cashflows until full retirement benefits kick in.
The key is using your HSA as a bridge fund to pay for premiums. But it’s important to know which premiums can be paid with your HSA.
Can you use HSA funds to pay for COBRA premiums?
Yes. The IRS explicitly allows HSA funds to be withdrawn tax and penalty-free to pay COBRA premiums. This is one of the few premium types HSAs are allowed to cover before full retirement benefits. We’ll get to why this matters in a moment.
Can you Use HSA funds to pay for marketplace premiums?
No. Marketplace (ACA exchange) premiums are explicitly excluded from the list of HSA-qualified expenses. There is one exception: if you’re receiving federal or state unemployment compensation, marketplace premiums can qualify.
Outside of that exception, if you try to go straight to a marketplace plan pay for it with HSA funds, you’ll owe income tax on the withdrawal, plus a 20% penalty if you’re under 65.
How HSA-funded premiums affect early retirement
If you’re retiring before 59.5, you’re likely relying on funds in your savings, taxable brokerage, and Roth accounts in the early years. The less you need to tap into these early on, the more assets you’ll have to carry you to full retirement age where you’ll unlock the rest of your accounts (401k, IRA, etc.).
Let’s say you retire early at 45 in April.
You already made too much this year in earned income and your expected passive income to qualify for marketplace subsidies so you would have to pay full price for a plan. The plan you’re looking at is $1,850 a month without these subsidies.
Your COBRA plan also costs you $1,850 a month. You can use this plan for the next 8 months until the start of the following calendar year when you can take advantage of marketplace subsidies.
$1,850 a month * 8 months = $14,800 in premiums for the rest of the year
If you’re following the 4% safe withdrawal guidelines for typical early retirement budgeting, paying these premiums out of the accounts you’re using to support your early retirement would reduce your withdrawal rate by:
4% * $14,800 = ~$592 a year
While that’s not a huge number, every bit helps in the first stages of early retirement. The loss of that $14,800 in assets used to support your day to day living is an immediate and permanent loss of $592 in potential funds you can pull from your accounts. Ouch.
What else you need to look at
This was a simplified example to show the primary reason why an early retiree would consider COBRA over Marketplace if they have available HSA funds to utilize.
When we help clients with this decision, we look at other factors like:
How pulling funds from the HSA will reduce the tax-deferred compounding of the account. You need to weigh the tradeoffs of doing this vs. the amount of liquidity you want available to you for early retirement.
How much of a subsidy someone qualifies for and where their income will be for the calendar year
The net cost of the marketplace plans they’re considering vs. the net cost of their COBRA options
We specialize in all things early retirement. If you want help modeling out how to approach healthcare in early retirement, reach out to me at the email below.
Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
A client recently needed significant capital to buy a small business. They wanted to tap into their portfolio for some of it, but selling stock to help fund the purchase would have triggered a huge capital gains tax bill. I showed them how borrowing against the portfolio instead, using a securities-backed line of credit (SBLOC), would let them keep the full amount invested and avoid the capital gains tax hit. Here’s the math on how this works and what can go wrong.
Selling stock isn’t your only option to finance a business purchase.
There are many points in life when you need a big chunk of capital.
Buying a business is a common one. Your investment portfolio is a natural place to look for quick capital, but selling stocks can lead to significant capital gains. But a bigger problem is losing out on future gains for the portion you’ve sold.
People assume selling is the only option they really have. Most people don’t realize they can borrow against their portfolio.
Lots of people have heard about “rich people” who borrow against their assets and never incur capital gains. But they assume that’s for the multi, multi millionaires and billionaires. The option is actually more accessible than a lot of people think it is. Many large brokerages offer this to investors with portfolios as low as $500,0001.
What selling stock costs you.
Let’s do the math.
Say you need to raise $500,000.
You have stock that you can sell to finance the purchase. But $100,000 of that sale is going to be capital gains. If you’re at a 15% long-term capital gains rate, you’re paying $15,000 in taxes on the gain before any additional state taxes or NIIT.
