I can't link to the imamother threads that have inspired this informational post (I've seen a few posts in the past number of months), but I do hope that it will be of service because there is clearly a lot of confusion as to how the accounts are to be utilized and hopefully my quick post will be of service. I happen to be a fan of custodial accounts, but one has to understand what a custodial account is and what the obligations of the parent is.
A very simple way to gift money to minors, as per federal statutes, and to take advantage of some tax saving strategies, is to place gifted moneyin a custodial account known more formally as Uniform Transfer to Minors Account (UTMA) or Uniform Gift to Minors Account (UGMA) depending on your state of residence.
This is a simple, nearly paperwork free, way of gifting money, but unlike a trust account, they offer less protection of the funds as the gift giver relinquishes control of the account upon maturity of the minor (i.e. your 18 or 21 year old can blow it all on clothing the day they take control). rusts offer more flexibility, protection, and control. UTMA/UGMA accounts are pure, unrestricted gifts.
A custodian of the funds is assign, normally a parent, who can direct the funds and exercises discretion regarding any withdrawals which must be used "for the use and benefit" of the child. They money should not be used for regular expenses or expenses that a parent is obligated to pay. We have custodial accounts for all of our children and have yet to actually spend any of that money. That said, if I were to make a withdrawal, my own standard would be 1) would rational and reasonable people believe that these expenses were for the child. 2) Is there a good chance my own child will see these expenditures in years to come as being for his/her benefit? Buying a textbook for a college math class my kid might take during high school: acceptable. Buying a simcha dress for an older sibling's wedding so everyone can match: unacceptable.
These accounts must be transferred to the child at the age of 18 or 21, depending on the state of residence. At that age, that money is the child's money. . . period. You must turn these accounts over and your child will receive a 1099 under their own name and be responsible for the interest, dividends, and/or capital gains on the accounts.
The money, once deposited, is non-revocable. In other words, you can't change your mind and take back the gift. Nor can you proceed to use the gift for your own purposes because you had messed up your calculations when giving the gift. Nor can you redistribute the funds from the custodial account of child A to the custodial accounts of children B, C, and D. Even if the child passes on, you do not have the discretion to redistribute the funds. The money is part of the child's estate and is distributed according to state law.
I happen to like custodial accounts for saving starter funds for children. It is a great way to save their birthday money and to gift them small amounts so they can get started when they are adults. I don't believe they are a good way to save for college, although in the past parents used them, lacking other better alternatives. A 529 offers far more control over college funds, as do Coverdell accounts. This is not the way to save for a child's wedding, although I understand people have used them as such. The adult and child's priorities may differ (perhaps for the good). I do think they are a nice way to save a bit on taxes, but that tax savings comes with risk of the entire principal and earnings. If you like control and want to exercise that control for years to come, this is not the account for you!
I hope this post will be of service to those considering custodial accounts or for those parents who have custodial accounts but simply don't understand the basics and the legalities.
Monday, August 26, 2013
Wednesday, August 14, 2013
Follow Up "Distance Your Money Can Buy You"
Queen Bee asked if I can address some specific items from the link for which my last post "Overestimating the Distance Your Money Can Buy You" and I'm happy to oblige.
She first asked me what my hunch was where this family should begin to cut back. I had mentioned that without a complete picture it is difficult to advise or even guess, especially regarding more complicated areas like the medical insurance and co-pays. That said, I do believe that many families spend more than they need to on clothing, food, and other basic commodities.
Another overlooked area, often addressed by financial columnists is childcare. Childcare is simply an overwhelming expense for families. It is well worth evaluating various types of care to see if there is a less expensive way to provide the car needed. I know families who have worked out different work schedules to make this accommodation. At $400 a week shared between two families, I have to wonder if there is not another arrangement that can provide the hours needed for less.
Utilities in old homes are expensive. A poster suggested solar. Another suggested replacing appliances with more energy efficient appliances. I will warn people that often the benefit is overblown. I'm favorable to saving up cash to pay for newer appliances. I would not start with something big like windows. The payback period is long and I think it is often overblown. I would start (cash in hand) with smaller things like moving to energy efficient lightbulbs which can be had on nearly full rebates from time to time or even replacing a washing machine. Our own washing machine, replaced about 5 years ago, has paid for itself twice over I'd estimate. The other bonus is that it holds more laundry, saving us time and physical energy. When it comes to bigger systems, yes, they can pay for themselves, but I would not jump on whatever trend is out there in hopes of saving, especially when you don't have the funds to "invest." Stick to the smaller efforts and don't underestimate old fashioned things like turning the heat down a few notches and turning off lights.
And now for the real meat of the post: queen bee asks about this advice and if it is legit.
What this amother refers to, I believe, is either converting from a regular employee to either a 1) statutory employee or 2) a contractor.
A statutory employee is a very specific type of employee and chances are you aren't one! And if you do happen to be one (Do you pick up and deliver laundry? Do you distribute beverages, but not milk? Are you a full time life insurance sales agent working primarily for a single company?), there is a good chance that the business owner's accountant has put a good amount of time into worker classification on your behalf.
The classification of contractor vs. employee depends on three main factors: Behavioral Control, Financial Control, and Relationship Type. There are fairly severe penalties for misclassification. An employer retains the right to control how work is performed. An employee is generally paid a regular, fixed wage whereas a contractor is paid by the project and is employed on an as-needed basis (for professional services, the contractor is customarily paid hourly for the project). The relationship type between an employee and a contractor is significantly different and therein lies the rub.
I tend to have a bad feeling when an employee (and even their own personal accountant perhaps) start to agitate over how they can save some tax dollars by doing this or that to their employment status. Maybe there is an advantage to being a contractor, thinks the employee who sees his businessman neighbor pull up in a leased car for business? Hey, I want to be able to write off my car lease he thinks! And I'd love to be able to write off my IPhone and data plan. And wouldn't it be great to be able to write off those wedding gifts this wedding season?
In certain instances, an employer can convert a regular employee into a contractor. Perhaps an employer even has an incentive to convert an inquiring employee into a contractor because of the onerous legal regulations for larger employers and your inquiry will be very welcome. It might be very tempting to become a contractor because contractors are often paid more for their work (often to make up for the additional employment taxes they will incur as a contractor, but also for their own investment in equipment, etc).
