Investing for  College Financial Planning for Women Jean Lown, FCHD Dept., USU Tiffany Smith, student
Upcoming FPW Programs <ul><li>April 13: Getting Ready for Estate Planning </li></ul><ul><li>May 11: Stock Mutual Funds  </...
Class Objective: To learn about tax-advantaged ways to invest for college <ul><li>Coverdell Education Savings Accounts </l...
Overview  <ul><li>Balancing goals; Setting priorities </li></ul><ul><li>Coverdell ESAs </li></ul><ul><li>529 college savin...
What about Retirement?  <ul><li>Before you contribute to college savings for children </li></ul><ul><ul><li>Is your retire...
Set Priorities; Balance Your Goals <ul><li>Ensuring retirement security is more important than investing for college </li>...
Coverdell Education Savings Accounts  (ESAs) <ul><li>Formerly called education IRAs </li></ul><ul><li>Federal tax breaks <...
Coverdell Limitations <ul><li>Maximum contribution: $2,000/year/child </li></ul><ul><li>Contributors must have less than $...
529 College Savings Plans <ul><li>Section 529 of IRS Code </li></ul><ul><li>Federal & state tax advantages </li></ul><ul><...
529 Advantages <ul><li>Funds grow tax-free (federal & most states) </li></ul><ul><li>Withdrawals are tax-free (federal & s...
Federal Financial Aid <ul><li>Account is treated as an asset of the parent or other account owner in determining eligibili...
School-based Financial Aid  <ul><li>Each school sets its own rules for its own need-based scholarships </li></ul><ul><ul><...
529 Disadvantages <ul><li>Sunset provision – current law expires Dec. 31, 2010 </li></ul><ul><li>Some state programs </li>...
Utah Educational Savings Plan <ul><li>UESP is one of the best in the nation! </li></ul><ul><ul><li>Kiplinger’s Personal Fi...
UESP Features  <ul><li>9 investment options </li></ul><ul><li>Ultra low fees </li></ul><ul><li>No enrollment fees </li></u...
Contributions & Account Balances <ul><li>Contributions can be made by anyone </li></ul><ul><ul><li>No income limits for co...
Tax Advantages <ul><li>Earnings grow free from federal income tax </li></ul><ul><li>When used for qualified higher ed expe...
Fees & Charges <ul><li>Deal directly with UESP </li></ul><ul><li>No enrollment fees </li></ul><ul><li>Administrative fee +...
Qualified Expenses <ul><li>Tuition </li></ul><ul><li>Room & Board </li></ul><ul><li>Books, supplies & equipment  </li></ul...
Account Owner Control <ul><li>How & when the money is used </li></ul><ul><li>Change beneficiaries within family </li></ul>...
Investment Options <ul><li>4 static options </li></ul><ul><ul><li>Investment mix does not change </li></ul></ul><ul><li>5 ...
Static Investment Options  <ul><li>Money market (Utah Public Treasurers Investment Fund, PTIF) </li></ul><ul><li>S&P Index...
Age-Based Options <ul><li>S&P/Bonds/Money market  </li></ul><ul><li>S&P/bonds </li></ul><ul><li>Diversified A </li></ul><u...
Investment Options <ul><li>Review handout with 9 options </li></ul>
Tax Deferral Pays! <ul><li>Tax-deferred money continues to grow </li></ul><ul><li>The longer you defer paying tax,the more...
Non-qualified Disbursements <ul><li>10% federal tax penalty on  earnings </li></ul><ul><li>No penalty on contributions </l...
What if law is not renewed? <ul><li>Current law expires 12/31/2010 </li></ul><ul><li>Earnings portion of disbursements wil...
Related Resources <ul><li>UESP http://www.uesp.org </li></ul><ul><ul><li>1-800-418-2551  </li></ul></ul><ul><li>Internet G...
Questions?
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Investing for College Financial Planning for Women

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Investing for College Financial Planning for Women

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

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