You’ll start with $500,000 in your portfolio, but end up with only $485,000 in cash after selling so you still need another $15k to make up the difference.
What borrowing against your portfolio costs.
A Securities-Backed Line of Credit (SBLOC) lets you borrow against your portfolio without selling anything. No shares change hands, no capital gains.
So what’s the catch? The loan will cost you in the form of interest.
Let’s say the rate on the SBLOC is 7.5%2 (rates on these are variable and move with the market, so treat this as an example, not a quote you should expect).
On $500,000, that’s:
$500,000 × 7.5% = $37,500 a year in interest.
That sounds like a lot next to a $15,000 one-time tax bill. Until you account for what the gains in your portfolio because that $500,000 had stayed invested. A stock heavy portfolio generating an expected 9.0% gross return3 could result in:
$500,000 × 9.0% = $45,000 in portfolio returns.
Compare that to the $37,500 in interest, and you’re theoretically coming out about $7,500 ahead in a given year.
Here’s a table to sum up the comparison:
Option 1: Selling Stock from Your Portfolio
Option 2: Borrowing Against Your Portfolio
Capital Needed
$500,000
$500,000
– Capital Gains
($15,000)
$0
– Loan Interest
$0
($37,500)
+ Portfolio Returns
$0
+ $45,000
Net Result:
$15,000lost to capital gains
$7,500 gained between the cost of the loan the portfolio returns
That last row in that table is the punchline: borrowing lets the money in your portfolio continue to grow. Selling means it stops growing.
As long as the growth rate of your portfolio is higher than the amount you’re borrowing, you may be able to make a spread on your borrowing cost while avoiding capital gains.
One More Thing: The interest on an SBLOC loan may be deductible if you’re using the funds to buy a business.
One more point to add to the SBLOC tally. Interest on an SBLOC can be deductible, but it depends entirely on how the borrowed funds are actually used. The IRS traces loan proceeds to their use, not to the collateral behind them.
If the funds go toward acquiring a business, there’s a case for treating it as investment or business interest, subject to some limitations. But this is the kind of detail that requires you to work closely with a CPA or other licensed financial professional to ensure you have the right structure to take the deduction.
What can go wrong.
This all sounds great, right? There are some downsides you need to be aware of.
An SBLOC is typically structured as a demand loan, the lender can require you to pay it back whenever they want, not just when you miss a payment.
If the market drops and your collateral value falls with it, you can get hit with a maintenance call. Meaning you need to top up your account balance. If you can’t post more collateral, the lender sells your securities for you, at whatever price the market happens to be offering that day.
Rates are variable. Whatever interest rate you initiate your SBLOC at isn’t what it will be going forward. The SBLOC rates move with broader interest rate trends. If rates go down, then this works in your favor. But if rates go up, you’ll end up owing more on your loan.
Let’s chat.
If you’re working through how to fund a major purchase without selling pieces of a portfolio you’ve spent years building, I’d be happy to help you think through the specifics. Reach out to me at the email below.
Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
1. Each financial institution has different minimums and requirements for their SBLOC programs. Work with a licensed professional if you’re researching options. 2. This rate varies widely between different institutions and the amount you are setting aside as collateral. This is purely for illustrative purposes and not a quote you should expect. 3. Markets do not return a steady 9.0% a year. This is for illustrative purposes only. Investing involves risk, including the loss of capital. Past performance is not indicative of future returns.
If you live in Pennsylvania, you have access to one of the most generous 529 policies in the country. You get:
Up to $19,000 in state tax deductions with no income restrictions on deduction eligibility
Deductions that apply to any state’s 529 plan, not just PA
Up to $20,000/year in K-12 tuition withdrawals per beneficiary
Exemption from PA inheritance tax.
We are flat fee financial advisors based in the Philly area and help families understand how these benefits incorporate into an optimized financial plan. Let’s explore each of these in more detail.
