Investing for
College
Financial Planning
for Women
Jean Lown, FCHD
Dept., USU
Erica Abbott, FCHD
student
July 10th 2013
Investing for College
Financial Planning for Women
Jean Lown, FCHD Dept., USU
Erica Abbott, FCHD student
July 10th 2013
2
Higher Education
• We refer to “college” but includes any
accredited post-secondary education
• 529 plans are NOT limited to 4 year
degree institutions
– Can be used in other countries, too
– Not just for kids
3
Why Invest for College
Expected lifetime income for:
•
High school graduate: $1,371,000
•
Some college: $1,622,000
•
Bachelor’s Degree: $2,422,000
•
$1,000,000 difference in lifetime earnings
between high school & bachelor’s degree!
U.S. Census Bureau, 2011 American Community Survey
4
Why Invest for College
• College costs rise faster than inflation
• Student loans can be burdensome
• Average student loan debt: $24,301
(Federal Reserve Bank of New York, 2013)
• What options are there??
5
6
First Things First
• Before you contribute to college savings
– Is your retirement plan on track?
– Pay down high interest consumer debt
7
Set Priorities
• Ensuring retirement security is more
important than investing for college
• Before investing for college, review your
retirement goals & investment plans
• Investing for these two goals is not
mutually exclusive (especially with
grandparent help)
8
Ensure Retirement Security First
• Don't use retirement funds for college
• Students can borrow for college
• Retirees can use reverse mortgages…
but there are consequences
9
Tax-Advantaged Education
Investing
• Coverdell
Education Savings Accounts
• K-12 & higher education
• 529 College Savings Plans
• Higher ed. expenses only
10
Coverdell Education Savings
Accounts (ESAs)
• Federal tax breaks
– Funds grow tax-free
– Withdraw tax-free
• No state tax advantages
• All levels of education (K-12 + college)
• Considered parental asset for financial aid
11
Coverdell ESAs
• Maximum contribution:
$2,000/year/child
• Almost limitless investment options
• Contributors must have <$190,000 in
modified AGI ($95,000 for single filers)
to qualify for full $2,000 contribution
12
Coverdell ESAs
• Child owns the $ at maturity (18 in UT)
Must use money by age 30
• If not used: 10% penalty on account growth
– Change beneficiary to avoid penalty
13
529 College Savings Plans
• Section 529 of IRS Code
• Federal & state tax advantages
• Each state offers different plan
– You can invest in other state’s plan
• Owned by contributor (parent,
grandparent. etc.) for beneficiary (child)
10% penalty if not used for
higher ed
14
529 Advantages
• Funds grow tax-free (federal & most states)
• Withdrawals are tax-free (federal & state)
• Higher contribution limits than Coverdell
• State tax credit for contributions (UT)
15
529
• Owner controls account
• Simple to set up & maintain
• No deadline for using $
• Beneficiary can be changed at any time
16
Federal Financial Aid
• 529 is treated as parental (or other account
owner) asset in determining federal financial aid
eligibility
• Expected parental contribution to child's college
costs is 5.6% or less of non-retirement assets
• 35% assessment against assets owned in child's
name or in custodial account
17
School-based Financial Aid
• Each school sets own rules for needbased scholarships
– Private colleges take 529 accounts into
consideration
– Federal financial aid rules change often
• Most financial “aid” is loans, not grants
18
Potential 529 Disadvantages
• Some state programs
– High fees
– Poor investment choices
• Brokers charge additional fees
– Skip the broker
– Invest directly
19
Utah Educational Savings Plan
• UESP is one of best 529 plans!
