Transcript Twenty Steps to Seven Figures

Investing for College
Financial Planning for Women
Jean Lown, FCHD Dept., USU
Tiffany Smith, student
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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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Overview
Balancing goals; Setting priorities
 Coverdell ESAs
 529 college savings plans
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What about Retirement?
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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
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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)
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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
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Section 529 of IRS Code
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Federal & state tax advantages
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Each state offers a different plan
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Owned by contributor (parent, etc.) for
beneficiary (child)
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10% penalty if not used for higher ed
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529 Advantages
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Funds grow tax-free (federal & most states)
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Withdrawals are tax-free (federal & state)
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Higher contribution limits than Coverdell
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Contributions are state tax deductible (UT)
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Owner controls the account
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Simple process
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Federal Financial Aid
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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
Some state programs
» High fees
» Poor investment choices
 Brokers charge additional fees
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Utah Educational Savings Plan
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UESP is one of the best in the nation!
»
Kiplinger’s Personal Finance
Magazine
»
Money magazine
»
Savingforcollege.com
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UESP Features
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9 investment options
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Ultra low fees
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No enrollment fees
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No minimum contributions
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No yearly fee for Utah residents
(owners)
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Contributions & Account
Balances
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Contributions can be made by anyone
»
No income limits for contributor
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No minimum initial contribution
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No minimum subsequent contribution
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May contribute up to
$315,000/beneficiary
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Tax Advantages
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Earnings grow free from federal & state income tax
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When used for qualified higher ed expenses
earning are exempt from:
»
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federal & state income taxes
For 2007, UT taxpayers may deduct contributions
of up to $1,650 ($3,300 if filing jointly) or take a tax
credit of $82.50 ($165 if filing jointly) per
beneficiary.
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Fees & Charges
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Deal directly with UESP <www.uesp.org>
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No enrollment fees
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Administrative fee + fund expense ratios
»
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0.25% - .0414%
Max. annual maintenance fee = $25
»
Waived for owners who are Utah residents
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Qualified Expenses
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Tuition
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Room & Board
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Books, supplies & equipment
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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
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4 static options
»
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Investment mix does not change
5 age-based options
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Investment mix becomes more
conservative as child ages
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UT Public Treasurer’s Investment Fund (PTIF)
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Vanguard Group mutual funds
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Static Investment Options
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Money market (Utah Public Treasurers
Investment Fund, PTIF)
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S&P Index Stock Fund
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Bond market Index Fund
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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
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Review handout with
9 options
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Tax Deferral Pays!
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Tax-deferred money continues to grow
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The longer you defer paying tax,the more you
accumulate
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Money contributed to a 529 plan grows taxdeferred and is tax-free when used for
qualified higher education expenses
»
Can be used in U.S. and Canada
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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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Related Resources
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UESP http://www.uesp.org
»
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1-800-418-2551
Internet Guide to Funding College
http://www.savingforcollege.com
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Questions?
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