How PA’s $19,000 state tax deduction works
If you’re a PA resident, then you get a state tax deduction for every dollar you contribute. Since PA’s state tax rate is a flat 3.07%, that means if you’ll get roughly $3.07 back in tax benefits for every $100 you contribute to a 529 plan
Many states cap their 529 deduction to just $5,000 or less per year, regardless of how much you contribute. And this is typically per married couple, not per beneficiary.
Pennsylvania’s 529 plan deductions are much more generous. PA allows up to $19,000 per contributor, per beneficiary. That means a married couple can contribute up to $38,000 per beneficiary.
How much is this worth? A married couple maxing $38,000 in contributions for a child could be getting $1,166.60 in state tax deductions ($38,000 * 3.07% state tax rate).
And because the limit applies per beneficiary, a family with three kids could really crank things up with up to $114,000 in deductible contributions in a single year.
No income restrictions on deduction eligibility
Many states have a limit on income to qualify for 529 tax deductions. If you make more than that limit, then none of your 529 contributions are eligible for this deduction. High earners in PA don’t have to worry about this. There’s no income cap to be able to take advantage of the $19,000 in deductions.
Deductions apply to any state’s 529 plan
Here’s a detail people often miss. Pennsylvania has tax parity, meaning you get the state deduction even if you use a 529 plan sponsored by a different state. You are not limited to just Pennsylvania’s own PA 529 plan.
Each state’s 529 plan investment options, online experience, and fees are different. If another state’s plan has lower fees or better investment options for your situation, you don’t lose the PA tax benefit by using it.
You can use a 529 for K-12 tuition expenses in Pennsylvania
529 plans aren’t just for college anymore. As of Jan 1, 2026, Pennsylvania allows up to $20,000 per year, per beneficiary to be withdrawn tax-free from 529 plans for qualified K-12 tuition expenses at public, private, and religious schools.
This is a meaningful planning opportunity for families already paying private school tuition directly from a checking account.
Running tuition payments through a 529 first, even briefly, can capture the state tax deduction on money you were going to spend anyway, as long as you’re following the funding-then-withdrawal sequence correctly. This means you’re effectively getting a 3.07% discount on tuition expenses you were going to pay anyway.
529 accounts are exempt from PA state inheritance taxes
PA’s state inheritance tax can run as high as 15% for non-lineal heirs.
The entire value of a 529 account is exempt from Pennsylvania inheritance tax for state residents for any beneficiary relationships.
For families thinking about multi-generational education funding such as grandparents contributing to a grandchild’s account, this is a genuinely useful, PA-specific estate planning tool, not just a college savings vehicle. You get three distinct tax advantages: the state tax deduction for the contributions going in, tax-deferred growth of those assets, and then funds being passed on without state inheritance tax.
Reach out if you’d like help with your K-12 or college education planning.
Educational funding is one of the main areas we work through with our Pennsylvania-based clients, particularly families navigating the cost of K-12 private school alongside college savings at the same time.
If you’re trying to figure out how to afford private school, sequence 529 contributions, tuition payments, and other savings goals, this is exactly the kind of decision we help clients work through and we’d love to help.
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Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
We are fee-only financial advisors who help clients roll over their 401(k) balances into IRAs. This article goes into the steps that we take when clients want us to handle the rollover for them, not a generic explainer of “how rollovers work.” Here’s the exact process, step by step, including what happens if your provider sends a check instead of a wire, how long this all takes, etc.
The Entire Process Takes About 30 Minutes of Your Time
In our experience, the anxiety around a rollover has almost nothing to do with the financial mechanics and almost everything to do with not knowing what’s about to happen to your money or how long or complicated everything will be.
Here are the key steps:
Send us your latest 401(k) statement
Set up an IRA if you don’t have one already
Call your 401(k) provider together
If your provider sends the funds directly, we’re finished
If your provider sends a check, I’ll provide an envelope for you to forward
We then let you know when the funds have been received and then invest them according to your investment strategy
The process on your end will take about 30 minutes active time in total.
