Investing for College Financial Planning for Women Jean Lown, FCHD Dept., USU Erica Abbott, FCHD student July 10th 2013.
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Investing for College
Financial Planning for Women
Jean Lown, FCHD Dept., USU
Erica Abbott, FCHD student
July 10th 2013
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Investing for College
Financial Planning for WomenJean Lown, FCHD Dept., USU
Erica Abbott, FCHD studentJuly 10th 2013
Higher Education
• We refer to “college” but includes any accredited post-secondary education
• 529 plans are NOT limited to 4 year degree institutions– Can be used in other countries, too– Not just for kids
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Why Invest for College
Expected lifetime income for:
•High school graduate: $1,371,000
•Some college: $1,622,000
•Bachelor’s Degree: $2,422,000
•$1,000,000 difference in lifetime earnings between high school & bachelor’s degree!
U.S. Census Bureau, 2011 American Community Survey
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Why Invest for College
• College costs rise faster than inflation
• Student loans can be burdensome
• Average student loan debt: $24,301 (Federal Reserve Bank of New York, 2013)
• What options are there??
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First Things First
• Before you contribute to college savings– Is your retirement plan on track?– Pay down high interest consumer debt
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Set Priorities
• Ensuring retirement security is more important than investing for college
• 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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Ensure Retirement Security First
• Don't use retirement funds for college• Students can borrow for college • Retirees can use reverse mortgages…
but there are consequences
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Tax-Advantaged Education Investing
• Coverdell Education Savings Accounts
• K-12 & higher education
• 529 College Savings Plans
• Higher ed. expenses only
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Coverdell Education Savings Accounts (ESAs)
• Federal tax breaks– Funds grow tax-free– Withdraw tax-free
• No state tax advantages• All levels of education (K-12 + college)• Considered parental asset for financial aid
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Coverdell ESAs
• Maximum contribution: $2,000/year/child
• Almost limitless investment options• Contributors must have <$190,000 in
modified AGI ($95,000 for single filers) to qualify for full $2,000 contribution
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Coverdell ESAs
• Child owns the $ at maturity (18 in UT)Must use money by age 30
• If not used: 10% penalty on account growth– Change beneficiary to avoid penalty
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529 College Savings Plans
• Section 529 of IRS Code
• Federal & state tax advantages
• Each state offers different plan– You can invest in other state’s plan
• Owned by contributor (parent, grandparent. etc.) for beneficiary (child)
10% penalty if not used for higher ed
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529 Advantages
• Funds grow tax-free (federal & most states)
• Withdrawals are tax-free (federal & state)
• Higher contribution limits than Coverdell
• State tax credit for contributions (UT)
529
• Owner controls account
• Simple to set up & maintain
• No deadline for using $
• Beneficiary can be changed at any time
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Federal Financial Aid
• 529 is treated as parental (or other account owner) asset in determining federal financial aid eligibility
• Expected parental contribution to child's college costs is 5.6% or less of non-retirement assets
• 35% assessment against assets owned in child's name or in custodial account
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School-based Financial Aid
• Each school sets own rules for need-based scholarships– Private colleges take 529 accounts into
consideration– Federal financial aid rules change often
• Most financial “aid” is loans, not grants
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Potential 529 Disadvantages
• Some state programs– High fees– Poor investment choices
• Brokers charge additional fees – Skip the broker– Invest directly
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Utah Educational Savings Plan
• UESP is one of best 529 plans!
– Kiplinger’s Personal Finance
– Money magazine
– The Wall Street Journal
– Morningstar gold rating
– Savingforcollege.com
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UESP Features
• As of June 2013, 14 investment options
• Ultra low fees: .14 to .20%
• No enrollment fees
• No minimum contributions
• No yearly fee for Utah residents (owners)
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Contributions & Account Balances
• Contributions can be made by anyone
– Grandparents, aunts, uncles, friends
– No income limits for contributor
• No minimum initial contribution
• No minimum subsequent contribution
• May accumulate up to $397k/beneficiary
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Tax Advantages
• Account grows free from federal & state income tax
• When used for qualified higher ed expenses funds are exempt from:
– federal & state income taxes
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Tax Advantages
• In 2013, UT taxpayers may claim a tax credit
– $1,840 in contribution per beneficiary ($3,680 for joint filers) = 5% maximum state benefit cap
– Max. tax credit: $92 - $184/beneficiary/year
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Fees & Charges
• Deal directly with UESP <www.uesp.org>
• No enrollment fees
• UESP’s fees are among lowest of all 529 plans
• Max. annual maintenance fee = $15
– Waived for owners who are Utah residents
– Waived if you go paperless
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Qualified Expenses & Schools
• Tuition
• Room & board
• Books, supplies & equipment
• Eligible post-secondary schools in U.S. or abroad
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Account Owner Control
• How & when 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
• 8 static options
– Investment mix does not change
• 4 age-based options
– Investment mix becomes more conservative as child ages
• 2 Customized options
• Use combination of static or age-based options to create your own allocation
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Static Investment Options
• Equity—100% US stocks
• Equities-- 30% International stocks
• Equities—10% International
• 70% Equity/30% Fixed Income
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Static Investment Options
• 20% Equity/80% Fixed Income
• Fixed income
• Public Treasurers’ Investment Fund
• FDIC-Insured Savings
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Age-Based Options
• Aggressive Global: Domestic and international equity (stock) funds
• Aggressive Domestic: Domestic equity funds
• Moderate: Contains moderate domestic & international funds
• Conservative: Fixed income
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Create Your Own Asset Allocation
• Combine any of 4 age-based investment options to create your own mix
• Or use any of the 8 static options
• Sign up today for automatic contributions!
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Investment Options
• http://www.uesp.org/pdfs/Investment-Info/Asset_Allocation_Table.aspx
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Tax Deferral Pays!
• 529 plan grows tax-deferred & is tax-free when used for qualified higher ed expenses
– Tax-deferred money grows faster than taxable accounts
– Can be used in US, Canada & beyond
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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
529 Plans NOT just for kids!
• Adults can contribute to 529 accounts for their own higher ed. expenses
• Funds can be used for grad school
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UESP Fast Forward Matching Program
• UESP will match contributions, $ for $, up to $400/yr./beneficiary for Utah residents earning no more than 200% of federal poverty guidelines
• You can’t afford NOT to participate!
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Related Resources
• UESP http://www.uesp.org
– 1-800-418-2551
• Internet Guide to Funding College http://www.savingforcollege.com
• FINRA 529 college savings plans http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/RetirementAccounts/P010756
Refer a Friend Promotion
• If you are a Utah resident UESP account owner/agent, you may qualify to receive a $20 contribution to your account if: You refer to UESP friends or family members who are Utah residents; and
• Your friends or family members are Utah residents and they open and contribute at least $10 to a new UESP account by July 31, 2013, or when UESP funding is depleted.
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Questions?
Upcoming FPW
• No August program• September 11: "Social Security and
Retirement Timing," financial planner Suzanne Dalebout, Head of Women's Division at Legacy Financial Group, LLC– 11:30: TSC 336– 7pm: Logan Library Bonneville Room
• Oct & Nov: what topics do you want?
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FPW Resources
• Website: http://www.usu.edu/fpw/
• Facebook: http://www.facebook.com/FinancialPlanningforWomen
• Blog: http://fpwusu.blogspot.com– Searchable by topic– Replaces newsletter
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