– Kiplinger’s Personal Finance
– Money magazine
– The Wall Street Journal
– Morningstar gold rating
– Savingforcollege.com
20
UESP Features
• As of June 2013, 14 investment options
• Ultra low fees: .14 to .20%
• No enrollment fees
• No minimum contributions
• No yearly fee for Utah residents (owners)
21
Contributions & Account Balances
• Contributions can be made by anyone
– Grandparents, aunts, uncles, friends
– No income limits for contributor
• No minimum initial contribution
• No minimum subsequent contribution
• May accumulate up to $397k/beneficiary
22
Tax Advantages
• Account grows free from federal & state income tax
• When used for qualified higher ed expenses funds
are exempt from:
– federal & state income taxes
23
Tax Advantages
• In 2013, UT taxpayers may claim a tax credit
– $1,840 in contribution per beneficiary ($3,680 for
joint filers) = 5% maximum state benefit cap
– Max. tax credit: $92 - $184/beneficiary/year
24
Fees & Charges
• Deal directly with UESP <www.uesp.org>
• No enrollment fees
• UESP’s fees are among lowest of all 529 plans
• Max. annual maintenance fee = $15
– Waived for owners who are Utah residents
– Waived if you go paperless
25
Qualified Expenses & Schools
• Tuition
• Room & board
• Books, supplies & equipment
• Eligible post-secondary schools in U.S. or
abroad
26
Account Owner Control
• How & when 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
27
Investment Options
• 8 static options
– Investment mix does not change
• 4 age-based options
– Investment mix becomes more
conservative as child ages
• 2 Customized options
• Use combination of static or age-based
options to create your own allocation
28
Static Investment Options
• Equity—100% US stocks
• Equities-- 30% International stocks
• Equities—10% International
• 70% Equity/30% Fixed Income
29
Static Investment Options
• 20% Equity/80% Fixed Income
• Fixed income
• Public Treasurers’ Investment Fund
• FDIC-Insured Savings
30
Age-Based Options
• Aggressive Global: Domestic and
international equity (stock) funds
• Aggressive Domestic: Domestic equity
funds
• Moderate: Contains moderate domestic &
international funds
• Conservative: Fixed income
31
Create Your Own Asset
Allocation
• Combine any of 4 age-based investment
options to create your own mix
• Or use any of the 8 static options
• Sign up today for automatic contributions!
32
Investment Options
• http://www.uesp.org/pdfs/InvestmentInfo/Asset_Allocation_Table.aspx
33
Tax Deferral Pays!
• 529 plan grows tax-deferred & is tax-free when
used for qualified higher ed expenses
– Tax-deferred money grows faster than taxable
accounts
– Can be used in US, Canada & beyond
34
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
35
529 Plans NOT just for kids!
• Adults can contribute to 529 accounts for
their own higher ed. expenses
• Funds can be used for grad school
36
UESP Fast Forward Matching
Program
• UESP will match contributions, $ for $, up
to $400/yr./beneficiary for Utah residents
earning no more than 200% of federal
poverty guidelines
• You can’t afford NOT to participate!
37
Related Resources
• UESP http://www.uesp.org
– 1-800-418-2551
• Internet Guide to Funding College
http://www.savingforcollege.com
• FINRA 529 college savings plans
http://www.finra.org/Investors/ProtectYour
self/InvestorAlerts/RetirementAccounts/P0
10756
38
Refer a Friend Promotion
• If you are a Utah resident UESP account
owner/agent, you may qualify to receive a $20
contribution to your account if: You refer to
UESP friends or family members who are Utah
residents; and
• Your friends or family members are Utah
residents and they open and contribute at least
$10 to a new UESP account by July 31, 2013, or
when UESP funding is depleted.
39
Questions?
40
Upcoming FPW
• No August program
• September 11: "Social Security and
Retirement Timing," financial planner
Suzanne Dalebout, Head of Women's
Division at Legacy Financial Group, LLC
– 11:30: TSC 336
– 7pm: Logan Library Bonneville Room
• Oct & Nov: what topics do you want?
41
FPW Resources
• Website: http://www.usu.edu/fpw/
• Facebook:
http://www.facebook.com/FinancialPlannin
gforWomen
• Blog: http://fpwusu.blogspot.com
– Searchable by topic
– Replaces newsletter
42