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Building Bucks: Saving for College

Building Bucks: Saving for College. Why invest for college?. Why is investing for college important? College can help a child or grandchild have a brighter future Reduces reliance on student loans Uses time and the power of compounding to your advantage

iliana-schmidt
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Building Bucks: Saving for College

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  1. Building Bucks: Saving for College

  2. Why invest for college? • Why is investing for college important? • College can help a child or grandchild have a brighter future • Reduces reliance on student loans • Uses time and the power of compounding to your advantage • Keeps your options open by planning ahead

  3. Will you have enough for college? • The rising costs of a four-year college • Tuition, books, room & board add up quickly $435,816 Private University Private University $199,424 Public University Public University Costs based on 2010-2011 estimate of average tuition and room and board in current dollars for four-year public and private universities according to the 2010 Trends in College Pricing, published by the College Board. Projected pricing assumes a 6 percent annual increase in college costs.

  4. The power of planning ahead Advantage of Investing vs. Student Loans $165.56/month $350 $301.31 $300 Invest now or borrow later: To cover $25,000 in college expenses, investing for 10 years before college is a lot cheaper than paying back loans for 10 years after college.* $250 $200 $150 $135.75 $100 $50 $0 Monthly Investment Monthly Loan Repayment *Assumptions: Total cost of college $25,000; 8% annual return on investment and 8% loan interest rate, compounded monthly; 10-year investing period and 10-year loan payback period. Annual return does not represent the performance of any specific investment.

  5. Putting time on your side Regular contributions of any amount can really add up over time. $301.31 This chart shows an account with monthly contributions over a 10-year period. $125 per month $250 per month $500 per month A program of regular investment cannot assure a profit or protect against a loss in a declining market. This hypothetical illustration assumes an average annual return of 8%. Annual return does not represent the performance of any specific investment.

  6. Tools and Resources to Promote Financial Planning • FAFSA4caster • ED’s My Future, My Way: How to Go, How to Pay • NASFAA’s Cash for College • College savings resources

  7. FAFSA4caster • Comprehensive tool that gives students and parents a jump start on planning for college • Provides an early estimate of a student’s financial aid eligibility • Allows students and families to get an early start on the financial aid process • www.fafsa4caster.ed.gov

  8. FAFSA4caster • Students must provide their Social Security number • Site is secure and U.S. Department of Education will not share information • Students may save incomplete FAFSA4caster with a password and retrieve later • Must restart FAFSA4caster if password is lost

  9. My Future, My Way • Workbook for students in middle or junior high school • Provides information about how to go to college and how to pay for college • Includes charts, checklists, and other activities • Download PDF at www.FederalStudentAid.ed.gov/pubs

  10. NASFAA’s Cash for College Booklet that includes the following information: • Helpful financial aid hints • Information about college costs • What is financial aid and financial need • What kinds of financial aid are available • How the EFC is calculated

  11. NASFAA’s Cash for College You can make NASFAA’s Cash for College available in number of ways: • Link to on-line brochure at http://www.nasfaa.org/AnnualPubs/cashfor college.pdf • Order copies from NASFAA

  12. College Savings Plan Network • www.collegesavings.org • Provides information about saving for college and 529 plans, including: • Why saving for college is important • What is a 529 plan • A college cost calculator • Links to state 529 plans • A 529 plan comparison tool • Common questions

  13. EdVest – A Wisconsin 529 plan • A flexible, tax-advantaged investing program • A state-sponsored “Section 529” College Savings Program • Administered by the Wisconsin Office of the State Treasurer • Managed by Wells Fargo Funds Management, LLC • An easy, effective way to invest for higher education regardless of income level

  14. The benefits of EdVest While not all investors may be able to take advantage of all the tax and other benefits of EdVest, here are four key features that may benefit you. • Tax advantages • Wisconsin state tax deductions • Income tax benefits • Gift and estate tax benefits • Flexibility • Control of the account • Eligibility

  15. Tax advantages • Wisconsin state tax deduction • Up to $3,000 annually from taxable state income per beneficiary • Available for parents, grandparents, great-grandparents, aunts and uncles • Also available for individuals who open accounts for themselves • Contribute by December 31 of the current tax year

  16. Tax advantages • 100% Federal and Wisconsin state income tax-free qualified withdrawals • Qualified education expenses include: • Tuition • Room and board • Books • Certain special needs services This hypothetical illustration shows the growth of an annual investment of $5,000 made at the beginning of each year. It assumes a 28% tax bracket and a hypothetical annual return of 8%, compounded monthly. This chart is for illustration only and does not predict or guarantee the performance of any investment. Investors should consider their personal investment horizon and their current and anticipated income tax brackets when making an investment decision.

  17. Gift and estate tax benefits • Contributions are considered a completed gift and are eligible for the annual $13,000 ($26,000 for married couples) gift taxand generation-skipping exemptions • For larger contributions, up to a $65,000 ($130,000for married couples) one-time gift may be prorated over five years • IRS form 709 should be filed to report this contribution • All contributions are removed from the contributor’s taxable estate If donor contributes more than $13,000 in one year, and elects to apply the gift tax exclusion ratably over 5 years, but dies before the close of the 5-year period, the portion allocable to calendar years beginning after the date of death is included in the decedent’s estate.

  18. Gift and estate tax benefits $195,000 + $195,000 Gifts $65,000 per grandchild Grandfather Smith Gifts $65,000 for same grandchildren = $390,000 removed from the couple’s taxable estate Grandmother Smith The gift tax exclusion can be very powerful. In this example, a grandfather and grandmother each provide 3 one-time gifts of $65,000 to 3 grandchildren. The gifts are prorated over five years and a total of $390,000 is removed from the couple’s taxable estate.

  19. Flexibility • Funds can be used at thousands of colleges, universities, technical schools, graduate schools, and trade schools nationwide, and many abroad • Money can be used for tuition, room and board (the student must be enrolled at least half-time), books, and other expenses • High contribution limit • Can use an Automatic Investment Plan or payroll deduction A program of regular investment cannot assure a profit or protect against a loss in a declining market.

  20. Control of assets • Control remains with the person who establishes the account • There is no obligation to distribute the funds • If the child doesn’t go to college, the owner can change the beneficiary or withdraw the funds* • The owner can: • Choose a successor owner • Make distribution decisions concerning the assets *The earnings portion of non-qualified withdrawals is treated as income and is subject to applicable federal and state income tax as well as an additional 10% federal tax.

  21. Eligibility • Everyone is eligible! • Anyone of legal age can open an account for anyone else • There are no age limits on beneficiaries • Anyone can contribute to an existing account • You can even open an account for yourself • No income limits for contributors • Transfers allowed tax-free and penalty-free to eligible family members

  22. SAGE Scholars Tuition Rewards • Allows EdVest account owners to receive discounts for undergraduate school tuition at participating private schools throughout the country • Awards tuition points based on your account balances – up to 10% annually • Each reward point equals $1 in guaranteed tuition discounts at participating private colleges and universities • Over 265 member schools • No fee to join • Enroll online at EdVest.com/sage The Tuition Rewards program is offered and administered by SAGE Scholars, Inc., a private for-profit corporation. SAGE Scholars is not sponsored by or affiliated with Wells Fargo or the EdVest college savings plan.

  23. 12th Grade - 2nd semester • Fill out FAFSA after January 1st • Check Career Center for scholarships • Receive acceptance/rejection letters from colleges • Contact Financial Aid offices at proposed colleges • Develop a plan to finance college • Make final decisions and respond with your deposit by the deadline

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