Note, at this time we primarily use Schwab as our custodian so all steps will refer to how our process works with them. Let’s dive into each of the steps.
Step 1: Send us your latest 401(k) statement
We need your statement in order to:
Confirm your name and address. To avoid complications, we need to check your name and address with your 401(k) provider matches your name and address at Schwab.
Check that your funds have all vested. Some 401(k) plans have vesting periods. If you transfer funds before they are fully vested you may be leaving money on the table.
Ensure we set up the right types of accounts with Schwab. Some clients contribute to traditional, pretax 401(k) plans, others use Roth 401(k), and some have a mix of both. 401(k) funds must be sent to the corresponding IRA types.
Get the contact information of the plan provider. This will be used for when we reach out to them together in Step 3.
Step 2: Set up IRAs at Schwab if we don’t have them already
We need to make sure we have somewhere for your 401(k) funds to go. If we haven’t set up IRAs already, we will need to do this before reaching out to your 401(k) provider.
As with most our account setup processes, we streamline this for you. Our team will set up the account details with Schwab and then you will receive a DocuSign that takes no more than a minute to review and complete. Your account will be ready within 2-3 days.
Step 3: Call your 401(k) provider
While some providers allow direct 401(k) rollovers, our experience says most do not and it is often quicker and easier just to call them. Here’s what this looks like:
Call Provider Together: We need to call them together so that you can authenticate yourself as the owner of the account and authorize me to speak on your behalf. I will handle most of the conversation from here.
Confirm Direct Rollover: We will confirm with the plan provider that we are going to do a Direct Rollover into accounts held at Schwab. They will typically ask for the account numbers which I will provide.
Review Plan Details: They will typically provide you with a summary of your current plan balances, an estimate on timing to receive the funds, and other information. I’ll write all this down and can provide you the summary if you’d like.
Confirm Distribution Process: We found about half of providers will send the check directly to Schwab which requires no additional work from you. The other half will send you a check directly which then needs to be sent to Schwab. If this is the case, we will send you a stamped envelope along with a note to Schwab that provides some additional instructions to them. All you need to do when you receive the check is put it into this envelope and drop it in the mailbox.
Step 4: Confirm funds received
We will monitor your account with Schwab and let you know once they have received the funds or if there are any additional steps that require your attention. Funds typically arrive within 7-10 business days of checks being sent out.
Once the funds have been received, we will then invest them according to the investment strategy we have aligned on with you.
The fine print
This process describes how Kangpan & Co. typically handles 401(k) rollovers for clients; individual provider requirements and timelines vary.
It’s important to note that rolling over a 401(k) is not always the right choice. Some employer plans have lower costs or unique investment options (e.g., stable value funds) not available outside the plan.
Our 401k Rollover Advisory Services
We offer hands- on 401k rollover services to our wealth management clients as part of their relationship.
We also offer our 401k rollover services on a standalone, one-time fee basis for people who like managing their own investments but just want objective advice on whether a rollover makes sense and assistance with the rollover process itself.
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What is Tax-Efficient Asset Location? for an overview on how to optimize the taxes on your portfolio by splitting assets between your retirement and taxable accounts
Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
Summary: I’m a financial advisor for mid-career professionals. This post covers the most common questions I get from clients about their emergency fund needs:
What is an emergency fund?
What do high earners actually need an emergency fund for?
How to calculate your monthly burn rate
How many months of expenses should you keep on hand?
How much cash is too much? The one-year ceiling
What is an emergency fund?
Emergency funds are cash set aside for sudden, surprise costs or job losses. They act as a cushion between the financial shock event and having to take on debt or sell your long term investments to pay for these expenses.
What do high earners actually need an emergency fund for?
One of the first questions that comes up during planning discussions with high-earners is whether they have enough in their emergency fund.
In most cases, there is a sizable amount of cash and enough month to month cashflow that could cover most one-off, surprise expenses that come up over the course of a year like having to replace the water heater, an unexpected overseas trip to celebrate a friend’s 40th birthday, etc.
