PAYING FOR COLLEGE Making Cents Clay Community Center September 12, 2013 Disclaimer Andreas Rauterkus is not a registered investment advisor or broker/dealer.
Download
Report
Transcript PAYING FOR COLLEGE Making Cents Clay Community Center September 12, 2013 Disclaimer Andreas Rauterkus is not a registered investment advisor or broker/dealer.
PAYING FOR COLLEGE
Making Cents
Clay Community Center
September 12, 2013
Disclaimer
Andreas Rauterkus is not a registered investment
advisor or broker/dealer. Readers are advised that
the material contained herein should be used
solely for informational purposes. Andreas
Rauterkus does not purport to tell or suggest
which investment securities attendants should buy
or sell for themselves. You should always conduct
your own research and due diligence and obtain
professional advice before making any investment
decision.
Why Save for College?
College is Expensive
Type of
Institution
Projected 4-year tuition and fees
2012
2030
Private College
$124,700
$355,800
Public (in-state)
$36,050
$102,900
Based on average tuition and fees for 2011-2012 as reported by The College Board, assuming to increase 6% annually
Goal: afford the college of choice
How do you finance the investment in education?
Pay as you go
Pay later
Student loans
Find someone to help pay
Scholarships and grants
Start saving now
Example: Monthly savings goal* through final
month of college
Type of school
Public
Private
Ivy
Current annual
costs**
$16,000
$37,000
$47,000
Newborn
$432
$999
$1,269
Four
$487
$1,126
$1,431
Eight
$578
$1,337
$1,698
Twelve
$756
$1,748
$2,221
Sixteen
$1,224
$2,831
$3,596
Child’s age
*Assumes 6% annual college cost increase and 6% annual investment return
**incl. tuition, fees, room, board and books according to The College Board
Federal tax incentives
Qualified Tuition programs (529 plans)
Earnings grow tax deferred
Distributions are tax-free when used for qualified post-secondary
education costs
Coverdell Education Savings Accounts
Same as above
Max. contribution is $2,000 per year per child
May also be withdrawn tax-free for primary and secondary school
expenses
U.S. Savings Bonds
EE and I bonds can be redeemed tax free to pay for college tuition.
Income has to be less than $85,100 ($135,100)
Individual Retirement Accounts
No withdrawal penalties for qualified post secondary education costs
Taxes are still due on withdrawals
Qualified Tuition Plans (529 Plans)
Authorized by Section 529 of the Internal Revenue
Code
Tax-advantaged savings plan designed to
encourage saving for future college costs
If money is withdrawn and not used for eligible
college expenses, earnings are subject to income
tax and a 10% federal tax penalty
All 50 states and the District of Columbia sponsor
at least one type of 529 plan
Pre-paid tuition plans versus college savings plans
Prepaid Tuition vs. College Savings Plan
Prepaid Tuition Plan
College Savings Plan
Locks in tuition prices
No lock on college costs
All plans cover at least tuition and
mandatory fees
Covers all qualified expenses, incl.
tuition, room & board, mandatory fees,
books, computers
Lump sum and installment payments
prior to purchase based on age of
beneficiary and number of years of
college tuition
Many plans have contribution limits in
excess of $200,000
Many states plans guaranteed or backed No state guarantee. Investment options
by state
are subject to market risk
Age/grade limit for beneficiary
No age limits
Most state plans require either owner or No residency requirement
beneficiary to be a state resident
Limited enrollment period
Enrollment open all year
Alabama 529 plans
Higher Education 529 Fund (advisor sold)
http://www.collegecounts529advisor.com
Contributions to state plan are tax deductible up to $5,000
per year
Higher Education 529 Fund (direct sold)
http://www.collegecounts529.com
Contributions to state plan are tax deductible up to $5,000
per year
Prepaid Affordable College Tuition (PACT) Program
Since 2008 contributions to state plan are tax deductible
up to $5,000 per year
Closed to new enrollments
Putting the Plan Together
Establish a savings budget
Minimize taxes
Children can earn up to $1,900 in investment income without paying
federal income tax
Consider 529 plans and education savings accounts even for
older children
Invest tax-free whenever possible
Create the right mix between taxable and tax-free investments
Concentrate growth portion in taxable accounts
Income producing portion in 529 account or education savings account
Capital losses in a 529 plan or ESA do not produce a capital loss for tax
purposes
Financing Your Education
Free Application for Federal Student Aid (FAFSA)
Determine eligibility for federal student financial
aid
Determine expected family contribution
Measure of family’s financial strength
Student Aid Report (SAR)
Summary of FAFSA responses
Eligibility
Nearly every student is eligible for some financial
aid
Need to meet certain eligibility criteria
Need-Based Options
• Loans
• Long-term, low interest
• Subsidized Federal Direct Stafford Loans
• Maximum amount depends on status
• Low interest rate
• Interest is deferred until 6 months after graduation
Need-Based Options (cont’d)
Federal Perkins Loans
Based on exceptional need
Interest is subsidized and fixed
Repayments begin 9 months after
graduation (up to 10 years)
Federal Grants
Grants do not have to be repaid
Pell grants
Supplemental Education Opportunity grant
Academic Competiveness grant
SMART grant
Veteran benefits
G.I. bill
Other Need Based Options
Work Study
Federal program
Earn money to pay for college
State programs
Alabama Commission on Higher Education
http://www.ache.alabama.gov/Students&Parents/PayingforCollege.htm
Non-Need-Based Options
Unsubsidized Federal Direct Stafford Student Loan
Similar to subsidized variety, but higher interest rate
Federal Direct Parent Loan for Undergraduate Students (PLUS)
Direct PLUS for graduate and professional students
Borrow directly from a private lender
Federal consolidation loans
Combine loans to one lender
Fixed interest rate
State programs
Qualified state tuition programs (529 plans)
Prepaid tuition plans
Scholarships
Money that you are not expected to repay
Colleges award many scholarship
Based on GPA
Based on major
Based on specific talent
Based on residency
Outside scholarships
Companies
Religious and civic organizations
Scholarship scams
THANK YOU!