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Investing for College Financial Planning for Women
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Investing for College Financial Planning for Women

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  • 1. Investing for College Financial Planning for Women Jean Lown, FCHD Dept., USU Tiffany Smith, student
  • 2. Upcoming FPW Programs
    • April 13: Getting Ready for Estate Planning
    • May 11: Stock Mutual Funds
    • June 8: Teaching Kids About Money
    • July 13: Retirement Planning Workbook
    • August 10: Voluntary Simplicity
  • 3. Class Objective: To learn about tax-advantaged ways to invest for college
    • Coverdell Education Savings Accounts
    • 529 College Savings Plans
  • 4. Overview
    • Balancing goals; Setting priorities
    • Coverdell ESAs
    • 529 college savings plans
  • 5. What about Retirement?
    • Before you contribute to college savings for children
      • Is your retirement investment plan on track?
      • Pay down high interest consumer debt
  • 6. Set Priorities; Balance Your Goals
    • Ensuring retirement security is more important than investing for college
    • Don't use retirement funds for college
    • Students can borrow for college; retirees can use reverse mortgages… but
    • Before investing for college, review your retirement goals & investment plans
    • Investing for these two goals is not mutually exclusive (especially with grandparent help)
  • 7. Coverdell Education Savings Accounts (ESAs)
    • Formerly called education IRAs
    • Federal tax breaks
      • Funds grow tax-free
      • Withdrawals tax-free
      • NO deduction for contribution
    • All levels of education (K-12 + college)
    • No sunset provision
    • Unlimited investment options
    • Considered asset of parent for financial aid
  • 8. Coverdell Limitations
    • Maximum contribution: $2,000/year/child
    • Contributors must have less than $190,000 in modified adjusted gross income ($95,000 for single filers) in order to qualify for a full $2,000 contribution
    • No state tax advantages
    • Child owns the $ at maturity (18 in UT)
  • 9. 529 College Savings Plans
    • Section 529 of IRS Code
    • Federal & state tax advantages
    • Each state offers a different plan
    • Owned by contributor (parent, etc.) for beneficiary (child)
    • 10% penalty if not used for higher ed
  • 10. 529 Advantages
    • Funds grow tax-free (federal & most states)
    • Withdrawals are tax-free (federal & state)
    • Higher contribution limits than Coverdell
    • Contributions are state tax deductible (UT)
    • Owner controls the account
    • Simple process
  • 11. Federal Financial Aid
    • Account is treated as an asset of the parent or other account owner in determining eligibility for federal financial aid.
    • Your expected contribution towards your child's college costs will include 5.6%, or less, of the value of your non-retirement assets
    • 35% assessment against assets owned in your child's name or in a custodial account
  • 12. School-based Financial Aid
    • Each school sets its own rules for its own need-based scholarships
      • many schools take 529 accounts into account
    • Federal financial aid rules change often
    • Most financial aid is in the form of loans, not grants
  • 13. 529 Disadvantages
    • Sunset provision – current law expires Dec. 31, 2010
    • Some state programs
      • High fees
      • Poor investment choices
    • Brokers charge additional fees
  • 14. Utah Educational Savings Plan
    • UESP is one of the best in the nation!
      • Kiplinger’s Personal Finance Magazine
      • Money magazine
      • Savingforcollege.com
  • 15. UESP Features
    • 9 investment options
    • Ultra low fees
    • No enrollment fees
    • No minimum contributions
    • No yearly fee for Utah residents (owners)
  • 16. Contributions & Account Balances
    • Contributions can be made by anyone
      • No income limits for contributor
    • No minimum initial contribution
    • No minimum subsequent contribution
    • May contribute up to $315,000/beneficiary
  • 17. Tax Advantages
    • Earnings grow free from federal income tax
    • When used for qualified higher ed expenses earning are exempt from:
      • federal income taxes
      • Utah income taxes (for account owners who are UT residents)
    • In 2005 UT taxpayers can deduct contributions from UT income tax: up to $1510 ($3,020 for joint filers)
  • 18. Fees & Charges
    • Deal directly with UESP
    • No enrollment fees
    • Administrative fee + fund expense ratios
      • 0.25% - .0414%
    • Max. annual maintenance fee = $25
      • Waived for owners who are Utah residents
  • 19. Qualified Expenses
    • Tuition
    • Room & Board
    • Books, supplies & equipment
    • Eligible post-secondary schools in U.S. or abroad
  • 20. Account Owner Control
    • How & when the 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
  • 21. Investment Options
    • 4 static options
      • Investment mix does not change
    • 5 age-based options
      • Investment mix becomes more conservative as child ages
    • UT Public Treasurer’s Investment Fund (PTIF)
    • Vanguard Group mutual funds
  • 22. Static Investment Options
    • Money market (Utah Public Treasurers Investment Fund, PTIF)
    • S&P Index Stock Fund
    • Bond market Index Fund
    • 5 Stock funds
  • 23. Age-Based Options
    • S&P/Bonds/Money market
    • S&P/bonds
    • Diversified A
    • Diversified B
    • Diversified bonds emphasis
  • 24. Investment Options
    • Review handout with 9 options
  • 25. Tax Deferral Pays!
    • Tax-deferred money continues to grow
    • The longer you defer paying tax,the more you accumulate
    • Money contributed to a 529 plan grows tax-deferred and is withdrawn tax free
  • 26. 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
  • 27. What if law is not renewed?
    • Current law expires 12/31/2010
    • Earnings portion of disbursements will be taxed at beneficiary’s (child’s) tax rate
  • 28. Related Resources
    • UESP http://www.uesp.org
      • 1-800-418-2551
    • Internet Guide to Funding College http://www.savingforcollege.com
  • 29. Questions?