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Invite loved ones to contribute to your 529 plan

In a past blog we talked about how to make a withdrawal from your 529 plan, if you missed it, check it out 

. You definitely want to read the info in that blog BEFORE submitting a withdrawal distribution to make sure you withdraw the right amount to avoid penalty.

Today we're tackling the next (and probably most dreaded) step of your educational savings journey-- figuring out if and how you need to report your 529 distribution on your tax return.

The good news is, if you're paying your educational institution directly from your 529 plan, and you withdrew exactly the amount you need for any additional qualified expenses, you should be in the clear and you won't need to report anything on your tax return. Woohoo!

If you have scholarships and tax-credits to consider, or spent the funds on non-qualified expenses, you might need to do a little math to make sure there are no taxes owed. Fear not, despite all the tedious form names and acronyms, it's actually pretty simple, but there are some rules to keep in mind.

When you withdraw a distribution of funds from your 529, the recipient of the distribution (best practice is that this is the beneficiary) will be issued with a Form 1099-Q by your 529 plan administrator. This form lists the total distributions from your 529 plan for the tax year, this includes funds that were spent on non-qualified expenses (if any).

On the form there are typically 3 sections, showing the total distribution, the earnings portion of that distribution, and the principal (your initial contributions) portion of the distribution. If you spent the money on a non-qualified expense, your taxes and 10% penalty will be only applied to the earnings portion of your distribution.

Form 1098-T is issued by a college or eligible educational institution and it lists the dollar amount paid for tuition, fees and course materials required for enrollment. This form is used to determine the eligibility for various tax credits and also serves as proof that the funds from your 529 plan were spent on eligible expenses.

 that Form 1098-T does not list - like room and board, computers and internet access, apprenticeship programs, student loan payments, or K-12 tuition - you will need to ensure you keep your receipts and calculate your total eligible spend for the tax year by adding these expenses to those listed on Form 1098-T.

If the 529 funds are used on non-qualified expenses, the earnings portion of the distribution will be subject to tax (as with regular investments) plus a 10% penalty.

Calculating your Adjusted Qualified Educational Expenses

Now that you have all your expenses and receipts organized, if you haven't already, now it's time to calculate your Adjusted Qualified Educational Expenses (AQEE). Ideally you'd want to calculate this prior to making a withdrawal to ensure you don't withdraw more funds than you need.

If the parent (or account owner) qualifies for American Opportunity Tax Credit (

), or if the child (or beneficiary) receives a tax-free scholarship, Veterans assistance, or any other tax-free educational assistance, don't forget to take this into consideration when calculating your eligible expenses. 

As with pico de gallo at a barbecue, double dipping into tax-free benefits is a big no-no.

 Subtract any tax-free assistance you might have (this includes tax-free scholarships, veteran's assistance, and educational assistance through a qualifying employer program).

 Subtract any expenses used to generate your AOTC or LLTC if you're claiming them.

Using the numbers below as an example, you can see how this person could withdraw $4,000 tax-free:

This year's qualified expenses total $10,000

 Your child won a $2,000 tax-free scholarship

 Don't forget to account for any refunds you might get from the school. If the student changes a course, or drops a class after tuition is paid, and it results in a refund from the school, you need to re-contribute that refund back into the 529 plan within 60 days to avoid taxation and penalty.

If you use the funds on non-qualified expenses, or if you didn't calculate your AQEE before requesting your withdrawal distribution and you accidentally withdrew more funds than calculated in your AQEE, the earnings portion on the amount of excess funds you withdrew will be subject to income tax and the 10% penalty.

While the earnings of all non-qualified withdrawals are subject to tax (as with any regular investment), there are instances where you won't be subject to the 10% penalty. This includes scholarships, attending a U.S. Military Academy, tax-free educational assistance, receipt of education tax credits, the return of excess funds that were previously withdrawn in error, death or disability.

Do You Need to Report Your 529 Distribution?

If you withdrew an amount equal to or less than your AQEE and you used the funds on qualified educational expenses, you won't have to report anything. High five!

Keep those receipts and all financial records in case you get audited by the IRS, but at this stage, you don't need to provide any proof of qualified expenses, or report your 529 distribution on your tax return.

 we mentioned it's always best to have distributions paid directly to the educational institution or to the beneficiary? This helps you to avoid the hassle that comes with an automated computer matching issue that can happen if the account owner receives the distribution.