That said, a contractor is far different than an employee and when you become a contractor, even if it is an "arrangement" you really are a contractor and should expect to be treated as one. Understanding your new status is key.. One of the determining factors between an employee and a contractor is the intent of the relationship and its (implied) permanency.
An employee is generally someone you employ and expect to have a continuing, ongoing relationship with and an investment in. An employer has little investment in a contractor beyond the work they are contracted to do. An employer will generally expect the contractor to know it or figure it out. Continuing education: your responsibility. Professional development: your responsibility. I've had plenty of interaction with contractors (and contracted companies) and contractors are expected to perform and produce or the relationship will come under question fairly quickly. Employees are also, of course, expected to perform, but there is a different type of investment in an employee and given the closer proximity a different type of investment. An employee that maybe isn't strong in this or that area, might be moved over to a different department. An employee with some time on their hands might be asked to try something new or experimental that could prove very successful. The contractor doesn't usually have the same proximity as an employee and isn't operating in the same day-to-day work environment.
Get hurt on the job? You aren't covered by workman's comp. Get laid off? Well, you don't really lay off contractors, you just don't take them on for new projects and no, you aren't covered by unemployment insurance. Company decides to award a bonus or open up a certain benefit program like pre-tax transportation dollars? Well, you don't get benefits. Worse yet, you are an accounts payable so get in line for payment. Did the employer not like the result of your project or find a defect in the work? You might be fighting this one out in court, unpaid. Severance pay? Maternity Leave? LOL in text-speak.
I certainly would not discourage a person who has great services to offer the world to go out there and make their way b'hatzlacha. But I would not turn in an employer-employee relationship with good potential and with the many legal protections it provides-a window seat into an industry-for a seat outside the window in exchange for some deductible mileage or a home office deduction. And, by the way, many successful business owners/contractors got where they did by being employees. Don't walk from industry too early for a tax deduction alone!
Regarding the idea of registering a company that operates out of your home for the tax deduction, is that legit? Let's take a step back. A person may take certain business expenses when running a business. What is a business? In short, something that you are engaging in with the intention of turning a profit. Merely "registering a company" that operates out of your home does not a business make. If you want to take a home office deduction, you need a home office. If you want certain write offs, you need certain current profitability. You also are walking a fine line if you are finding something to call a business that could be considered a hobby and are taking losses. So, the advice gives me pause.
Decreasing taxes does not the bottom line make. Ultimately, when a person runs around with this idea and that idea to save themselves some money, they are using their energy and their time and that investment should be profitable. So the question for a family in financial distress should not be how much can I decrease my taxes, but how can I significantly improve my current situation and my long term situation? If starting a business is a viable pathway, great. If not, don't bother upshlugging the Internal Revenue Code. Look towards other investments for your time.
Lastly, queen bee asks my opinion regarding the wealthy amother's following assertion:
There is no one path to wealth except discipline. You must spend less than you earn. You must continue to spend less than you earn for many, many years on end. You must balance risk with common sense and discipline. And you must have a long term financial outlook. The amother from that thread struck me as someone with "new money." She criticized the Dave Ramsey conservatism, believing him too risk adverse. Her risk has paid off for her in the present. That doesn't eliminate the accumulated data on business failure which is a highly interesting study. Nor do we know if she could have got where she is with less risk. And, by the by, one reason why start up businesses often fail: lack of financial responsibility and awareness. So even where you take risk, you eventually need to turn the corner towards conservatism for the long term.
So that is my take, queen bee, happy you asked.
She first asked me what my hunch was where this family should begin to cut back. I had mentioned that without a complete picture it is difficult to advise or even guess, especially regarding more complicated areas like the medical insurance and co-pays. That said, I do believe that many families spend more than they need to on clothing, food, and other basic commodities.
Another overlooked area, often addressed by financial columnists is childcare. Childcare is simply an overwhelming expense for families. It is well worth evaluating various types of care to see if there is a less expensive way to provide the car needed. I know families who have worked out different work schedules to make this accommodation. At $400 a week shared between two families, I have to wonder if there is not another arrangement that can provide the hours needed for less.
Utilities in old homes are expensive. A poster suggested solar. Another suggested replacing appliances with more energy efficient appliances. I will warn people that often the benefit is overblown. I'm favorable to saving up cash to pay for newer appliances. I would not start with something big like windows. The payback period is long and I think it is often overblown. I would start (cash in hand) with smaller things like moving to energy efficient lightbulbs which can be had on nearly full rebates from time to time or even replacing a washing machine. Our own washing machine, replaced about 5 years ago, has paid for itself twice over I'd estimate. The other bonus is that it holds more laundry, saving us time and physical energy. When it comes to bigger systems, yes, they can pay for themselves, but I would not jump on whatever trend is out there in hopes of saving, especially when you don't have the funds to "invest." Stick to the smaller efforts and don't underestimate old fashioned things like turning the heat down a few notches and turning off lights.
And now for the real meat of the post: queen bee asks about this advice and if it is legit.
Another route we tried that didn't work for us but may work for you, from the advice of an accountant, is to ask your employers to make you a type of employee that is essentially self employed (I forget the name) it can be applied to certain professions like someone who sells life insurance. That allows for greater tax write offs. Or perhaps registering a company that operates out of your home, even if it makes the minimum allotted amount would give you other kind of tax write offs on your home expenses. Perhaps worth it to speak to an accountant.
A statutory employee is a very specific type of employee and chances are you aren't one! And if you do happen to be one (Do you pick up and deliver laundry? Do you distribute beverages, but not milk? Are you a full time life insurance sales agent working primarily for a single company?), there is a good chance that the business owner's accountant has put a good amount of time into worker classification on your behalf.
The classification of contractor vs. employee depends on three main factors: Behavioral Control, Financial Control, and Relationship Type. There are fairly severe penalties for misclassification. An employer retains the right to control how work is performed. An employee is generally paid a regular, fixed wage whereas a contractor is paid by the project and is employed on an as-needed basis (for professional services, the contractor is customarily paid hourly for the project). The relationship type between an employee and a contractor is significantly different and therein lies the rub.
