Helping Parents and Students Build for the Financial Future (Doug Chittenden)

8/7/2019 Helping Parents and Students Build for the Financial Future (Doug Chittenden)

1/13

An Overview of Section 529 PlansAn Overview of Section 529 PlansDouglas ChittendenDouglas Chittenden

VP Institutional Product ManagementVP Institutional Product Management

TIAATIAA--CREFCREF


2/13

Cost of Higher EducationCost of Higher Education

$0

$50,000

$100,000

$150,000

$200,000

$250,000

2005 2010 2015 2020

Year

4yr Public

4yr Private

*Source: Trends in College Pricing, published by the College Board FS*Source: Trends in College Pricing, published by the College Board FS--33


3/13

College Funding OpportunitiesCollege Funding Opportunities

Qualified Tuition ProgramsQualified Tuition Programs 529529

Prepaid Tuition PlansPrepaid Tuition Plans

College Savings PlansCollege Savings Plans


4/13

Prepaid Tuition PlansPrepaid Tuition Plans

Allows for the purchase of future tuition atAllows for the purchase of future tuition attodays prices.todays prices.

Approx. 20 states operate preApprox. 20 states operate pre--paid programspaid programsfor public universities in those states.for public universities in those states.

Typically funds may be used taxTypically funds may be used tax--free forfree fortuition and room and board.tuition and room and board.

A program for independent colleges andA program for independent colleges anduniversities is available through the Tuitionuniversities is available through the TuitionPlan Consortium with TIAAPlan Consortium with TIAA--CREF as theCREF as theprogram manager.program manager.


5/13

College Savings PlansCollege Savings Plans Federal tax deferred growth and federal taxFederal tax deferred growth and federal tax

free withdrawals for qualified higher educationfree withdrawals for qualified higher educationexpensesexpenses

Some states offer additional state taxSome states offer additional state taxincentivesincentives

Funds can be used at any eligible school forFunds can be used at any eligible school fortuition, fees, room and board, books, suppliestuition, fees, room and board, books, suppliesand required equipment such as computersand required equipment such as computers

No income limits for participation or benefitsNo income limits for participation or benefits


6/13

College Savings PlanCollege Savings Plan Program DesignProgram Design

Programs typically offer a range of investmentPrograms typically offer a range of investmentoptions.options.

Aged based modelsAged based models Asset based options, fixed income, equityAsset based options, fixed income, equity

Fund specific optionsFund specific options

Account owners can change options yearlyAccount owners can change options yearly

States set contribution maximums set to allow for fullStates set contribution maximums set to allow for fullfunding of four years of collegefunding of four years of college


7/13

College Savings MarketplaceCollege Savings Marketplace

529 Assets have grown to over $90 Billion industry wide529 Assets have grown to over $90 Billion industry wide

Federal Tax Permanency enactedFederal Tax Permanency enacted Sunset ProvisionSunset Provision

eliminatedeliminated

BrokerBroker--Driven Growth, 70Driven Growth, 70--80% of assets are invested through80% of assets are invested throughAdvisors and BrokersAdvisors and Brokers

Confusing 529 LandscapeConfusing 529 Landscape

PrePre--Paid vs. Savings vs. Other College Savings Options suchPaid vs. Savings vs. Other College Savings Options suchas UGMA accountsas UGMA accounts

Large number of 529 programs to choose fromLarge number of 529 programs to choose from


8/13

College Savings ProgramsCollege Savings Programs Market OverviewMarket Overview

Programs are maturing and assets arePrograms are maturing and assets aregrowing, driving down costs and leading togrowing, driving down costs and leading to

product innovationproduct innovation affinity programs etc..affinity programs etc.. State market is segmenting as larger statesState market is segmenting as larger states

accumulate more assetsaccumulate more assets

Industry Groups are Pushing for State TaxIndustry Groups are Pushing for State Tax

EquityEquity more attention to suitabilitymore attention to suitability


9/13

Principles for SuccessfulPrinciples for Successful

College Savings StrategyCollege Savings Strategy Start Early and make continuous, onStart Early and make continuous, on--goinggoing

contributionscontributions

Typical ReTypical Re--contribution Ratecontribution Rate 60%60% Use a diversified portfolio of investmentsUse a diversified portfolio of investments

Age Based Allocation Options typically hold 60%Age Based Allocation Options typically hold 60% --70% of program assets70% of program assets

Take advantage of federal and state basedTake advantage of federal and state basedtax incentivestax incentives

Minimize expensesMinimize expenses


10/13

Take Advantage of TaxTake Advantage of Tax

IncentivesIncentives

$129,752

$137,867

$148,035$154,325

$115,000$120,000$125,000$130,000$135,000

$140,000$145,000$150,000$155,000

Mutual

Fund(After-

tax)

Mutual

Fund(UGMA)

529

Sav ngs(no state

ded.)

529

Sav ngs(with

state tax

ded.)* $6,000 invested each year for 15 years. 6% investment return. Account owner in 27% federal and

5% state income tax brackets. Beneficiary child is in the 10% federal and 5% state income tax

bracket. 35% of proceeds are dividends taxed at 27% federal and 5% state income tax rates. 30%

are short-term capital gains and 35% are deferred capital gains taxed at a 20% rate (10% forUGMA). FS-19


11/13

Minimize ExpensesMinimize Expenses

$30,546$29,529

$28,543

$26,215

0.60% 0.80% 1.00% 1.50%$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

Assumes a $10,000 deposit at birth and allowed to grow for 18 years in the same plan,

with different annual asset-based fee charges . Assuming a 7% return.


12/13

TIAATIAA--CREFCREF College Savings ProgramsCollege Savings Programs

TIAATIAA--CREF is program manager for 10 stateCREF is program manager for 10 stateprogramsprograms

MichiganMichigan Connecticut Connecticut

IdahoIdaho KentuckyKentucky

TennesseeTennessee MississippiMississippi

GeorgiaGeorgia MinnesotaMinnesota

VermontVermont CaliforniaCalifornia


13/13

TIAATIAA--CREF College Savings ProgramCREF College Savings Program --

Independent College (IIndependent College (I--529) Pre529) Pre--Paid ProgramPaid Program

II--529 program provides for the pre payment of tuition at529 program provides for the pre payment of tuition atIndependent Colleges and Universities, it is operated by theIndependent Colleges and Universities, it is operated by theTuition Plan Consortium (TPC)Tuition Plan Consortium (TPC)

Approximately 275 Member Private Colleges and Universities,Approximately 275 Member Private Colleges and Universities,including Princeton, Stanford, University of Notre Dame andincluding Princeton, Stanford, University of Notre Dame andJohns Hopkins (new member.)Johns Hopkins (new member.)

PrePre--paid tuition can be applied to any member institutionpaid tuition can be applied to any member institution

If child does not attend member institution, account ownerIf child does not attend member institution, account owner

receives a refund with a nominal rate of investment returnreceives a refund with a nominal rate of investment return

Helping Parents and Students Build for the Financial Future (Doug Chittenden)

Documents