If your 529 withdrawal is distributed to the account owner, you will need to check a box on Form 1099-Q that states that the recipient of the distribution was not the beneficiary of the plan. If this box is checked, there have been cases where IRS computers will automatically send out a deficiency notice. Correcting this will involve a lot of paperwork and headaches.

Calculating What Needs to be Reported on your Federal Tax Return

You only need to report the earnings portion of a taxable 529 distribution on your tax returns.

 This means, only the earnings portion of funds that were withdrawn in excess, or used on non-qualified expenses.

 Divide your AQEE by the total 529 distribution you withdrew. (You can find this distribution amount on Form 1099-Q in Box 1.)

 Multiply your answer by the earnings portion of the total distribution. (You can find this earnings amount on Form 1099-Q in Box 2.)

 Subtract your answer from step 2 from the total distributed earnings. This is the amount that needs to be reported on either the 529 account owner or beneficiary's tax return. Not both!

Where to Report Your Taxable 529 Distribution

If you need to report a taxable 529 distribution, it will be on the tax return of whomever received the funds and received Form 1099-Q. It will be reported on line 8 of Schedule 1 Form 1040, or line 21 of Form 1040NR.

If you need to report a 10% penalty, it will be reported on line 6 of Schedule 2 Form 1040, or line 57 of Form 1040NR.

And that's it! Deep breath. You did it! Let's be honest, filing taxes is a chore, no matter how you look at it. But if you know the rules and do a little prep work, it doesn't need to be stressful.

529s and Taxes - To Report or Not to Report?

We usually like to start our blogs with a little more pizazz or maybe even an entertaining anecdote, but we don't want to be accused of doing the ol' bait and switch, so buckle up we're going straight into the weeds about the merits of saving for college with a 529 versus a Roth IRA. If that sounds like your cup of tea, you're in the right place.

We're comparing the two side by side to see which is the better option. Spoiler alert: it's a 529 plan. 529 plans and Roth IRAs both grow tax-free, but IRAs have some limitations when it comes to using them for college. As much as we wish there was a hack to college savings, a Roth IRA isn't it.

Your expected family contribution (EFC) is the amount the federal government determines your family can reasonably spend on college tuition, and is calculated from the information entered in your Free Application for Federal Student Aid (FAFSA). Your EFC determines the amount and type of aid that a child will receive to attend college. This number can be affected by your assets, including savings and investment accounts.

 While funds are in a Roth IRA, they are not reported on the FAFSA and do not affect your EFC. But once the funds are withdrawn, they are reported on FAFSA as income, negatively affecting your kids' EFC. Your student's aid package can be reduced by up to 47% of the funds withdrawn from your Roth IRA when they are reported on your FAFSA. That means, if you withdraw $10,000 from your Roth IRA to use towards college expenses, your need based eligibility would be reduced by up to $4,700! It's also important to keep in mind that some schools will ask for more financial information than just your FAFSA when considering aid packages, and a Roth IRA could be considered.

 529 plans have the least impact on financial aid eligibility of any savings method. Because 529 plans are built for college savings, the impact it can have on your EFC is capped at 5.64%. For example, if the parent is the account owner, and you save $10,000 in a 529 plan, your need based eligibility would only be reduced by a maximum of $564, but likely less.

 Another important consideration is the strict income limit on contributions to a Roth IRA. The amount you can contribute (from $0-$6,000 annually) to a Roth IRA is determined by your Modified Adjusted Gross Income (MAGI). Your household's MAGI is your household's adjusted gross income plus tax-exempt interest income and certain deductions. You can calculate your household's exact MAGI 

This matters for two reasons. First, even if your MAGI is below the threshold now, if you expect to earn more than the contribution cutoff at some point, a Roth IRA will not be a good long term plan for college savings. Eventually you will lose the ability to contribute to this plan, and this can limit your ability to save enough to cover the cost of education. Second, you are only able to contribute $6,500 annually.

If you are planning on using this tax-advantaged account for your retirement as well, you likely won't be able to save enough to cover both.

 A 529 plan has no income limit restrictions, but plans do have a limit on the balance. The limits vary by state, but most states' maximum balance ranges from $350,000 to $500,000. Once your account has reached the maximum balance, you will not be able to add any more contributions, but the money that's in the account can keep growing without any penalty. Keep in mind that you can open a different plan for each of your children, and if you want to exceed your state's balance limit for a single plan, you can open another plan in a different state. When opening a 529 plan, you are not required to use your home state's 529 plan, so consider the balance limits when deciding which state's plan is the right fit for your goals.