I tend to have a bad feeling when an employee (and even their own personal accountant perhaps) start to agitate over how they can save some tax dollars by doing this or that to their employment status. Maybe there is an advantage to being a contractor, thinks the employee who sees his businessman neighbor pull up in a leased car for business? Hey, I want to be able to write off my car lease he thinks! And I'd love to be able to write off my IPhone and data plan. And wouldn't it be great to be able to write off those wedding gifts this wedding season?
In certain instances, an employer can convert a regular employee into a contractor. Perhaps an employer even has an incentive to convert an inquiring employee into a contractor because of the onerous legal regulations for larger employers and your inquiry will be very welcome. It might be very tempting to become a contractor because contractors are often paid more for their work (often to make up for the additional employment taxes they will incur as a contractor, but also for their own investment in equipment, etc).
That said, a contractor is far different than an employee and when you become a contractor, even if it is an "arrangement" you really are a contractor and should expect to be treated as one. Understanding your new status is key.. One of the determining factors between an employee and a contractor is the intent of the relationship and its (implied) permanency.
An employee is generally someone you employ and expect to have a continuing, ongoing relationship with and an investment in. An employer has little investment in a contractor beyond the work they are contracted to do. An employer will generally expect the contractor to know it or figure it out. Continuing education: your responsibility. Professional development: your responsibility. I've had plenty of interaction with contractors (and contracted companies) and contractors are expected to perform and produce or the relationship will come under question fairly quickly. Employees are also, of course, expected to perform, but there is a different type of investment in an employee and given the closer proximity a different type of investment. An employee that maybe isn't strong in this or that area, might be moved over to a different department. An employee with some time on their hands might be asked to try something new or experimental that could prove very successful. The contractor doesn't usually have the same proximity as an employee and isn't operating in the same day-to-day work environment.
Get hurt on the job? You aren't covered by workman's comp. Get laid off? Well, you don't really lay off contractors, you just don't take them on for new projects and no, you aren't covered by unemployment insurance. Company decides to award a bonus or open up a certain benefit program like pre-tax transportation dollars? Well, you don't get benefits. Worse yet, you are an accounts payable so get in line for payment. Did the employer not like the result of your project or find a defect in the work? You might be fighting this one out in court, unpaid. Severance pay? Maternity Leave? LOL in text-speak.
I certainly would not discourage a person who has great services to offer the world to go out there and make their way b'hatzlacha. But I would not turn in an employer-employee relationship with good potential and with the many legal protections it provides-a window seat into an industry-for a seat outside the window in exchange for some deductible mileage or a home office deduction. And, by the way, many successful business owners/contractors got where they did by being employees. Don't walk from industry too early for a tax deduction alone!
Regarding the idea of registering a company that operates out of your home for the tax deduction, is that legit? Let's take a step back. A person may take certain business expenses when running a business. What is a business? In short, something that you are engaging in with the intention of turning a profit. Merely "registering a company" that operates out of your home does not a business make. If you want to take a home office deduction, you need a home office. If you want certain write offs, you need certain current profitability. You also are walking a fine line if you are finding something to call a business that could be considered a hobby and are taking losses. So, the advice gives me pause.
Decreasing taxes does not the bottom line make. Ultimately, when a person runs around with this idea and that idea to save themselves some money, they are using their energy and their time and that investment should be profitable. So the question for a family in financial distress should not be how much can I decrease my taxes, but how can I significantly improve my current situation and my long term situation? If starting a business is a viable pathway, great. If not, don't bother upshlugging the Internal Revenue Code. Look towards other investments for your time.
Lastly, queen bee asks my opinion regarding the wealthy amother's following assertion:
the way to build wealth is through entrepreneurship rather than having a job, and she's a big believer in taking financial risks.
There is no one path to wealth except discipline. You must spend less than you earn. You must continue to spend less than you earn for many, many years on end. You must balance risk with common sense and discipline. And you must have a long term financial outlook. The amother from that thread struck me as someone with "new money." She criticized the Dave Ramsey conservatism, believing him too risk adverse. Her risk has paid off for her in the present. That doesn't eliminate the accumulated data on business failure which is a highly interesting study. Nor do we know if she could have got where she is with less risk. And, by the by, one reason why start up businesses often fail: lack of financial responsibility and awareness. So even where you take risk, you eventually need to turn the corner towards conservatism for the long term.
So that is my take, queen bee, happy you asked.
Monday, August 05, 2013
Overestimating The Distance Your Income Can Buy You
Every few months a thread similar to this goes up at imamother. A family has broken the 6 figure income mark (combined), feels they are making good money, and wonders what in the world is going wrong. They are living month to month, have some debt, and are not able save, and can't make heads or tails of why not.
Granted, not every stage in life is one where you will be able to get ahead. There will be times in the Circle of [Financial] Life where everything that comes in, goes out. However, I do think it is problematic if that time is when your children are not yet even elementary school age. Not to be a party pooper, but I am absolutely certain that the norm is that children get more expensive, not less. And, that is regardless of the price that can be fanagled with the future day school/yeshiva. I really should write more about the Circle of [Financial] Life because it is good to understand what the trends are in terms of increasing and decreasing expenses.
Sadly, six figures earned between two income earners, paying full time daycare (and in this instance, tremendous health care costs), is not "we both have we well-paying jobs" but rather, baruch Hashem we are employed. It is really wonderful to see people pleased with their lot, but their lot simply can't justify a $1,600 mortgage payment + associated utilities, $1,500 in monthly babysitting costs (which I always deduct from the lower income taxed at the marginal rate), car payments, $1,600 monthly mortgage, and 10% maaser (G-d bless them). And it is duly noted that these type of budgets that leave the family hand-to-mouth generally lack other costs that many (myself included) would deem fairly necessary including life insurance. This scenario is a change from what I see on the other side of the spectrum where a couple making a combined $200,000 feels the are not well-paid, feels unfortunate in their incredible lot, and also lives hand-to-mouth.