What an emergency fund usually needs to protect against for this group is unemployment. Fixed costs like mortgages and day-to-day living expenses like feeding a family of four are typically high and difficult to pull back quickly. And these are all supported by a job that produces the income to pay for these things.
How to calculate your monthly burn rate
Start by figuring out how much your total monthly expenses are. You should include things like:
Mortgage
Other loan and debt payments
Insurance premiums
Living expenses
Childcare
Living expenses like dinners out, birthday parties, vacations, etc. can vary month to month. You can take your past year’s credit card and checking statements and divide by 12 to get a more smoothed result.
The sum of all these is your total cost of living and it’s what you need to continue to cover if you lose a job or experience some other kind of financial setback.
How many months of expenses should you keep on hand?
Once you have your monthly living costs, you can then determine how much of a cushion you want in your emergency fund. This depends on your household’s circumstances and your family’s risk tolerance.
Here’s how I help clients think about how much they should have put aside.
Three months is the bare minimum. If anyone comes to me with less than this, you can bet it’s going to be a priority to get this built up unless there’s a really good reason not to. I use three months as the minimum because the US Bureau of Labor Statistics (BLS)1 consistently finds the median amount of time someone spends looking for work when they become unemployed is 7.9 to 11.6 weeks. In the event you lose your job and your income is impacted, you should plan on your funds being able to support your life for at least this long.
Six months if you’re more conservative or a family relying on a single income. The June 2026 BLS found the average duration of unemployment was 25.5 weeks. If you are more conservative or your household only has one income earner, then six months may be a more comfortable cushion to build towards. It doesn’t have to be all at once, but should be something you steadily work towards over the course of a year or two.
How much cash is too much? The one-year ceiling
Usually no more than one year. Past this point, you’re not really buying more safety, you’re paying for it. Even the most conservative unemployment stretches rarely run past ten to twelve months. Too much cash has real opportunity costs. According to Portfolio Visualizer2, a dollar invested in cash in Jan 1996 became a bit more than $2.03 by the end of June 2026. That same dollar invested in the US Stock Market became $20.23.
Learn More
Every number in this piece is a starting point, not a definitive answer for you. The right cushion for you depends on your job stability, your household’s needs, and what else you’ve got backing you up. If you want help figuring out your liquidity needs, feel free to reach out.
Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation. Employees and clients of Kangpan & Co. may hold positions discussed in our content. Past performance is no guarantee of future results.
1. US Bureau of Labor Statistics. June 2026 Report, Table 12: Unemployment. 2. Portfolio Visualizer Asset-Level scenario modeling for “Cash” and “US Stocks.” Gross returns only, does not include the impact of taxes or fees. January 1996 through June 2026. Data availability upon request.
Summary: Donating appreciated stock rather than cash lets you support your causes, eliminate capital gains taxes on the appreciation, and receive a deduction on the full market value. We show how a high-earning NJ couple donating $20,000 in stock with $10,000 in gains could produce $11,174 in combined tax benefits. We then discuss how to do a direct transfer to the charity or a set up a donor-advised fund.
Charitable giving doesn’t have to be limited to just cash
Donating appreciated stock directly to charity helps you avoid capital gains tax on the appreciation while receiving a tax deduction based on the market value of your assets. To donate, simply notify your broker to transfer shares to the charity’s brokerage account, or use a donor-advised fund (DAF).
Donating appreciated stock or other assets can help you support a cause you believe in, reduce capital gains taxes, and receive tax deductions for your donation.
How to quantify the expected tax savings of donating appreciated stock
We like to illustrate concepts through simple, tangible examples.
Imagine you and your spouse live in NJ and make a combined $620,000 a year. You file your taxes as Married, Filing Jointly.
Your Federal marginal income tax rate is 35%
Your State marginal income tax rate is 8.97%
Your long term capital gains rate is 20%
Because you are fortunate enough to be considered a high-earning household, you also owe an additional 3.8% NIIT on any investment income such as capital gains.