There is also a gift feature, allowing a parent or grandparent to each contribute up to $15,000 ($30,000 for married couples) a year to a 529 plan while qualifying for gift tax exclusion. If you're one of the fortunate few, or you win the lottery, it is possible to superfund up to $75,000 ($150,000 for married couples) in one year to maximize your compounding returns, but then you can't touch the money for five years. The gift tax exclusion is for $15,000 per person, so you can still accept contributions from your aunts, uncles, friends, and more, even if a parent or grandparent or both have maxed out the gift tax exclusion for that year. Plus, most states tax deductions apply no matter what your income is. You can maximize your tax-advantaged accounts by using a 529 plan for college and a Roth IRA for retirement.

Because these accounts are designed to help you save for a specific goal, there are penalties when they are used for other purposes.

 Roth IRAs have a strict set of rules for withdrawals. You are allowed to withdraw contributions you made to a Roth IRA at any time without a penalty. However, you will have to pay penalties and taxes on earnings if you take a distribution from the account before you reach retirement age (59 1/2). There are some exceptions depending on how long you have had your account.

If you have had the account under 5 years and are under 59 1/2, you will still have to pay the taxes when withdrawing funds for qualified situations, but you can avoid the 10% penalty. If the account is over 5 years old and you are making a withdrawal before you turn 59 1/2, you can avoid the taxes and the penalty. You can avoid either the penalty or the penalty and taxes (depending on the age of the account) in these situations:

First-time home purchase (up to $10,000 lifetime limit)

Qualified childbirth or adoption expenses

When taking a distribution before you turn 59 1/2 it is crucial to confirm that any expense you plan to cover with the withdrawal is qualified. It is also useful to open the plan more than five years before you plan on using withdrawals to fund your child's education so you can avoid owing taxes.

 If you withdraw funds from a 529 plan for anything other than education expenses, you will owe taxes and a 10% penalty on only the investment gains/earnings of the account. You will not have to pay anything taxes or penalties on the funds deposited into the plan. The good news is that education expenses can include tuition, fees, room and board, books, computers, food, and even study abroad programs.

If your child gets a scholarship, you can withdraw the amount equal to the scholarship without incurring the 10% penalty. You will still owe income taxes on the earnings, but never on the deposit. If for any other reason you don't need the money for college you can transfer the account to a new beneficiary without tax consequences.

Will college become free? There are a lot of theories about changes in education policy over the next few years. 529 plans have changed over time inline with changing fiscal policy, and we expect that they'll keep doing the same. If college does become free, there will likely still be costs associated with education, such as textbooks, fees, room and board, meal plans, and other expenses to compensate for lost revenue from tuition. 

It's also important to keep in mind that, if necessary, you can take out a loan to pay for college. You can't take out a loan for retirement.

It's important to protect your nest egg so when it comes time to retire, you are financially prepared to do so. Plus, your retirement fund can also benefit your kids. If you save effectively for your retirement, then it's less likely that your kids will have to support you in your old age.

No one else can contribute to your IRA, but you can get help from friends and family with a 529 plan.

Plus, it's a lot less weird to ask for a contribution to your child's education than toward that timeshare in Boca. And with 

, loved ones can easily contribute to your plan with a credit or debit card. It's a great way to avoid receiving 5 copies of 'Goodnight Moon'.

At the end of the day, we recommend using the right tool for the job. Sure, we have all used our sleeve as a burp cloth, but it's nice not to have to. If you think you may have educational expenses on your horizon, 529 plan is an effective way to save for college. A Roth IRA is a great way to save for retirement. There's no reason you can't have both. In fact, having both plans gives you the best of both worlds. If you don’t use all the funds in your 529 Plan for educational expenses, you can always rollover the balance into a Roth IRA to keep the tax advantages going. We speak more about rolling 529s into Roth IRAs 

Set up a 529 plan in less than 5 minutes!

Can You use a Roth IRA to Save for College?

, making the accounts even more attractive to parents.

Families can now roll over unused funds from their child’s 

 into a Roth IRA in their child’s name.

Below are the current rules of the rollover based on the provision in the 

Keep in mind much remains undetermined and the IRS is likely to issue further guidance.

The account itself must be 15 years old before it is eligible to be rolled over.

Contributions must be at least 5 years old to be rolled over.

💸 $35,000 lifetime | $6,500 annual limit

Rollovers can’t exceed the annual Roth contribution limit. Based on the current $6,500 annual limit, it would take six years to roll over the $35,000 lifetime limit.

