investing for college financial planning for women jean lown, fchd dept., usu erica abbott, fchd...

Investing for College

Financial Planning for Women

Jean Lown, FCHD Dept., USU

Erica Abbott, FCHD student

July 10th 2013

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Investing for College

Financial Planning for WomenJean Lown, FCHD Dept., USU

Erica Abbott, FCHD studentJuly 10th 2013

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

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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

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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??

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First Things First

• Before you contribute to college savings– Is your retirement plan on track?– Pay down high interest consumer debt

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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)

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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

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Tax-Advantaged Education Investing

• Coverdell Education Savings Accounts

• K-12 & higher education

• 529 College Savings Plans

• Higher ed. expenses only

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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

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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

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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

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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

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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)

529

• Owner controls account

• Simple to set up & maintain

• No deadline for using $

• Beneficiary can be changed at any time

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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

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School-based Financial Aid

• Each school sets own rules for need-based scholarships– Private colleges take 529 accounts into

consideration– Federal financial aid rules change often

• Most financial “aid” is loans, not grants

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Potential 529 Disadvantages

• Some state programs– High fees– Poor investment choices

• Brokers charge additional fees – Skip the broker– Invest directly

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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

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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)

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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

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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

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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

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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

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Qualified Expenses & Schools

• Tuition

• Room & board

• Books, supplies & equipment

• Eligible post-secondary schools in U.S. or abroad

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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

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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

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Static Investment Options

• Equity—100% US stocks

• Equities-- 30% International stocks

• Equities—10% International

• 70% Equity/30% Fixed Income

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Static Investment Options

• 20% Equity/80% Fixed Income

• Fixed income

• Public Treasurers’ Investment Fund

• FDIC-Insured Savings

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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

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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!

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Investment Options

• http://www.uesp.org/pdfs/Investment-Info/Asset_Allocation_Table.aspx

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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

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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

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

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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!

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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/ProtectYourself/InvestorAlerts/RetirementAccounts/P010756

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.

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Questions?

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?

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FPW Resources

• Website: http://www.usu.edu/fpw/

• Facebook: http://www.facebook.com/FinancialPlanningforWomen

• Blog: http://fpwusu.blogspot.com– Searchable by topic– Replaces newsletter

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