Jeopardy -CPCU 556 (week 7)

Retirement FundingCPCU 556 Personal Financial Planning

Educational Funding & TaxDonna M. Kesot, CPCU

Donna M. Kesot, CPCU, Copyright 2012 . All Rights Reserved, 5-2-2012

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Education Tax Treatment

MiscellaneousTax Credits

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400

C1 100 Question

Name 5 Factors affecting Cost of Education

C1 100 Answer

What is 1. Type of program (undergrad, grad., etc.)2. Type of institution (public, private,

community college, ivy league, etc.)3. Years involved4. Residency of student5. Employment status of student6. Scholarships & financial aid7. Room, Board, including utilities if off campus8. Transportation9. Incidental Expenses like: Entertainment

expense, Clothing, Other Personal Services

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C1 200 Question

Two Major Educational Tax Breaks

C1 200 AnswerWhat are Hope Scholarship Credit

› 1st Two Year of college› 100% 1st $1000, 50% next $1000 in qualified

fees/tuition› Reduced by scholarship/fellowships exempt

from tax Lifetime Learning Credit

› 20% of up to $10,000 annuall

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C1 300 Question

7 Federal Exclusions from Income, Gift, or Penalty Taxes

C1 300 AnswerWhat are1. Earning from qualified tuition programs2. Earnings from education savings accounts3. Interest of certain U.S. Savings Bonds4. Amounts up to $5,250 per employee5. Amounts of scholarship & fellowship

grants to degree candidates used for books, equipment, fees & supplies

6. Distributions of regular IRAs before age 59 ½ for eligible education expenses are not subject to 10% penalty

7. Unlimited gift tax exclusion for tuition directly to education organization

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Daily Double600 points

C1 400 Question

Two Federal Income Tax Deductions

C1 400 AnswerWhat are:1. Student Loan Interest Deduction

1. Interest paid on qualified student loans2. $2,500 maximum3. Phases out with adjusted gross income of $50,000

(single) and ($100,000 married filing jointly), and completely phased out at AGI $130,000.

2. Deduction for Higher Education Expenses

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C2 100 Question

American Tax Opportunity Credit

C2 100 AnswerWhat is the American opportunity credit? For 2012, you may be able to claim an American opportunity credit of up to $2,500 for qualified education expenses paid for each eligible student. Unlike a deduction, which reduces the amount

of income subject to tax, a credit directly reduces the tax itself.

Forty percent of the American opportunity credit may be refundable. This means that if the refundable portion of your credit is more than your tax, the excess will be refunded to you.

Up to 4 years

HomeAGI max: $180,000 if married filling jointly; $90,000 if single, head of household, or qualifying widow(er)

C2 200 Question

Hope Credit

C2 200 Answer For a taxpayer to claim the Hope Credit, the student for whom

you pay tuition and related expenses must be an eligible student. To be an eligible student, generally, the student must:

Not have had expenses that were used to figure a Hope Credit in any 2 earlier tax years.

Not have completed the first 2 years of postsecondary education (generally, the freshman and sophomore years of college) before this tax year.

Must have been enrolled at least half-time in a program that leads to a degree, certificate, or other recognized educational credential for at least one academic period beginning in the tax year.

Must have been free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

HomeDaily Double 400 points

C2 300 Question

Lifetime Learning Education Credits

C2 300 Answer

There is no limit on the number of years the lifetime learning credit can be claimed for each student.

The lifetime learning credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you.

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What is for 2011/2012, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students?

C2 400 Question

This happens when a student with a 529 decides to go out of state for college

C2 400 Answer

What is there is no locking in of tuition?

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C3 100 Question

Earnings from the assets in a Qualified Tax Plan (QTP)

C3 100 Answer

What is Not Taxable?

QTPs will also not be taxed on distribution if they are used to pay for qualified higher education expenses, i.e., qualified distribution

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C3 200 Question

529 Plans Definition

C3 200 Answer What are state programs that may be 529

savings accounts (or 529 saving account programs =prepaid tuition trusts)

Aka Qualified Tuition Program (QTP) Purchase credits or certificates for a

designated beneficiary for tuition and fees for a given number of academic periods or course units at the current tuition rates

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C3 300 Question

529 Contributions Tax Treatment

C3 300 AnswerWhat are: Not deductible for federal tax but considered

completed gifts from account owner to designated beneficiary, i.e. no federal gift tax no GST› Can be front loaded for 5 years ($11,000 annual

exclusion) May be deductible for state income tax for

residents of the state up to the state allowed limit?

HomeDaily Double = 600 points

C3 400 Question

Grants

C3 400 Answer

What are financial aid that does not need to be repaid?

Based on demonstrated need according to FAFSA & EFC calculation

Pell Grants are designed for low and middle income› Have not yet achieved

bachelor/professional degree Home

C4 100 Question

Expected Financial Contribution

C4 100 AnswerWhat is EFC, a measure of a family’s financial strength determined in the FAFSA (Free Application for Federal Student Aid?

EFC = Expected Parent Contribution + Expected Student Contribution

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A financial index derived from the income, assets, and other household information reported on the FAFSA used to determine a student’s level of eligibility to receive federal, state, and institutional financial aid

C4 200 Question

Coverdell Educational Savings Account

C4 200 Answer

What is a custodial savings account called an Education Individual Retirement Account (IRA) whose earnings grow tax-free on behalf of a minor beneficiary if used to pay for primary, secondary, or post secondary education expenses?

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C4 300 Question

Asset reducing strategies

C4 300 AnswerWhat are:Spend liquid assets & savingsPay for college with student assets firstSell assets with capital gains before FAFSAMake major cash purchases nowPay off loans and credit debgt with cash assetsMinimize savings levelsIncrease funding to annuitiesPay down mortgage on primary residence

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C4 400 Question

Series EE and Series I Savings Bonds

C4 400 Answer

What are Series EE--A US savings bond sold in demoninations of

$50 to $10,000, with the purchase price being 50% of the face amount (e.g. issued at a discount & redeemable at face value at maturity)

Series I—A nonnegotiable US Treasury obligation that pays investors a composite fixed rate plus an inflation-based rate of return that is adjusted annually and is issued at face value

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