*Roth contribution limit could rise in the future, allowing larger annual rollovers.

The beneficiary of the 529 plan must also be the owner of the Roth IRA and must have earned income at least equal to the amount of the rollover.

What if the plan is 15 years old, but the beneficiary has been changed? One of the perks to 529 plans is that the beneficiary can easily be changed. However, the Secure Act does not specify if a change in beneficiary triggers a new 15 year eligibility period.

While the IRS is likely going to issue further guidance on this new law, that’s no reason to wait to open a Roth IRA for your child. It is advantageous to start a child's Roth IRA and contribute to it if they have earnings (like a high school job). This will get them started on their retirement savings at a time when their personal income tax rate is likely to be low.

Rolling a 529 Account into a Roth IRA

When you ask most prospective students (and parents) which colleges they have their sights set on, Ivy League universities and big-name schools usually top the list. It's easy to equate prestige and hefty price tags with better quality education and long-term success, but that isn’t always the case. Picking a budget-friendly college might be the secret sauce to a better college experience and post-graduate success.

Okay, so this benefit isn’t exactly hidden. The skyrocketing cost of education over recent years has led to a student loan debt crisis. It also contributes to the 

38% of students who admit to dropping out because of financial pressure.

Picking a lower-cost university, typically a public institution, offers an opportunity to significantly reduce or even avoid crippling student loan debt. Graduating with less debt can give you the freedom to pursue your career and life goals without having to make decisions based on the burden of high monthly loan payments.

Prestigious universities are known for their competitive admissions processes. Getting into those elite colleges can feel like winning the Hunger Games. Budget-friendly colleges usually have more accessible admission criteria, so you can follow your passion without the stress of cutthroat competition. You’re also far less likely to lose your spot to a less talented legacy applicant.

Many lower-cost universities are dedicated to increasing access to education. They often offer generous scholarships and grants to attract talented students, making higher education more affordable for those who show academic potential, regardless of their financial background.

Pro tip: Many elite universities are also upping their game when it comes to financial assistance programs. Regardless of where you decide to go to college, make sure to ask about any available grants or scholarships you might qualify for.

Just because it's not an elite university (code word for expensive) doesn't mean your education will be subpar. Many budget-friendly colleges have top-notch academic programs and faculty members who are experts in their fields. It is possible to receive a high-quality education without the prestigious name.

Budget-friendly colleges attract students from all walks of life, both in terms of socioeconomic and ethnic background. Exposure to people who have different perspectives and experiences from our own is gold for cultivating empathy, understanding, and strong interpersonal skills. It can also lead to better collaboration and problem solving in the workplace.

Less-elite colleges often have more flexible academic requirements. That means you can try out different subjects without feeling locked into a specific major. It's like having a buffet of knowledge, which can ultimately lead to a more informed career choice.

54% of college dropouts attribute their decision to difficulty balancing their workload.

 Skipping the pressure cooker of high-status schools can increase your chances of graduating. Budget-friendly colleges offer a more laid-back environment where you can focus on your studies without the crazy competition both in and outside the classroom. 

It’s also less likely you’ll need to work two jobs to make ends meet; freeing up more time for studies and enjoying your college experience.

Getting a great job isn’t just about the fancy name on your diploma. While it’s true that graduating from an elite college could lead to a higher salary in certain fields - like business - for most fields, including STEM and engineering, 

Budget-friendly colleges also often have strong ties to local and regional industries, providing you with internship opportunities and a tight-knit network to help kickstart your career.

Many elite school grads would have been just as successful with a less prestigious education. At the end of the day, what you do with your education matters more than where you received it.

This is a biggie. Choosing a budget-friendly college can be a game-changer for your financial future. The money saved on tuition (and in interest on student loan payments) can be used to start building your future. This means you'll have less student debt, have more cash to invest, be able to buy a home, or even start your own business. Less financial stress means more freedom to shape your post-grad life.

While big-name schools have their perks, don't underestimate the awesomeness of budget-friendly colleges. They offer quality education, lower debt, a diverse college experience, and a chance to follow your own path without breaking the bank. Remember, it's not just the school on your diploma but how you apply your education and seize opportunities that counts. Here’s to a bright future, no matter where you choose to learn!



Scholar Raise (a.k.a. Raise Education) allows you to crowdfund your child’s 529 college savings plan. It’s free to use and you can be on your way to a brighter future in less than 5 minutes.

