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Investing for College Financial Planning for Women - PowerPoint PPT Presentation

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Investing for College Financial Planning for Women Jean Lown, FCHD Dept., USU Tiffany Smith, student Upcoming FPW Programs April 13: Getting Ready for Estate Planning May 11: Stock Mutual Funds June 8: Teaching Kids About Money July 13: Retirement Planning Workbook

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Investing for College

Financial Planning for Women

Jean Lown, FCHD Dept., USU

Tiffany Smith, student

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Upcoming FPW Programs

  • April 13: Getting Ready for Estate Planning

  • May 11: Stock Mutual Funds

  • June 8: Teaching Kids About Money

  • July 13: Retirement Planning Workbook

  • August 10: Voluntary Simplicity

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Class Objective:

To learn about tax-advantaged ways to invest for college

  • Coverdell Education Savings Accounts

  • 529 College Savings Plans

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  • Balancing goals; Setting priorities

  • Coverdell ESAs

  • 529 college savings plans

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What about Retirement?

  • Before you contribute to college savings for children

    • Is your retirement investment plan on track?

    • Pay down high interest consumer debt

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Set Priorities; Balance Your Goals

  • Ensuring retirement security is more important than investing for college

  • Don't use retirement funds for college

  • Students can borrow for college; retirees can use reverse mortgages… but

  • Before investing for college, review your retirement goals & investment plans

  • Investing for these two goals is not mutually exclusive (especially with grandparent help)

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Coverdell Education Savings Accounts (ESAs)

  • Formerly called education IRAs

  • Federal tax breaks

    • Funds grow tax-free

    • Withdrawals tax-free

    • NO deduction for contribution

  • All levels of education (K-12 + college)

  • No sunset provision

  • Unlimited investment options

  • Considered asset of parent for financial aid

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Coverdell Limitations

  • Maximum contribution: $2,000/year/child

  • Contributors must have less than $190,000 in modified adjusted gross income ($95,000 for single filers) in order to qualify for a full $2,000 contribution

  • No state tax advantages

  • Child owns the $ at maturity (18 in UT)

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529 College Savings Plans

  • Section 529 of IRS Code

  • Federal & state tax advantages

  • Each state offers a different plan

  • Owned by contributor (parent, etc.) for beneficiary (child)

  • 10% penalty if not used for higher ed

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529 Advantages

  • Funds grow tax-free (federal & most states)

  • Withdrawals are tax-free (federal & state)

  • Higher contribution limits than Coverdell

  • Contributions are state tax deductible (UT)

  • Owner controls the account

  • Simple process

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Federal Financial Aid

  • Account is treated as an asset of the parent or other account owner in determining eligibility for federal financial aid.

  • Your expected contribution towards your child's college costs will include 5.6%, or less, of the value of your non-retirement assets

  • 35% assessment against assets owned in your child's name or in a custodial account

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School-based Financial Aid

  • Each school sets its own rules for its own need-based scholarships

    • many schools take 529 accounts into account

  • Federal financial aid rules change often

  • Most financial aid is in the form of loans, not grants

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529 Disadvantages

  • Sunset provision – current law expires Dec. 31, 2010

  • Some state programs

    • High fees

    • Poor investment choices

  • Brokers charge additional fees

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Utah Educational Savings Plan

  • UESP is one of the best in the nation!

    • Kiplinger’s Personal Finance Magazine

    • Money magazine


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UESP Features

  • 9 investment options

  • Ultra low fees

  • No enrollment fees

  • No minimum contributions

  • No yearly fee for Utah residents (owners)

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Contributions & Account Balances

  • Contributions can be made by anyone

    • No income limits for contributor

  • No minimum initial contribution

  • No minimum subsequent contribution

  • May contribute up to $315,000/beneficiary

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Tax Advantages

  • Earnings grow free from federal income tax

  • When used for qualified higher ed expenses earning are exempt from:

    • federal income taxes

    • Utah income taxes (for account owners who are UT residents)

  • In 2005 UT taxpayers can deduct contributions from UT income tax: up to $1510 ($3,020 for joint filers)

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Fees & Charges

  • Deal directly with UESP

  • No enrollment fees

  • Administrative fee + fund expense ratios

    • 0.25% - .0414%

  • Max. annual maintenance fee = $25

    • Waived for owners who are Utah residents

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Qualified Expenses

  • Tuition

  • Room & Board

  • Books, supplies & equipment

  • Eligible post-secondary schools in U.S. or abroad

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Account Owner Control

  • How & when the money is used

  • Change beneficiaries within family

    • Child does not attend post-secondary

    • Transfer funds to family member

  • Control disbursements

  • Parental asset for financial aid

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Investment Options

  • 4 static options

    • Investment mix does not change

  • 5 age-based options

    • Investment mix becomes more conservative as child ages

  • UT Public Treasurer’s Investment Fund (PTIF)

  • Vanguard Group mutual funds

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Static Investment Options

  • Money market (Utah Public Treasurers Investment Fund, PTIF)

  • S&P Index Stock Fund

  • Bond market Index Fund

  • 5 Stock funds

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Age-Based Options

  • S&P/Bonds/Money market

  • S&P/bonds

  • Diversified A

  • Diversified B

  • Diversified bonds emphasis

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Investment Options

  • Review handout with 9 options

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Tax Deferral Pays!

  • Tax-deferred money continues to grow

  • The longer you defer paying tax,the more you accumulate

  • Money contributed to a 529 plan grows tax-deferred and is withdrawn tax free

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Non-qualified Disbursements

  • 10% federal tax penalty on earnings

  • No penalty on contributions

    • All contributions are “after-tax”

      • Made with money that was already taxed

      • Similar to a Roth IRA

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What if law is not renewed?

  • Current law expires 12/31/2010

  • Earnings portion of disbursements will be taxed at beneficiary’s (child’s) tax rate

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Related Resources

  • UESP

    • 1-800-418-2551

  • Internet Guide to Funding College