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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

Investing for College

Financial Planning for Women

Jean Lown, FCHD Dept., USU

Tiffany Smith, student

upcoming fpw programs
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
class objective
Class Objective:

To learn about tax-advantaged ways to invest for college

  • Coverdell Education Savings Accounts
  • 529 College Savings Plans
  • Balancing goals; Setting priorities
  • Coverdell ESAs
  • 529 college savings plans
what about retirement
What about Retirement?
  • Before you contribute to college savings for children
    • Is your retirement investment plan on track?
    • Pay down high interest consumer debt
set priorities balance your goals
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)
coverdell education savings accounts esas
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
coverdell limitations
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)
529 college savings plans
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
529 advantages
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
federal financial aid
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
school based financial aid
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
529 disadvantages
529 Disadvantages
  • Sunset provision – current law expires Dec. 31, 2010
  • Some state programs
    • High fees
    • Poor investment choices
  • Brokers charge additional fees
utah educational savings plan
Utah Educational Savings Plan
  • UESP is one of the best in the nation!
    • Kiplinger’s Personal Finance Magazine
    • Money magazine
uesp features
UESP Features
  • 9 investment options
  • Ultra low fees
  • No enrollment fees
  • No minimum contributions
  • No yearly fee for Utah residents (owners)
contributions account balances
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
tax advantages
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)
fees charges
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
qualified expenses
Qualified Expenses
  • Tuition
  • Room & Board
  • Books, supplies & equipment
  • Eligible post-secondary schools in U.S. or abroad
account owner control
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
investment options
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
static investment options
Static Investment Options
  • Money market (Utah Public Treasurers Investment Fund, PTIF)
  • S&P Index Stock Fund
  • Bond market Index Fund
  • 5 Stock funds
age based options
Age-Based Options
  • S&P/Bonds/Money market
  • S&P/bonds
  • Diversified A
  • Diversified B
  • Diversified bonds emphasis
investment options24
Investment Options
  • Review handout with 9 options
tax deferral pays
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
non qualified disbursements
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
what if law is not renewed
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
related resources
Related Resources
  • UESP
    • 1-800-418-2551
  • Internet Guide to Funding College