The unexpected perks of attending a budget-friendly college

 — a Nashville fintech startup that seeks to make long-term investing work in the modern age — was selected for 

Barclays’ New York 2023 Rise Accelerator.

The three month world class program is designed to fast-track fintech startups through unparalleled education, mentorship from Barclays’ esteemed experts, and access to the British bank’s prestigious network of investors and advisors.

Raise joins 20 other cutting-edge fintech companies from the U.K. and U.S. who are engineering solutions on everything from real estate to payment processing. The cohort companies were handpicked by a selection committee who reviewed more than 2,500 applications.

Worth $1.8 billion, the Barclays Accelerator is one of the largest bank-powered portfolios globally.

“We are humbled to grow alongside these innovative companies,” says

, the CEO and co-founder of Raise Financial. “This opportunity will be transformative.”

Belden began building Raise Financial in 2022, two years after he started his first fintech company, 

 — an online platform that enables parents to create 529 college savings plans that friends and family can easily contribute to via a simple shareable link. According to Belden, 529 accounts started with Raise have on average, ten times more gifted contributions than regular college savings accounts.

Scholar Raise’s success, or rather its clients, were the catalyst for Raise Financial.

“We listened to our customers,” said Belden. “They don’t want to save for just their children’s future but their own. We want to make traditional long-term investing accessible to millennials and GenZ. This accelerator will be instrumental in our execution.”

, which remains active, renamed “Raise Education” will be folded into what Belden said will be a family of fintech products under Raise Financial. During the accelerator, Belden will work defining the model for Raise Investment — a platform that will allow individuals to reap the rewards of an early, large investment into a broad-based ETF via a flexible, monthly membership fee.

“Traditionally, the best way to build wealth has been through homeownership or investing in a lump sum into the stock market,” said Belden. “Here’s the problem: GenZ and millennials don’t have the money for either. The average millennial doesn’t have $1,000 in their bank account. It’s not because they are irresponsible, but wages haven’t kept up with inflation for nearly 40 years.”

Belden said under his current model, individuals will choose a monthly membership that fits their budget ranging from $25 to $600. Raise Investment will invest a lump sum proportional to their membership fee into a broad-based ETF on their behalf. For example, with a $150 membership, Raise would invest $30,000 on the person’s behalf.

The individual is entitled to all of the compounded returns that investment accrues when they exit. At that time, the initial investment will be returned to Raise. The membership fees are not refunded to the individual as that is the cost accessing the initial position with Raise.

“It’s symbiotic,” said Belden. “The individual gains an initial position in the market that they wouldn’t otherwise have access to and Raise is guaranteed recurring revenue through the monthly membership.”

He will need a substantial amount of capital to get Raise off the ground, which is one of the reasons the New York native turned Nashville transplant applied.

All of the program participants will be eligible to receive funding from Rise Growth Investments — investment capital exclusively available to companies in Barclays' accelerator. £10 million, more than $11 million will be deployed. The startups will also be introduced to a host of investor heavyweights.

Since its inception in 2014, more than 150 startups from the U.S., England and India have graduated from the esteemed accelerator including most notably — 

 a San-Francisco fintech company that helps entrepreneurs in developing countries operate e-commerce businesses. The company recently closed on a 

Raise Financial selected for Barclays Rise Accelerator

Trees are a symbol of hope and transformation. Raise Financial is building its second product, Raise Investment to give Millennials and GenZ hope by transforming their financial future.

With Raise Investment, individuals will be able to earn the returns of a sizable stock investment in exchange for a monthly membership they can afford.

As a symbol of this hope and transformation the company is partnering with the Arbor Day foundation — a national non-profit dedicated to creating a more sustainable environment — and planting a tree for every person that signs up for its waitlist.

To date, more than 1,000 people from across the United States have joined the list.

“We’re cultivating a movement,” says CEO Wesley Belden. “We didn’t want to wait to show our commitment. We want people to know that we are committed to building a more sustainable financial future.”

Founded in 1972, the Arbor Day Foundation has grown to become the largest nonprofit membership organization dedicated to planting trees, with more than one million members, supporters and valued partners. Since 1972, more than 400 million Arbor Day Foundation trees have been planted in neighborhoods, communities, cities and forests throughout the world. Their vision is to lead toward a world where trees are used to solve issues critical to survival.

As one of the world's largest operating conservation foundations, the Arbor Day Foundation, through its members, partners and programs, educates and engages stakeholders and communities across the globe to involve themselves in its mission of planting, nurturing and celebrating trees. More information is available at 

1 Sign Up = 1 Tree Planted

If you're starting your investing journey, you've likely heard acronyms being thrown around and are wondering "What the ETF?" Heck, you might even be invested in one, or a few, without knowing what they are. Let’s change that!