We have to be realistic about what our earning power, debt, and any amassed savings mean in terms of realistic spending for our own situation. So many people overestimate their buying power, thinking their earnings are sufficient, but they really don't have a handle on what their earnings mean both in the present and in the future. I am still of the opinion that a realistic spending plan (not including costs that are tied to a second income or are actually optional, even if seemingly socially obligated) should fit comfortably within the single, higher income. Where that is not the case, some changes should be made to accommodate the reality. Naturally, it is impossible to advise based on a post that does not even include an income breakdown or without knowing enough about the couple.
Lest anyone think that overestimating spending power is limited to people with average or slightly about average incomes, (hashgacha pratit) is the next post on imamother in the finances section. This couple has 13K left per month for savings and is trying to buy a home where they need a 400K downpayment. They are currently renting a home as they don't like their old neighborhood and their own home is overleveraged and is currently rented out. They considered a loan modification, but they can't get one (well, of course not, there is no equity and now it is rented) and she worries if they are undersaving for retirement at 2K per month (yes if you are double income with a 2 million dollar home!). Goodness, my head is spinning. If you have 13K a month left over after paying your expenses, you are in a fantastic position, but there is a lot to consider. My own rule of thumb is that your mortgage payment should be easy to support at the income level you can expect over a lifetime. When buying an insanely expensive home, your home, by definition, is generally not a liquid asset in the least. It also will not generally increase in value over time, leaving you with equity, as a more average home. These are just the facts on the ground. You must be able to pay the mortgage payment easily with the income you can easily expect not just today, but tomorrow. Most high paid athletes eventually blow out their knee, and I believe people who hit the jackpot wealth wise will often blow out their figurative knee so to speak eventually. If you are in the financial sector, you also need to consider that overleveraging yourself endangers your own career and your earning ability.
I have no real problem with wealthy people buying very pricey homes, but I do think they are better off paid for or mostly paid for. Start smaller and trade up, rolling the savings along the way and the proceeds into the next property. Or, if you choose a massive mortgage, have a lot of that in cash to tide you over in a rought spot. If you are talking about saving for the downpayment on that type of home while renting yourself (and renting out an overleveraged property), you just aren't there yet. With $156,000 to play with annually, you can get there. . . but come back in 10 years!
Well, now we've seen that you can be both very average and have quite tremendous earning power and be out of touch with the distance your income can buy you.
(Typing fast, please excuse any errors. I can make corrections later).
Granted, not every stage in life is one where you will be able to get ahead. There will be times in the Circle of [Financial] Life where everything that comes in, goes out. However, I do think it is problematic if that time is when your children are not yet even elementary school age. Not to be a party pooper, but I am absolutely certain that the norm is that children get more expensive, not less. And, that is regardless of the price that can be fanagled with the future day school/yeshiva. I really should write more about the Circle of [Financial] Life because it is good to understand what the trends are in terms of increasing and decreasing expenses.
Sadly, six figures earned between two income earners, paying full time daycare (and in this instance, tremendous health care costs), is not "we both have we well-paying jobs" but rather, baruch Hashem we are employed. It is really wonderful to see people pleased with their lot, but their lot simply can't justify a $1,600 mortgage payment + associated utilities, $1,500 in monthly babysitting costs (which I always deduct from the lower income taxed at the marginal rate), car payments, $1,600 monthly mortgage, and 10% maaser (G-d bless them). And it is duly noted that these type of budgets that leave the family hand-to-mouth generally lack other costs that many (myself included) would deem fairly necessary including life insurance. This scenario is a change from what I see on the other side of the spectrum where a couple making a combined $200,000 feels the are not well-paid, feels unfortunate in their incredible lot, and also lives hand-to-mouth.
We have to be realistic about what our earning power, debt, and any amassed savings mean in terms of realistic spending for our own situation. So many people overestimate their buying power, thinking their earnings are sufficient, but they really don't have a handle on what their earnings mean both in the present and in the future. I am still of the opinion that a realistic spending plan (not including costs that are tied to a second income or are actually optional, even if seemingly socially obligated) should fit comfortably within the single, higher income. Where that is not the case, some changes should be made to accommodate the reality. Naturally, it is impossible to advise based on a post that does not even include an income breakdown or without knowing enough about the couple.
Lest anyone think that overestimating spending power is limited to people with average or slightly about average incomes, (hashgacha pratit) is the next post on imamother in the finances section. This couple has 13K left per month for savings and is trying to buy a home where they need a 400K downpayment. They are currently renting a home as they don't like their old neighborhood and their own home is overleveraged and is currently rented out. They considered a loan modification, but they can't get one (well, of course not, there is no equity and now it is rented) and she worries if they are undersaving for retirement at 2K per month (yes if you are double income with a 2 million dollar home!). Goodness, my head is spinning. If you have 13K a month left over after paying your expenses, you are in a fantastic position, but there is a lot to consider. My own rule of thumb is that your mortgage payment should be easy to support at the income level you can expect over a lifetime. When buying an insanely expensive home, your home, by definition, is generally not a liquid asset in the least. It also will not generally increase in value over time, leaving you with equity, as a more average home. These are just the facts on the ground. You must be able to pay the mortgage payment easily with the income you can easily expect not just today, but tomorrow. Most high paid athletes eventually blow out their knee, and I believe people who hit the jackpot wealth wise will often blow out their figurative knee so to speak eventually. If you are in the financial sector, you also need to consider that overleveraging yourself endangers your own career and your earning ability.
I have no real problem with wealthy people buying very pricey homes, but I do think they are better off paid for or mostly paid for. Start smaller and trade up, rolling the savings along the way and the proceeds into the next property. Or, if you choose a massive mortgage, have a lot of that in cash to tide you over in a rought spot. If you are talking about saving for the downpayment on that type of home while renting yourself (and renting out an overleveraged property), you just aren't there yet. With $156,000 to play with annually, you can get there. . . but come back in 10 years!
Well, now we've seen that you can be both very average and have quite tremendous earning power and be out of touch with the distance your income can buy you.
(Typing fast, please excuse any errors. I can make corrections later).
Why Mainstream?
I caught a story from VIN news regarding a Yeshiva that opened illegally and is trying to make it right. While the commentators hash out the issue of opening without permits, I will leave that issue alone. I'm a t crosser and an i dotter. The culture of just doing without getting all the ducks in order is foreign to my way of thinking.
