Planning for a Planning for a Child’s EducationChild’s Education

Jerome BrooksJerome Brooks

David SevyDavid Sevy

Tobi VincentTobi Vincent

The approximate future cost to fully fund four years of

college expenses for a newborn at a private

university!

Why we chose this topic…Why we chose this topic…

We all have children ages 18 months or lessWe all have children ages 18 months or less

Whatever principle of intelligence we attain unto in this life, it will rise with us in the resurrection. D&C 130:18

Understanding the costsUnderstanding the costs

Key factors to considerKey factors to consider What type of school your children will be What type of school your children will be

attending – public or privateattending – public or private What percentage of the funding will you What percentage of the funding will you

supply as a parentsupply as a parent How many children you will be sending How many children you will be sending

to collegeto college How many years until your children How many years until your children

reach college agereach college age

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2002 2020 2021 2022 2023

Year

Private Four-Year Tuition

$-

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

2002 2020 2021 2022 2023

Year

Public Four-Year Tuition

$-

$4,000

$8,000

$12,000

$16,000

$20,000

2002 2020 2021 2022 2023

Year

Room and Board

Education costs continue to riseEducation costs continue to rise

5.8%

5.3%

9.6%

Average annual

increase in education

costs

Education Funding OptionsEducation Funding Options

Qualified Tuition ProgramQualified Tuition Program ESA – Coverdell Education Savings ESA – Coverdell Education Savings

AccountAccount UGMA – Uniform Gift to Minors ActUGMA – Uniform Gift to Minors Act UTMA – Uniform Transfer to Minors ActUTMA – Uniform Transfer to Minors Act U.S. Savings BondsU.S. Savings Bonds IRAIRA Hope Scholarship CreditHope Scholarship Credit Lifetime Learning CreditLifetime Learning Credit

Qualified Tuition ProgramsQualified Tuition Programs College Savings Plan - 529College Savings Plan - 529

Maximum contribution above $100,000Maximum contribution above $100,000 Anyone can contributeAnyone can contribute May be state or local tax deductibleMay be state or local tax deductible Grows tax deferredGrows tax deferred Tax-free distributions for qualified purposesTax-free distributions for qualified purposes

Prepaid Tuition PlanPrepaid Tuition Plan Guaranteed to rise at the same rate as tuitionGuaranteed to rise at the same rate as tuition Best if used for in-state, public institutionsBest if used for in-state, public institutions Can be used Can be used onlyonly for tuition for tuition Can be transferred to other family membersCan be transferred to other family members

ESAsESAs

Coverdall Education Savings AccountCoverdall Education Savings Account Supplement for other education savingsSupplement for other education savings Maximum contribution $2000 annualMaximum contribution $2000 annual For Children under 18For Children under 18 Multiple people can contributeMultiple people can contribute Contribution are non-deductible Contribution are non-deductible Tax benefitsTax benefits

Assets grow tax deferredAssets grow tax deferred Usually state tax deductibleUsually state tax deductible Withdrawn tax-free for K-12 and collegeWithdrawn tax-free for K-12 and college

What is a custodial account?What is a custodial account?

An account set up by a An account set up by a “custodian” for the benefit of a “custodian” for the benefit of a third partythird party UGMAUGMA

Uniform Gift to MinorsUniform Gift to Minors UTMAUTMA

Uniform Transfer to MinorsUniform Transfer to Minors Savings fund is placed in the name Savings fund is placed in the name

of the childof the child

Why use an UGMA/UTMA?Why use an UGMA/UTMA?

Using your nameUsing your name AdvantagesAdvantages

Complete controlComplete control Funds can be used for Funds can be used for

other goalsother goals

DisadvantagesDisadvantages Doesn’t use child’s tax Doesn’t use child’s tax

raterate Reduced contribution to Reduced contribution to

personal retirement personal retirement plansplans

Using your child’s nameUsing your child’s name AdvantagesAdvantages

Lower taxes for earningsLower taxes for earnings No contribution limitsNo contribution limits

DisadvantagesDisadvantages Child may not pursue educationChild may not pursue education Assets are irrevocableAssets are irrevocable Child takes full control at age of Child takes full control at age of

minorityminority May limit child’s opportunity for May limit child’s opportunity for

financial aidfinancial aid

Tax credits and deductionsTax credits and deductions

Hope Scholarship Tax CreditHope Scholarship Tax Credit $1,500 tax credit per year per student$1,500 tax credit per year per student First two years of collegeFirst two years of college Modified AGI $80,000 to $100,000 Modified AGI $80,000 to $100,000

jointlyjointly Lifetime Learning CreditLifetime Learning Credit

$2,000 maximum per return$2,000 maximum per return Unlimited number of yearsUnlimited number of years Modified AGI $83,000 jointlyModified AGI $83,000 jointly

Financial AidFinancial Aid

Approximately 55% of students rely Approximately 55% of students rely on some type of financial aidon some type of financial aid

OptionsOptions GrantsGrants Subsidized loansSubsidized loans Merit based scholarshipsMerit based scholarships Work-study programsWork-study programs

In ConclusionIn Conclusion

To fully fund the education of a To fully fund the education of a newborn, you will need approximately newborn, you will need approximately $286,000!$286,000!

Start planning early to ensure…Start planning early to ensure…

A secure future for your childA secure future for your child Peace of mind for yourselfPeace of mind for yourself Financial rewards for both of youFinancial rewards for both of you Social benefits for everyoneSocial benefits for everyone

Where can I learn more?Where can I learn more?

E*tradeE*trade Fidelity InvestmentsFidelity Investments Salomon Smith BarneySalomon Smith Barney FirstradeFirstrade Your bankYour bank Your personal investment plannerYour personal investment planner