To understand ETFs you need to understand diversification. Think of a picnic basket; you don’t just pack a PB&J. Baskets are filled with a variety of snacks, sandwiches and drinks to help minimize the risk of becoming too hungry, too thirsty, and to make sure the day isn’t ruined when something you’re eating inevitably falls on the ground.

A diversified portfolio is essentially a well-planned picnic basket of stocks. That way if one stock has a bad day, you have another stock having a good day to balance things out. The more variety in your basket, the less you’ll be affected by the ups and downs of the stock market.

An ETF, or Exchange-Traded Fund, is a type of investment fund that trades on the stock exchange, similar to individual stocks. It is a way to pool together your money to purchase a share in a fund that can include a variety of assets such as stocks, bonds, or commodities. These funds offer more diversity than purchasing individual stocks.

ETFs can be made up of a variety of assets and are designed to track the performance of a specific index, sector, or asset class. For example, an ETF might track the performance of the 500 of the largest companies listed on stock exchanges in the United States, which is known as the S&P 500 index. By investing in this fund, you are essentially buying a small piece of each of those 500 companies. So, if the overall value of the S&P 500 index goes up, your investment value should increase proportionately. Similarly, if the index goes down, your investment value would likely go down as well.

ETFs are often passively managed. This means that their goal is to achieve a similar return to the market index they track, without trying to beat or outperform it. This hands-off approach aims to capture the overall performance of the market rather than trading in and out, actively trying to select winning stocks. This approach is always the best option for long-term investments, because as the adage says: “Time in the market always beats timing the market.”

 Investing in an ETF can give you instant diversification, as ETFs hold a basket of assets. This reduces the risk associated with investing in a single stock or security. This kind of diversification has been proven over time to be best-in-class when it comes to long-term investing.

Liquidity is a measure of how quickly an asset can be converted into cash. High liquidity investments are desirable because they ensure that you can quickly buy and sell stocks or assets without significant price impact. Because ETFs are traded on stock exchanges throughout the day, they allow investors to buy or sell shares at market prices. This liquidity provides flexibility and ease of trading.

 Due to their scale and the fact that they’re usually passively managed, ETFs generally have lower expense ratios compared to actively managed funds. Higher returns over time at a lower cost? Sign us up!

A lot of the finance industry can feel intentionally opaque, which can leave the everyday investor unsure of their choices. One of the significant advantages of ETFs is their transparency. ETFs are required to disclose their holdings on a daily basis, which allows you to easily keep track of the fund's composition and make informed decisions. Pro tip: Make sure you understand the management, investing methodology and thesis before buying an ETF.

 Whether you're interested in investing in a specific sector (ex. clean energy), a region (ex. emerging markets), or investment strategy, (ex. total stock market), chances are there's an ETF that suits your needs. This flexibility allows you to easily choose a more diverse portfolio that aligns with your investment goals, risk tolerance, interests and ethics.

 With a brokerage account, you can purchase ETFs at a share price, making them more affordable compared to some mutual funds or individual stocks.

ETFs often offer tax advantages due to their unique structure. Since most ETFs are passively managed, they tend to have lower turnover in their holdings (i.e. less buying and selling of individual stocks), resulting in fewer taxable events. By investing in an ETF you only pay capital gains taxes when you sell your shares, giving you more control over your tax liabilities.

ETFs, particularly those that track the total stock market, regularly result in higher returns over time than almost any other investment strategy. With fewer highs and lows than you would experience by trying to pick stocks and time the markets, 9 out of 10 hairdressers report that ETFs result in fewer gray hairs*.

ETFs can, however, get a little bit convoluted, so it's important to look at the prospectus of the ETF, make sure you understand what it's investing in, how it balances itself, what the actual objective of the fund for which you are buying an ETF in, is set up to do. As with any investment, it's wise to do your own homework and not blindly follow every hot tip you hear at the neighborhood barbecue. That being said, in general, ETFs check all the boxes for what we like to see in investments: lower cost, diversified risk, less volatility, and increased liquidity, which is why we're big fans.

* Ok, so maybe only one hairdresser said that, but it still sounds like a solid observation.

This blog is for educational purposes only and does not constitute financial advice.

What the ETF?