However, I have to say that I absolutely loved what I saw on the posted video (it is in Yiddish, but you should get the gist regardless). These boys are learning in a different format, but they are also taking care of their yeshiva and each other through gardening, cooking, vocational projects, sports, and more. When it comes to modern, conventional (aka traditional) education, it is fairly clear from most of what I've read, that education is built for girls, not boys. When I see a school with kids out doing with their hands and with their bodies, in addition to book learning, as a parent of boys, I'm intrigued and inspired myself. How nice it is to see boys taking care of their environment, taking responsibility for food preparation, lawn mowing, gardening, etc, etc.
And yet, the goal remains to "mainstream" these boys as evidenced in the VIN article: "Berko estimates that the yeshiva has an 85 percent success rate. Almost 100 students have gone on to mainstream yeshiva." Personally, I'd consider it more of a success if the "mainstreaming" were in the opposite direction, i.e. watching "mainstream" yeshivot adopting some of the practices seen on the video!
However, I have to say that I absolutely loved what I saw on the posted video (it is in Yiddish, but you should get the gist regardless). These boys are learning in a different format, but they are also taking care of their yeshiva and each other through gardening, cooking, vocational projects, sports, and more. When it comes to modern, conventional (aka traditional) education, it is fairly clear from most of what I've read, that education is built for girls, not boys. When I see a school with kids out doing with their hands and with their bodies, in addition to book learning, as a parent of boys, I'm intrigued and inspired myself. How nice it is to see boys taking care of their environment, taking responsibility for food preparation, lawn mowing, gardening, etc, etc.
And yet, the goal remains to "mainstream" these boys as evidenced in the VIN article: "Berko estimates that the yeshiva has an 85 percent success rate. Almost 100 students have gone on to mainstream yeshiva." Personally, I'd consider it more of a success if the "mainstreaming" were in the opposite direction, i.e. watching "mainstream" yeshivot adopting some of the practices seen on the video!
Thursday, July 11, 2013
What's in it for the "Girls?"
*Shadchan quote: "She is a great girl, with a stable job, and a lot of life experience."
*Shadchan quote: "She is much more grounded and prepared for marriage."
*Bochur/later in the video Married Man quote: "Her maturity brought so much to our marriage" (emphasis mine)
Where couples meet as peers, perhaps age is 'just a number', although historical patterns show that woman have always gravitated to older men and there are studies that show marriage is more stable with some age gaps than others. I do believe that where couples meet younger [in the course of living their lives], the age gap is generally much closer. After all, how many seniors are interested in freshman?
Unlike a meeting by chance on an internship or in a chem lab, in shidduchim, meeting is not by chance, but by design and normally a shidduch date is set up after interested parties have decided the other person has something to offer. NASI is trying to re-design the desirable, and puts forward a 'utilitarian' case as to why young men should consider those who are older than them (6 entire months!!). But, pray tell, do these young men offer to the "mature" young ladies with "stable jobs"?
And, is this really the type of marketing needed to expand people's horizons regarding "acceptable" dating?
Your (3-weeks-appropriate) thoughts?
Thursday, June 27, 2013
Stop Kvetching and Seize the Opportunity
I believe I have routinely expressed my opinion that kvetching about how expensive living an Orthodox is highly detrimental. I believe it was none other than Rav Moshe Feinstein zt"l who said that the phrase "it's hard to be a Jew" killed an entire generation. I think that assigning regular costs to "Orthodoxy" is similarly damaging.
This isn't to say that we can ignore the elephant in the living room known as tuition because tuition affordability must be at the top of out communal agenda, but with the exception of tuition, the Orthodox affordability factor really should not be a cause for great heartache as it is with this young married wife who writes a column in the Forward: The Cost of Being Orthodox which could be more accurately titled Young, Sheltered, Married with a Single Income, and Financially Ignorant.
I'm not criticizing the author for being financially ignorant. Most Americans are similarly clueless. What saddens me is that she believes Orthodoxy is a cause of her financial woes (which it really is not at this point!), completely ignoring the fact that much of her woes come from cultural factors which are not "Orthodoxy" but just poor financial chinuch.
The column starts: "As an Orthodox couple, we have even more financial expenditures than the average couple." This is where she bemoans the cost of kosher food and the cost of making Shabbat which is like "Thanksgiving every week." [Note to any new readers: with the exception of meat and cheese, most the regular non-trief foods on the market are either inherently kosher -- think rice and beans or fresh produce-- or have a kosher certification already -- yogurt, cottage cheese, pasta, tuna, crackers, canned tomato products]. She also addresses the cost of clothing, particularly hats to which I respond that spending too much on consumer goods is a common mistake and just slow down and get some good advice from savvy shoppers. None of this needs to put you in the poor house.
The second paragraph reveals the real issue: the author was allowed to live in a fantasy land where necessities were provided via the route of Daddy's credit card and her own earners were transformed into 100% disposable income: "My parents supported me all through college, something that, while incredibly generous, was also guilt-inducing. I never had a set allowance, but was handed a credit card when I was old enough to drive places on my own. I could buy groceries or reasonably-priced clothing for myself, but other luxuries --Broadway shows or trips to Europe or Israel--I paid for with money from my summer jobs."
Parents, don't make the mistake of letting your children's income be 100% disposable. If they are living with you and earning money, require them to save for their future. If they are in college and you are supporting them, consider the allowance route where they have to buy necessities first and budget the remainder for fun and extras. Make sure that they don't marry without some unsolicited advice about budgeting, shopping, etc. I am still of the belief that how a young person spends and saves when they are young sets the stage for their future financial life. I hope this couple quickly realizes that they have great opportunity in their Orthodoxy (more community and great gemilut chassadim means a lot of sharing and available advice, no "need" to spend on Saturday entertainment, no pressure to join friends at this wine tasting and that restaurant, etc, etc, etc).
Stop kvetching and seize the opportunity!
