Comprehensive Financial Planning for College: Empowering Women Investors

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?