Transcript Document
Your Financial Flight Plan
Investing for Your Child’s College Education
January, 2013 Michael Bergines | President, CoPilot Financial
Goals for Today
Define
• Smart college funding
Explain
• The pros and cons of different methods of investing for college
Inspire
• Your next steps toward completing a financial plan that will help you pay for higher education
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I understand where you’re coming from . . .
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The College Crisis
• Costs have risen 498% since 1985 • College debt now exceeds credit card debt – over $1 TRILLION! • Higher education may be your biggest outlay of money - ever • College funding can no longer be considered in isolation
“How do I save for this and retirement?”
498% College Education Inflation Rate
1985
Overall Consumer Prices 115%
2001 2011
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A Family Decision
• Is higher education right for your child? It’s still a great investment (for certain people) • There are many paths to a 4-year degree • How much should you pay for (if any)? How much should your child pay (if any)? Undergrad? Grad school?
• Think long term - Do you know how paying for college might affect other family members? Might effect your retirement?
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Benefits of Developing a Financial Plan for College
• Get out ahead of “education inflation” • Manage your child’s education debt level • Keep your children focused on school instead of bills • Teach your children about financial decision making • Share your values with your children • Protect your retirement and set your financial priorities
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Preparing for Takeoff
Step One: Define Your Destination
• Start where you want to finish – Work backward to determine how you’ll get there • Assess your situation – Age of children – Years to retirement – Retirement lifestyle – Current savings/investments – Other financial priorities
“The first step to getting the things that you want out of life: Decide what you want.” – Ben Stein
– Time and/or desire to pursue scholarships
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Step Two: Identify Your Travel Companions
• • • • Grandparents and other family members Child’s contributions Scholarships/Grants Your contribution - education investment vehicles
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Step Three: Prepare for Turbulence
Things you can’t manage
• Fluctuating investment growth rates • Fluctuating rates of education inflation
Things you CAN manage
• Qualifying for financial aid and access to scholarships • Family spending and debt levels • A thoughtful, customized strategy for you and your family
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Step Four: Select Your Equipment
Which investment vehicles will get you where you want to go?
529 Plans
- Tax-advantaged investment specifically for higher education expenses
UGMA/UTMA
- Account that holds assets for a minor, allowing estate tax and some investment tax benefits
Standard Investing
- Investments in market and non-market investments - stocks, bonds, real estate, etc.
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529 Plans
Pros
No tax on growth or distribution for school-related expenses You maintain control of the assets Considered child’s assets for financial-aid purposes
Cons
Penalties for non-school related distributions Fees and quality of investment returns vary by state Multiple 529s needed for families with multiple students in college Anyone can contribute – contributions considered gifts for tax purposes Investments may be changed only 1x per year State income tax deduction in some states Transferable to any student Can accept only cash
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Are 529 Plans Right for You?
• • • •
Act if:
You’re investing early in your child’s life You expect relatives to contribute You want to maximize chances to qualify for financial aid You prefer to maintain control over assets • • •
Avoid if:
Your child may not need the entire amount for college (or may not attend) You want to adjust investments more than 1x per year You are interested in using non-market assets to fund your child’s education
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UGMA/UTMA
Pros Cons
Proceeds can be used for more than educational expenses A portion of investment earnings and gains are taxed at the minor’s tax rate No restrictions on investment amounts Contributions are not part of the donor’s estate (unless the donor is the custodian) Donor has no control over money after student turns 18 Irrevocable gift – cannot change beneficiary Considered child’s asset for financial aid purposes Donations treated as gifts for tax purposes
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Is UGMA/UGTA Right for You?
• • • •
Act if:
You’re investing early in your child’s life You may use funds for a private secondary school or other expenses for your child You’d like to reduce the size of your estate You’d like your child to have flexibility for how money is used • •
Avoid if:
You want to control the investments after your child turns 18 You would like flexibility to change the beneficiary
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Standard Investing
Pros
Breadth of investment options – any asset can be used Management flexibility Proceeds can be used for any purpose
Cons
Considered parental assets for financial-aid purposes Taxed as short- and long-term gains Maintain control of assets No limits on how much you can invest Can give to multiple recipients in the same year
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Is Standard Investing Right for You?
• • • •
Act if:
Investment choice is important to you You enjoy managing your money You would like to have flexibility with how proceeds are used You would like to use non-market investments • • •
Avoid if:
You are planning to invest while your child is young You want to minimize the tax impact on any investment You want to maximize your chances to receive financial aid
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Step Five: Choose Your CoPilot
• They help create and execute a flight plan to get you to your destination • They realize that each route to a destination may be different or have to change • They are there to assist you, not to fly the plane • They provide proactive, periodic communication on flight status • They are there from take off to landing
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Starting Your Journey
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About CoPilot Financial
Financial Navigation for Your Family
• • Our Vision Help young families to build fulfilling, financially stable lives Help our clients sleep well, live better, and dream bigger • • • • Our Beliefs Everyone should have access to a quality financial partner & affordable advice Financial professionals should operate with transparency and simplicity A comprehensive financial plan should drive investment and financial life decisions Advisor compensation should be fee-only to ensure total client alignment Flight Plan | CoPilot Map | CoPilot GPS | CoPilot 360 Investment Advice
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Summary
• College funding could one of the biggest expenditures you will ever make • • • Use it as a family teaching and communication moment Have a point-of-view and a strategy Start early – preserve your retirement and your child’s potential future • Choose your investment vehicles that fit your strategy • 529s, UGMA/UGTA, Standard Investing • Consider enlisting a professional to provide holistic (not just investment) support
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Questions?
Mike Bergines
www.copilotfinancial.com
1-888-987-4568
Please let us know if you would like to chat informally about your personal situation 19