This isn't to say that we can ignore the elephant in the living room known as tuition because tuition affordability must be at the top of out communal agenda, but with the exception of tuition, the Orthodox affordability factor really should not be a cause for great heartache as it is with this young married wife who writes a column in the Forward: The Cost of Being Orthodox which could be more accurately titled Young, Sheltered, Married with a Single Income, and Financially Ignorant.
I'm not criticizing the author for being financially ignorant. Most Americans are similarly clueless. What saddens me is that she believes Orthodoxy is a cause of her financial woes (which it really is not at this point!), completely ignoring the fact that much of her woes come from cultural factors which are not "Orthodoxy" but just poor financial chinuch.
The column starts: "As an Orthodox couple, we have even more financial expenditures than the average couple." This is where she bemoans the cost of kosher food and the cost of making Shabbat which is like "Thanksgiving every week." [Note to any new readers: with the exception of meat and cheese, most the regular non-trief foods on the market are either inherently kosher -- think rice and beans or fresh produce-- or have a kosher certification already -- yogurt, cottage cheese, pasta, tuna, crackers, canned tomato products]. She also addresses the cost of clothing, particularly hats to which I respond that spending too much on consumer goods is a common mistake and just slow down and get some good advice from savvy shoppers. None of this needs to put you in the poor house.
The second paragraph reveals the real issue: the author was allowed to live in a fantasy land where necessities were provided via the route of Daddy's credit card and her own earners were transformed into 100% disposable income: "My parents supported me all through college, something that, while incredibly generous, was also guilt-inducing. I never had a set allowance, but was handed a credit card when I was old enough to drive places on my own. I could buy groceries or reasonably-priced clothing for myself, but other luxuries --Broadway shows or trips to Europe or Israel--I paid for with money from my summer jobs."
Parents, don't make the mistake of letting your children's income be 100% disposable. If they are living with you and earning money, require them to save for their future. If they are in college and you are supporting them, consider the allowance route where they have to buy necessities first and budget the remainder for fun and extras. Make sure that they don't marry without some unsolicited advice about budgeting, shopping, etc. I am still of the belief that how a young person spends and saves when they are young sets the stage for their future financial life. I hope this couple quickly realizes that they have great opportunity in their Orthodoxy (more community and great gemilut chassadim means a lot of sharing and available advice, no "need" to spend on Saturday entertainment, no pressure to join friends at this wine tasting and that restaurant, etc, etc, etc).
Stop kvetching and seize the opportunity!
Saturday, June 15, 2013
Hard to Believe this Needs a PSA
Sunday, June 02, 2013
Those with Less Need to Pay More
In my last post I examined the idea of [day school tuition paying] "middle-class" tuition capping and received some great comments regarding the applicability, the elasticity of the market, the complications of capping tuition or offering abatement in regards to having a strict cutoff where the stronger earner ends up with a disincentive. Personally I don't think that abatement programs or tuition capping programs can be explored before expanding the budget via cost cutting and revenue creating programs.
In all the time I've been blogging, I've read about grand plans to court the wealthiest among us to fund "the system.". Personally I'm convinced the wealthiest are mostly mythical characters. But, it sure feels good to believe that they are out there, awaiting their opportunity to save us from ourselves. I've also read commentary, much of with which I agree, regarding the spending habits of the community, implying that there is more money out there for tuition. I completely agree that our spending as a whole is out of control. I don't think that it necessarily follows that there would be "extra" money for tuition given that so many families are underfunded in the savings department and carry debt loads. I've read plenty of commentary that grandparents aren't doing their part and that funding schooling should be a lifetime endeavor. I think those with this war chant are ignoring the great contributions that so many grandparents are making to their children and grandchildren both directly and indirectly. Perhaps the direct support isn't going to the schools in the form of a check, but money is fungible as we all know. And the indirect support is harder to value, but when bubbe runs carpool and zaide is the emergency babysitter, please don't tell me that grandparents are recalcitrant. When I'm in the pharmacy or the grocery store mid-afternoon, I'm running into bubbe with the grandkids. And you can't ignore the fact that bubbe and zaide are the funders of other community functions and institutions. Schools aren't the only function out there!
The demographic that never seems to get guilt tripped by article-writing problem solvers is those "with the least!" As a commentator mentioned in the last post, "you can't squeeze water from a stone." Basically, we continue to assume that this demographic is basically helpless or "tapped out" and they are not addressed in a serious way. Given the fact that so many young people are delayed in gaining financial independent and that we generally push marriage regardless of the ability to support a family, this is a growing population and simply cannot be ignored. I think this population is the one that actually needs addressed most urgently and I believe that addressing this population through various means (creating an anti-debt culture, financial education for all demographics but especially for young people so that they don't make major mistakes early on that are so hard to recover from, institute some serious minimum tuitions to phase in over the next decade, bring down the community standard in so many areas, putting the financial ability to support a family back the top of the shidduch questionnaire) can only strengthen the financial resolve of this demographic as well as help schools in the long run.
I'm going to stop this post right here so I can get back to my most urgent duty in life--making more money to keep paying my increasing tuition :) --and just leave you with a few thoughts: 1) this population is far larger than many people imagine and 2) addressing this population isn't an effort for naught as many people and Rabbonim I've spoken to seem believe.
In all the time I've been blogging, I've read about grand plans to court the wealthiest among us to fund "the system.". Personally I'm convinced the wealthiest are mostly mythical characters. But, it sure feels good to believe that they are out there, awaiting their opportunity to save us from ourselves. I've also read commentary, much of with which I agree, regarding the spending habits of the community, implying that there is more money out there for tuition. I completely agree that our spending as a whole is out of control. I don't think that it necessarily follows that there would be "extra" money for tuition given that so many families are underfunded in the savings department and carry debt loads. I've read plenty of commentary that grandparents aren't doing their part and that funding schooling should be a lifetime endeavor. I think those with this war chant are ignoring the great contributions that so many grandparents are making to their children and grandchildren both directly and indirectly. Perhaps the direct support isn't going to the schools in the form of a check, but money is fungible as we all know. And the indirect support is harder to value, but when bubbe runs carpool and zaide is the emergency babysitter, please don't tell me that grandparents are recalcitrant. When I'm in the pharmacy or the grocery store mid-afternoon, I'm running into bubbe with the grandkids. And you can't ignore the fact that bubbe and zaide are the funders of other community functions and institutions. Schools aren't the only function out there!