You and your spouse enjoy being an active part of the community by supporting your local charitable organizations each year with $20,000 in donations.
Let’s say you made a smart $10,000 bet on an individual stock a few years ago which has now doubled to $20,000. You’d like to sell out of this position to capture these gains. But selling out will result in more than $2,380 in capital gains taxes ($10,000 in capital gains * (20% capital gains rate + 3.8% NIIT).
$2,380 isn’t that much in the grand scheme of things for a couple making $620k a year, but it’s still something that would be better to offset than to pay out of pocket.
We believe in paying the taxes you owe, but we also like to help clients figure out how to avoid leaving an additional cash tip with the IRS – especially when those funds can be given to causes that are important to our clients.
Instead of selling out your position, you can donate your stocks instead. By donating this $20,000 of appreciated stock to a qualified organization, you can:
Support your causes and charities: You are still directly giving $20,000 to your desired charitable organizations.
Eliminate $2,380 of capital gains taxes: Qualified charitable organizations do not pay capital gains on donated stocks and securities.
Get ~$8,794 in tax deductionbenefits: If you’re itemizing your donations, you will be able to deduct the full $20,000 stock donation (i.e. inclusive of the gains) from your gross income. At a combined federal and state margin rate of 43.97%, this comes out to almost $8.8k in tax benefits.
You’ve now turned a $2,380 capital gains tax bill into an incremental $11,174 of optimized charitable impact ($2,380 saved cap gains + $8,794 tax deduction benefits).
How to donate stocksto charities
So you’re sold on the idea of donating some of your appreciated stock this year. How do you do it?
Give Directly Some organizations will allow you to donate stocks and other securities directly. Just ask the charities you support if they’ll accept these kinds of donations and what their preferred steps are.
Set up a Donor-Advised Fund (DAF) We feel one of the more flexible options is to set up a Donor-Advised Fund at a bank or brokerage firm which allows you to flexibly gift your assets to the fund whenever you’d like while keeping those funds invested within the DAF. You can then distribute your funds in the form of a check directly from the DAF whenever you want to provide your donation. Speak to a licensed advisor if you’d like to learn more about the pros and cons of using DAFs to manage your charitable giving.
Beware the fine print
You’ve made it this far and are ready to donate to your charity. Make sure you coordinate with your tax or financial advisor to get the final details right.
Holding period matters. You must have held the stock for more than one year to deduct its full fair market value. If held one year or less, your deduction is limited to your original cost basis, not the appreciated value.
Paperwork. Donations over $500 require IRS Form 8283. Larger or non-publicly-traded gifts may also require a qualified appraisal.
Deduction ceiling. Appreciated stock donations to public charities are deductible up to 30% of your adjusted gross income (20% for private foundations). Anything above that carries forward up to five years.
New 2026 floor and rate cap. Starting in 2026, the first 0.5% of your AGI in charitable giving isn’t deductible at all (a floor, not a ceiling), and for top-bracket taxpayers, deductible dollars are valued at a 35% rate rather than your actual 37% bracket rate — even though the 30%/20% ceiling above still applies. Net effect: the tax benefit shrinks somewhat, but the stock-donation strategy still beats donating cash.
Need help with your charitable giving strategies?
If you’re working through a charitable giving strategy or want to understand how tax optimization fits into your broader financial picture, feel free to reach out to me for a free consultation.
Disclosures: This content is for educational purposes only and is not investment, tax, or legal advice. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.
Kangpan & Company LLC is a Registered Investment Advisor with the state of Pennsylvania. All content on this site is for educational purposes only and should not be considered financial advice. Past performance is not indicative of future returns and all investing involves risk including the loss of capital. Individualized responses to persons in a particular state will only be made after complying with all regulatory requirements of that state. Kangpan & Company LLC is not responsible for the content of external websites linked from this site. For a full description of our services, fees, and other important information, please read our Form ADV Part 2A, which are available on the SEC’s website here.