College Planning

A higher education opens the doors to lifelong personal and professional relationships. And it’s a worthy investment. Although the numbers may seem frightening, the situation isn’t hopeless. If your children are young, time is on your side. If not, don’t despair. It’s never too late to begin. Use the worksheet below to calculate how much you’ll need to save or contact us for a one-on-one session. (269) 273-3690.


Types of Education Investments:

Now that you’ve determined how much you’ll need to save, you need to decide which types of investments will benefit you the most. The answer often depends on your child’s age.

  • Newborn to 10 Years: Consider investments that have the potential to grow in value, such as common stocks stock mutual funds.
  • 10 to 14 Years: Consider a balanced investment portfolio that consists of growth stocks or stock mutual funds, and limited maturity bonds or bond funds.
  • 14 Years and Older: Consider investments that provide income and liquidity, such as income-oriented mutual funds, limited maturity bonds, and bond funds.

For help with this savings calculator please contact: 

 (269) 273-3690 

 Jared.Hoffmaster@ceterais.com


Coverdell Education Savings Accounts (CESAs)*

Coverdell Education Savings Accounts (CESAs), formerly known as Education IRAs, allow you to make annual non-deductible contributions designated to an investment account. The contribution limit is $2,000 annually. If any balance remains in a CESA after all expenses are paid, the account can be transferred to another eligible family member. If an account is not transferred prior to the recipient reaching age 30, the remaining funds are deemed distributed with income taxes and a 10% penalty due on the earnings.

Advantages:

  • Money grows tax-deferred*.
  • Withdrawals for up to the child’s amount of qualified education expenses for that year are exempt from federal taxes*.
  • Rollovers to other eligible family members under age of 30 are permitted.

Considerations:

  • Beneficiary must withdraw the money before age 30 unless a special needs beneficiary or assets transferred to another family member.
  • Limits on contributions by upper-income tax payers*.
  • May affect financial aid eligibility. 

For questions or to get started with a CESA contact:

 (269) 273-3690 

 Jared.Hoffmaster@ceterais.com


529 Plans*

529 plans are qualified tuition programs maintained by states or eligible educational institutions that offer investors professionally managed, tax-advantaged portfolios to help meet rising college expenses through investment management firms. These plans are designed to help families save for future college costs.

There are two general types of 529 plans: prepaid tuition plans and savings plans. The states offering prepaid tuition contracts covering in-state tuition will allow you to transfer the value of your contract to private and out-of-state schools, although you may not get full value depending on the particular state. If you decide to use a savings plan, the full value of your account can be used at any accredited college

or university in the country, along with some foreign institutions. The savings plans are managed by some of the best mutual fund companies and investment management firms in the country.

Advantages:

  • Tax-deferred* accumulation and tax-free withdrawals* (when solely used for qualified education expenses).
  • No income restrictions on eligibility of donor gifting money to 529 plan.
  • Estate tax benefits: 529 plan value removed from donor’s estate.
  • Donor can gift forward $65,000 in the first year or $13,000 annually per donee (for 2011, indexed thereafter) without gift tax consequences*.
  • Larger contribution amounts (up to $250,000).
  • Donor is in control of account.
  • In-state residents may qualify for state income tax deductions* and exemptions (state tax laws may vary).

Considerations:

  • Prepaid tuition plan is designed only to match rate of tuition inflation of in-state public universities, whereas a savings plan is flexible depending on investment selections and returns.
  • The number of eligible colleges may be restricted in some states with the prepaid tuition plan; the savings plan has no restrictions.
  • Non-qualified distributions subject to income tax* and a 10% penalty on the earnings.

For questions or to get started with a 529 plan contact:

 (269) 273-3690 

 Jared.Hoffmaster@ceterais.com


The Uniform Gifts to Minors Act and Uniform Transfers to Minors Account

The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Account (UTMA) let you gift cash and other assets to minor children for tax advantages.

Advantages:

  • Custodian manages account when child is a minor.
  • Investment income typically is taxed to child*.
  • No costly legal fees or reporting requirements.

Considerations:

  • Transfer of assets is irrevocable.
  • Child gains control of account when reaching majority age (usually 18 or 21).
  • Assets may be considered when applying for financial aid.

For questions or to get started contact:

 (269) 273-3690 

 Jared.Hoffmaster@ceterais.com


Life Insurance*

Cash value life insurance is another alternative for college planning. Variable Universal Life insurance (VUL)4 provides tax-deferred growth with the bonus of permanent life insurance protection. A primary purpose of life insurance is to provide for dependents at the death of a primary wage earner paying for everyday needs, the home mortgage, or education of family members.

 Advantages:

  • Owner controls money and chooses from multiple investment options.
  • No pre-591/2 restrictions on withdrawals of principal.
  • Tax-deferred accumulation with tax-free withdrawals*.
  • Self-completing in the event of death.
  • Accumulation value generally not considered an asset when applying for financial aid to meet college expenses.

Considerations:

  • Typically 10-year minimum time horizon for withdrawals.
  • Minimum funding requirements.
  • Must be insurable.
  • Underwriting requirements must be met.

For questions or to get started contact:

 (269) 273-3690 

 Jared.Hoffmaster@ceterais.com

 

Additional Funding Sources

  • Government Series EE and I Savings Bonds
  • Home Equity Loans
  • Retirement Funds
  • Scholarships
  • Zero Coupon Bonds
  • Grants
  • Federal Loans
  • Roth and Traditional IRAs
  • Tax-efficient Mutual Funds*
  • Real Estate
  • Financial Aid


Other Considerations

  • HOPE and Lifetime Learning Credits
  • Student Loan Interest Deductions
  • Tax credits and deductions*


For More Information

Financing a higher education for someone important to you is a challenge you don’t have to face alone.


Contact us today:

 (269) 273-3690 

 Jared.Hoffmaster@ceterais.com


*Consult your tax advisor.


*WEALTH MANAGEMENT PRODUCTS ARE: NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • MAY LOSE VALUE • NOT GUARANTEED BY THE BANK • NOT A DEPOSIT

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