The demographic that never seems to get guilt tripped by article-writing problem solvers is those "with the least!" As a commentator mentioned in the last post, "you can't squeeze water from a stone." Basically, we continue to assume that this demographic is basically helpless or "tapped out" and they are not addressed in a serious way. Given the fact that so many young people are delayed in gaining financial independent and that we generally push marriage regardless of the ability to support a family, this is a growing population and simply cannot be ignored. I think this population is the one that actually needs addressed most urgently and I believe that addressing this population through various means (creating an anti-debt culture, financial education for all demographics but especially for young people so that they don't make major mistakes early on that are so hard to recover from, institute some serious minimum tuitions to phase in over the next decade, bring down the community standard in so many areas, putting the financial ability to support a family back the top of the shidduch questionnaire) can only strengthen the financial resolve of this demographic as well as help schools in the long run.
I'm going to stop this post right here so I can get back to my most urgent duty in life--making more money to keep paying my increasing tuition :) --and just leave you with a few thoughts: 1) this population is far larger than many people imagine and 2) addressing this population isn't an effort for naught as many people and Rabbonim I've spoken to seem believe.
Wednesday, May 22, 2013
But Exactly Who Will Pay the Bills?
Source: Putting a Cap on Day School Tuitions
The newest Avi Chai day school affordability proposal for "middle class" yeshiva/day school families, i.e. families in the top 10% of American earners, is to cap tuition as a percentage of income and require less paperwork and income verification. The idea stems from a pilot program at a Solomon Schechter school. Certainly for the yeshiva family paying far more and breaking their backs to do so, such a proposal sounds like a welcome proposal. I'm not so sure this has the potential to lay out well in Orthodox Schools with a preference for larger families and a day-school-or-bust mentality.
But I have to wonder, where is the created budget shortfall to come from? After all, someone has to pay the bills and the basic current operating policy for Orthodox schools (even articulated at points in this long "discussion") is to continue raising tuition annually because someone will pay. Some families will find additional jobs or income sources. Some families will seek gifts from grandparents. Other families will curtail savings. Other families will refinance the house. Other families will dip into savings. Other families might turn to credit cards. The families that can make it work, do, and the schools continue with the annual raises because it works for them to an extent. Therefore, we see tuition going up and up, but families that are already on tuition assistance generally are not expected to pay additional monies as tuition increases and number of children enrolled increases.
I simply can't see how extending this method of operation to families that are "making it work" is sound financial policy barring other ideas that raise tuition on families who are not "middle class". The articles makes mention that a policy would result in "modestly" lower tuition in the short term, but the supports believe that this will be made up for in the long term (for schools with empty seats) through two means:
1. Retaining larger families.
2. Spurring enrollment of new families.
I certainly agree that a tuition cap of 15% of income will help retain larger families in the system. In fact, I'd argue that such a policy might even spur a "baby boom" (perhaps even fueling the fire of the age-gap people, oy vey!). If the 3rd child for the $200,000 family in the given example is free, why not enroll 4 children? While I think it would be nice to see the families with 2 and 3 children who have imposed their own cap, have more children where desired, I don't see where tuition will increase in the long term here. Perhaps someone can explain it to me? The larger families aren't generally the full payers, rather the 2-3 kid families are the full payers and the ones to absorb the annual increases. Perhaps I'm unaware of a new trend of larger families leaving day schools and yeshivot? Maybe while my blog was in hiatus there was a mass exodus?
I imagine that those who believe in this policy really are putting their bets on #2: spurring enrollment and filling "empty seats." I'm not sure there is a consistent definition of an empty seats and my understanding from teachers and administrators is that not ever "empty" seat is equal. In other words, an empty seat can be filled by a fantastic student whose only cost is another desk while at the same time another few students can tax the staff enough that the school fills the need to hire more staff. Perhaps there are more potential families from the "middle class" payers and I grossly underestimate, but I'm doubtful. Of those who are a natural fit for day school, but are not enrolled in day schools, is the decision financial or based on other factors? Where it is based on other factors, what are those other factors and will a changed tuition structure for the "middle class" bring them back?
Let's hear from you my dear readers.
The newest Avi Chai day school affordability proposal for "middle class" yeshiva/day school families, i.e. families in the top 10% of American earners, is to cap tuition as a percentage of income and require less paperwork and income verification. The idea stems from a pilot program at a Solomon Schechter school. Certainly for the yeshiva family paying far more and breaking their backs to do so, such a proposal sounds like a welcome proposal. I'm not so sure this has the potential to lay out well in Orthodox Schools with a preference for larger families and a day-school-or-bust mentality.
But I have to wonder, where is the created budget shortfall to come from? After all, someone has to pay the bills and the basic current operating policy for Orthodox schools (even articulated at points in this long "discussion") is to continue raising tuition annually because someone will pay. Some families will find additional jobs or income sources. Some families will seek gifts from grandparents. Other families will curtail savings. Other families will refinance the house. Other families will dip into savings. Other families might turn to credit cards. The families that can make it work, do, and the schools continue with the annual raises because it works for them to an extent. Therefore, we see tuition going up and up, but families that are already on tuition assistance generally are not expected to pay additional monies as tuition increases and number of children enrolled increases.
I simply can't see how extending this method of operation to families that are "making it work" is sound financial policy barring other ideas that raise tuition on families who are not "middle class". The articles makes mention that a policy would result in "modestly" lower tuition in the short term, but the supports believe that this will be made up for in the long term (for schools with empty seats) through two means:
1. Retaining larger families.
2. Spurring enrollment of new families.
I certainly agree that a tuition cap of 15% of income will help retain larger families in the system. In fact, I'd argue that such a policy might even spur a "baby boom" (perhaps even fueling the fire of the age-gap people, oy vey!). If the 3rd child for the $200,000 family in the given example is free, why not enroll 4 children? While I think it would be nice to see the families with 2 and 3 children who have imposed their own cap, have more children where desired, I don't see where tuition will increase in the long term here. Perhaps someone can explain it to me? The larger families aren't generally the full payers, rather the 2-3 kid families are the full payers and the ones to absorb the annual increases. Perhaps I'm unaware of a new trend of larger families leaving day schools and yeshivot? Maybe while my blog was in hiatus there was a mass exodus?
