1 / 29

Investing for College

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

reilly
Download Presentation

Investing for College

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Investing for College Financial Planning for Women Jean Lown, FCHD Dept., USU Tiffany Smith, student

  2. 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

  3. Class Objective: To learn about tax-advantaged ways to invest for college • Coverdell Education Savings Accounts • 529 College Savings Plans

  4. Overview • Balancing goals; Setting priorities • Coverdell ESAs • 529 college savings plans

  5. What about Retirement? • Before you contribute to college savings for children • Is your retirement investment plan on track? • Pay down high interest consumer debt

  6. 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)

  7. 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

  8. 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)

  9. 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

  10. 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

  11. 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

  12. 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

  13. 529 Disadvantages • Sunset provision – current law expires Dec. 31, 2010 • Some state programs • High fees • Poor investment choices • Brokers charge additional fees

  14. Utah Educational Savings Plan • UESP is one of the best in the nation! • Kiplinger’s Personal Finance Magazine • Money magazine • Savingforcollege.com

  15. UESP Features • 9 investment options • Ultra low fees • No enrollment fees • No minimum contributions • No yearly fee for Utah residents (owners)

  16. 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

  17. 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)

  18. 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

  19. Qualified Expenses • Tuition • Room & Board • Books, supplies & equipment • Eligible post-secondary schools in U.S. or abroad

  20. 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

  21. 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

  22. Static Investment Options • Money market (Utah Public Treasurers Investment Fund, PTIF) • S&P Index Stock Fund • Bond market Index Fund • 5 Stock funds

  23. Age-Based Options • S&P/Bonds/Money market • S&P/bonds • Diversified A • Diversified B • Diversified bonds emphasis

  24. Investment Options • Review handout with 9 options

  25. 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

  26. 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

  27. 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

  28. Related Resources • UESP http://www.uesp.org • 1-800-418-2551 • Internet Guide to Funding College http://www.savingforcollege.com

  29. Questions?

More Related