Tools & Techniques of Financial Planning Leimberg, Satinsky, Doyle & Jackson - PowerPoint PPT Presentation

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Tools & Techniques of Financial Planning Leimberg, Satinsky, Doyle & Jackson

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  1. Tools & Techniques of Financial PlanningLeimberg, Satinsky, Doyle & Jackson Education Planning

  2. Education Funding Calculation • Estimate cost in today’s dollars • Public • Tuition/room/board • Private • Number of years • Percent student pays • Percent financial aid/scholarships

  3. Education Funding Calculation • Inflate today’s costs to future dollars • Education inflation rate • Guess high/low? • Inflate sophomore – senior years • Determine lump sum investment • Start of college • Current savings • Determine periodic savings required

  4. Education Funding Calculation • Determine periodic savings required • Rate of return • Portfolio allocation • Number of years • Before start of college?

  5. Topic 8: Educational Planning American Opportunity 100% of first $2,000 and 25% of next $2,000 First four years of out of pocket tuition/full time Per student Up to $1,000 refundable Lifetime Learning Credit 20% of $10,000 out of pocket tuition Part-time and grad students Per family limitation Can’t take Hope/Lifetime for same student Phaseout 2010: AGI from $160-180 vs. $96-$116 in 2008

  6. Coverdell ESA • Funds withdrawn not taxed if used for tuition, cost of attendance room/board • Can no longer be used for K-12 private school after 2010 • Anyone (grandparents) can contribute up to $2,000 per under 18 beneficiary per year • Can change beneficiary to other family members under 30 (pg. 122 liberal definition) • Beneficiary change is gift from old to new • Can contribute to both an ESA and 529 • Phase out on contributions: $95-$110,000 single; $190-$220,000 MFJ for 2009

  7. 529 plans • Prepaid tuition (not as common); savings plan • Funds withdrawn not taxed if used for tuition, cost of attendance room/board for half-time student • Anyone can contribute for any beneficiary • Grandparents: five years at once ($65,000) • Not included in estate if live five years • Often, state income tax deduction for contribution • Asset of parent; not student for financial aid • Can change beneficiary to other family members • Plans sponsored by state; investment options vary • Only permitted one change in portfolio allocation during year

  8. Grants and Loans • Pell Grants up to $4,860 in 2010; SEOG: up to $4,000 • No repayment • Loans • Perkins • Must have need • 5% interest rate • $4,000 per year undergrad; $20,000 max • $6,000 per year grad; $40,000 max • No interest while in school • 10 year repayment

  9. Grants and Loans • Loans • Stafford • Up to $5,500 fresh; $6,500 soph; $7,500 after that • Independent students – higher limit • Also limited to Cost of Attendance - Grants • Grad $20,500 per year (only $8,500 subsidized) • Interest rates based on T-bills (as of 2010 4.5%) • Max 8.25% • 4% origination fee • No interest while in school and following 6 months • 10 year repayment • Cancelled due to disability, death of student • Forgiveness not income in certain situations: doctor in rural area

  10. Grants and Loans • Loans • Parents (PLUS) • No limit on amount • Interest rates based on T-bills (as of 2010 7.9%) • Max 9% • 4% origination fee • Interest is capitalized while in school • 10 year repayment • Cancelled due to disability, death of student

  11. Student Loan Interest ExpenseSavings Bond Interest Income • Student Loan Interest Expense • Can deduct up to $2,500 per year • Phase out: $60-$75,000 single; $120-$150,000 MFJ for 2009 • Savings Bond Interest Income • Parents can exclude interest income on amounts up to tuition paid during year

  12. Kids Working • Good idea while in school? • For you • Deduct reasonable expense • Earned income up to $5,350 generally not taxed • No social security taxes if under 18

  13. Shifting Income • Gift assets • UTMA/UGMA • Under 19 or full-time student dependents under 24; parents rate on income > $1,900 • First $950: no tax; second $950: 10% • Kid’s assets at 18 • Gift appreciated property just prior to college • 529 plan losses • Cap gains tax: generally 5% for student • Financial aid

  14. Financial Aid • Expected Family Contribution • Student Contribution • 35% of assets; 50% of earnings • Parent Contribution • Generally 6% of assets • Excludes home equity; retirement accounts • Based on year before student starts college