I imagine that those who believe in this policy really are putting their bets on #2: spurring enrollment and filling "empty seats." I'm not sure there is a consistent definition of an empty seats and my understanding from teachers and administrators is that not ever "empty" seat is equal. In other words, an empty seat can be filled by a fantastic student whose only cost is another desk while at the same time another few students can tax the staff enough that the school fills the need to hire more staff. Perhaps there are more potential families from the "middle class" payers and I grossly underestimate, but I'm doubtful. Of those who are a natural fit for day school, but are not enrolled in day schools, is the decision financial or based on other factors? Where it is based on other factors, what are those other factors and will a changed tuition structure for the "middle class" bring them back?
Let's hear from you my dear readers.
Tuesday, May 21, 2013
Kollel Stipends and Taxability
UPDATE: I found an article on kollel pay in Hamodia from 2010 posted at NCYI's website which looks at the same issues, draws basically the same conclusions except that it also looks at scenario #1 from the perspective of the school and admits the risk. It looks more from the perspective of what the school should do, although the problem is that the institutions don't always provide the guidance leaving the receipent wondering just what to do with the pay which is where my brief piece came in). Of course, none of this should be considered tax advice and all should consult their own people.
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An interesting subject came up on imamother and it is clearly the subject of much confusion, so I thought I would give my educated take on tax treatment of kollel stipends [updated: where the checks came and no 1099 or W-2 was provided and the recipient of the stipend is wondering what they need to consider next].. Personally I think it much behooves the schools themselves to treat these payments with more formality in order to clear up confusion as I have heard all of the following scenarios when it comes to the treatment of kollel stipends:
1. They simply aren't claimed as income.
2. They are treated as self-employment income.
3. They are treated as a fellowship/scholarship.
4. They are treated as parsonage.
With the exception of #1, the other scenarios could qualify as proper treatment. Scenario #1 is highly problematic especially if the taxpayer claims welfare credits on their 1040.
Scenario #3 is probably the most favorable under normal circumstances. Here the taxable portion of the stipend is subject to federal tax, but not employment taxes. Included in income is the portion of the stipend that was not used to pay for required course tuition, fees, equipment, and materials. The hitch however is that the academic institution need to be a college of sorts: maintaining regular staff, curriculum, awarding degrees and the recipient must be a degree candidate. Night kollelim that are connected to synagogues or community kollels normally would not qualify while recognized kollelim could where the recipient is a degree candidate. One difficulty is that many yeshivot really don't have a straight forward degree program making it challenging to figure out if the student is a degree candidate even where the institution itself awards semicha and other degrees.
A commentor at imamother mentioned that the if a recipient has certain duties the income is parsonage. I disagree with the interpretation because a recipient of a stipend cannot, unilaterally, declare something to be parsonage. Certainly a religious institution can pay parsonage, however, the parsonage can only be paid to someone who qualifies to receive parsonage and parsonage must be declared as parsonage in advance of payment of parsonage. Absent these qualifications and absent the ability to treat the stipend as a fellowship or scholarship, the logical default is self-employment income which, under normal circumstances, would be the least favorable tax treatment, but in the case of low income and a few kids could potentially be the most favorable tax status.
However, if the institution is not a college and the taxpayer is non-Rabbinic but is being required to maintain certain hours and responsibilities, the candidate can report the income as income and file a form declaring that the institution never provided him with a W-2. However, this is probably the quickest way to lose one's stipend.
Personally I'd encourage the institutions to make the determination of tax treatment for each kollel member based on appropriate (and highly consistent) factors and eliminate confusion.
--------------------------------------------------------------------------------
An interesting subject came up on imamother and it is clearly the subject of much confusion, so I thought I would give my educated take on tax treatment of kollel stipends [updated: where the checks came and no 1099 or W-2 was provided and the recipient of the stipend is wondering what they need to consider next].. Personally I think it much behooves the schools themselves to treat these payments with more formality in order to clear up confusion as I have heard all of the following scenarios when it comes to the treatment of kollel stipends:
1. They simply aren't claimed as income.
2. They are treated as self-employment income.
3. They are treated as a fellowship/scholarship.
4. They are treated as parsonage.
With the exception of #1, the other scenarios could qualify as proper treatment. Scenario #1 is highly problematic especially if the taxpayer claims welfare credits on their 1040.
Scenario #3 is probably the most favorable under normal circumstances. Here the taxable portion of the stipend is subject to federal tax, but not employment taxes. Included in income is the portion of the stipend that was not used to pay for required course tuition, fees, equipment, and materials. The hitch however is that the academic institution need to be a college of sorts: maintaining regular staff, curriculum, awarding degrees and the recipient must be a degree candidate. Night kollelim that are connected to synagogues or community kollels normally would not qualify while recognized kollelim could where the recipient is a degree candidate. One difficulty is that many yeshivot really don't have a straight forward degree program making it challenging to figure out if the student is a degree candidate even where the institution itself awards semicha and other degrees.
A commentor at imamother mentioned that the if a recipient has certain duties the income is parsonage. I disagree with the interpretation because a recipient of a stipend cannot, unilaterally, declare something to be parsonage. Certainly a religious institution can pay parsonage, however, the parsonage can only be paid to someone who qualifies to receive parsonage and parsonage must be declared as parsonage in advance of payment of parsonage. Absent these qualifications and absent the ability to treat the stipend as a fellowship or scholarship, the logical default is self-employment income which, under normal circumstances, would be the least favorable tax treatment, but in the case of low income and a few kids could potentially be the most favorable tax status.
However, if the institution is not a college and the taxpayer is non-Rabbinic but is being required to maintain certain hours and responsibilities, the candidate can report the income as income and file a form declaring that the institution never provided him with a W-2. However, this is probably the quickest way to lose one's stipend.
Personally I'd encourage the institutions to make the determination of tax treatment for each kollel member based on appropriate (and highly consistent) factors and eliminate confusion.
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