When you think of long-term investing, investing in stocks or investing in real estate are likely what comes to mind- and for good reason. When done correctly, they’re both solid choices for those looking to build wealth and secure their financial future.

We’re weighing up the strengths and weaknesses of these long-term investments by diving into historical data and distilling it down, so you don’t have to- because we know your time is precious.

Historical Performance of the US Stock Market

The total US stock market (represented by indices like the S&P 500 and Dow Jones Industrial Average) has shown strong and consistent long-term performance. Over time, investments like total stock market ETFs have generated an average annual return of around 10%. Despite periodic downturns, the stock market has historically proven itself to be resilient and one of the best ways - if not the best way - to create long-term wealth.

Economic growth, corporate profits, interest rates, geopolitical stability, and investor sentiment are among the key factors driving stock market performance. Because of this, stock market returns can vary significantly from year to year. This is known as market volatility, and it's a completely normal part of the economic cycle.

The best way to weather the storm when things get volatile? Sit tight, the market always corrects itself over time. In fact, if you tried to time the market over the last decade and missed just the 10 best stock market days, your returns would have been half of what you would have earned had you not touched your investments at all.

Historical Performance of the US Real Estate Market

Much like the total stock market, the US real estate market has also shown favorable long-term performance, making it a favorite investment vehicle for those looking to create wealth. According to the S&P CoreLogic Case-Shiller Home Price Index, which tracks residential property values, real estate prices have generally appreciated over time, often only slightly higher than interest rates.

One of the reasons the housing market is so attractive is because of mortgages. A mortgage allows you to commit to a big long-term investment, working with the budget that you have available today. i.e. You don’t need $300k in the bank today to make a $300k long-term investment in real estate.

With real estate, you are investing in a tangible asset, while stocks have no tangible value. Here’s the kicker though, tangible assets require money and effort to maintain to ensure they increase in value. Real estate also has ongoing property taxes, whereas stocks are only taxed upon withdrawal.

Factors Driving Real Estate Market Performance

The housing market is influenced by factors such as supply and demand, interest rates, economic conditions, population growth, and local market conditions. It's important to consider this variability across different regions, as real estate returns can differ significantly depending on location.

Diversification is an important part of any investment strategy. You don’t want your eggs all in one basket.

It is difficult to diversify your real estate holdings. You can own a bit of every stock in the market (

), but it is unlikely you can own a home in every real estate market.

The reality is, that many people at the beginning of their wealth building journey don’t have enough discretionary income to invest meaningfully in both property and the stock market, and for most, purchasing a diverse property portfolio is not on the cards. If you had to pick just one investment class, stocks come out on top, as they allow for total market diversification no matter your budget.

The stock market’s daily fluctuations can feel unsettling to new investors. The stock market produces more highs and lows than the housing market, but has also had consistently higher returns over time. (Remember what we said about weathering the storm?) The only time the housing market’s returns were comparable to those of the stock market, was between 1990 and 2006, but this bubble proved to be unsustainable. We all know what happened in 2008…


Home prices can be opaque and you can’t buy into and sell out of home ownership quickly or easily - your money is locked up for a longer period of time. Whereas with stock ownership, if something comes up where you need your funds back, you can sell your stocks and have your hands on your money within 3 days tops. This can be a huge advantage should you have a medical emergency or similar unforeseen emergency.

 If you know you will have large financial obligations on the horizon, you might want to establish a sinking fund rather than dipping into your long-term investments.

While both markets are good choices for safe long-term wealth creation, historical data shows us that the US stock market has outperformed the real estate market when it comes to average annual returns over extended periods. From 1970 to 2020, the S&P 500 averaged an annual return of around 10%, while the US housing market saw an average annual appreciation rate of approximately 5.5%. While this data is sound and worth considering, always remember, past performance does not guarantee future returns.

Until now, unless you had a trust fund or were rich Uncle Jimmy’s favorite, mortgages made real estate the only attainable option if you wanted to invest big at the start of your wealth building journey. Raise Financial is changing that. Our newest product, Raise Investment will allow you to invest in your future financial stability, using the budget you have available today. Not unlike a mortgage, we invest a large sum of our money in a proven, total stock market ETF, and for a budget friendly membership fee, you get to keep 100% of the returns on the investment. Thanks to this kick start and the magic of compounding returns, over time, you could see almost double the returns compared to investing the same amount each month directly into the stock market.

This blog is for educational purposes only, and does not constitute financial advice.

Stock Market or Real Estate?

Investing has always returned more than wages have grown, that’s why you need to invest your way to wealth instead of working your way to wealth. Since the early 90s, the gap between wage growth and the performance of the S&P 500 has seen a sharp rise. The fact that wages haven’t meaningfully increased since the 90s isn’t news, but how can we explain the increasingly steep rise in stock value?

We believe one of the main drivers of this balloon in stock value can be linked to disparity between productivity and wage growth. The increase in productivity and wage growth stayed on a pretty consistent upwards trajectory until the early 80s, where productivity continued to increase, yet wages began to flatline.

When we look at these two graphs side-by-side, we can see that there’s a definitely correlation between the increase of productivity and the growth of the S&P 500, but it’s the stagnation of compensation that has caused the sudden sharp increase in value in the stock market.

This is a direct result of the gains from the productivity increase being transmitted to stakeholders (those who own stock in companies), instead of to the employees via wage increases. Or corporate taxes, but that's an entirely different blog.

Let’s take a step back to understand how this can happen. There are three main things companies do with their earnings, and management decides which of the three gets the most weight or attention:


1. They can transmit those earnings to the people that own the company. This happens in the form of reinvesting to make the stock price go up, dividend/cash payment to shareholders, or stock buybacks .


2. Another option would be to return money to their customers by providing them with more value, either from a better product, lower price, or a combo of both.


3. Another way to spend those earnings would be to compensate their employees through higher wages. You could expect company revenues to go up proportionate to the amount of value created by one labor hour, which has increased. The increased revenue leaves room for wages to rise, which in turn would lead to an increase in taxes being paid.

Looking at those 3 options, you would expect the shareholders' wealth to increase because of the means of that production, but what you're seeing during this time period is that wages have not increased. Companies are paying fewer taxes now than ever before. The weighting of what companies do with their earnings has shifted almost exclusively to focus on shareholders. So really, all of that productivity gain is just capitalizing itself on the bottom line. That is why the market has expanded so much.

When you consider how inflation has structured its concentration, you’ll notice that while many things are cheaper than before, the things that make you middle class; like food, housing, healthcare, education and childcare, have become a lot more expensive. This is why so many Americans are working paycheck-to-paycheck.

So what can be done to close this gap between wages and productivity, or wages and the stock market?

We think that it’s unlikely that our economic system is going to change drastically enough to close this gap. This system is too entrenched and is making too many people too much money. But it’s not all doom and gloom. Knowledge is power, after all.

Stagnant wages combined with the cost of living outpacing inflation, means that it has become essential to invest your way to wealth. Being armed with that knowledge that puts you in a position to change your financial outlook. And knowing just how effective the U.S. stock market is at creating wealth, you can secure your financial future by taking proactive steps towards investing your way to financial security and wealth.

 We want to help you get more exposure to that pink line of the S&P 500, despite the fact that your blue wages line has stayed flat. 

We want to empower you to invest in a way that allows you to begin closing that gap for yourself. That’s where true financial independence lies.

This blog is for educational purposes only, and does not constitute financial advice.




Everything is going up, except wages

On an uncharacteristically quiet Monday in the Raise Financial office, we were discussing an article about things that have disappeared from our lives without anyone noticing. Think waterbeds, phone books, toys in cereal boxes, etc. But then we were hit with an unexpected zinger: ownership.

That made us wonder, is ownership a thing of the past?

10 years ago, you purchased software at Sam’s club. You’d toss the latest version of “Microsoft Office” into your cart. Four years later you would do it again. Today, our software doesn’t come in shrink wrapped boxes, but like many things it's packaged as a subscription.

The model makes sense for some things. Take movies. Netflix put Blockbuster out of business almost overnight. Why? For consumers, films are an experience not an investment. After you’ve watched it once, the value diminishes.

Subscribers have access to a library of ever changing content and Netflix enjoys recurring revenue.

But some subscription models aren’t symbiotic.

Take storage. We used to back up our photos, work and music on hard drives. Unless it was lost or stolen, the hard drive and that content belonged to you. Today, we use cloud servers to store the same content. Here’s the catch: if you cancel your subscription, it all disappears. Unlike Netflix, these companies aren’t making monthly updates to your storage plans. They earn recurring revenue without any additional work.

Subscriptions have changed physical ownership too. We rent or lease everything from cars to home to yes, even clothes (hello rent the runway).

We asked our Instagram audience: What do you rent/subscribe to that you prefer to own?

Next we asked: What do you own that you wish you could subscribe to? The answer? Crickets. We didn’t receive a single response.