helping parents and students build for the financial future (doug chittenden)
TRANSCRIPT
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An Overview of Section 529 PlansAn Overview of Section 529 PlansDouglas ChittendenDouglas Chittenden
VP Institutional Product ManagementVP Institutional Product Management
TIAATIAA--CREFCREF
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Cost of Higher EducationCost of Higher Education
$0
$50,000
$100,000
$150,000
$200,000
$250,000
2005 2010 2015 2020
Year
4yr Public
4yr Private
*Source: Trends in College Pricing, published by the College Board FS*Source: Trends in College Pricing, published by the College Board FS--33
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College Funding OpportunitiesCollege Funding Opportunities
Qualified Tuition ProgramsQualified Tuition Programs 529529
Prepaid Tuition PlansPrepaid Tuition Plans
College Savings PlansCollege Savings Plans
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Prepaid Tuition PlansPrepaid Tuition Plans
Allows for the purchase of future tuition atAllows for the purchase of future tuition attodays prices.todays prices.
Approx. 20 states operate preApprox. 20 states operate pre--paid programspaid programsfor public universities in those states.for public universities in those states.
Typically funds may be used taxTypically funds may be used tax--free forfree fortuition and room and board.tuition and room and board.
A program for independent colleges andA program for independent colleges anduniversities is available through the Tuitionuniversities is available through the TuitionPlan Consortium with TIAAPlan Consortium with TIAA--CREF as theCREF as theprogram manager.program manager.
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College Savings PlansCollege Savings Plans Federal tax deferred growth and federal taxFederal tax deferred growth and federal tax
free withdrawals for qualified higher educationfree withdrawals for qualified higher educationexpensesexpenses
Some states offer additional state taxSome states offer additional state taxincentivesincentives
Funds can be used at any eligible school forFunds can be used at any eligible school fortuition, fees, room and board, books, suppliestuition, fees, room and board, books, suppliesand required equipment such as computersand required equipment such as computers
No income limits for participation or benefitsNo income limits for participation or benefits
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College Savings PlanCollege Savings Plan Program DesignProgram Design
Programs typically offer a range of investmentPrograms typically offer a range of investmentoptions.options.
Aged based modelsAged based models Asset based options, fixed income, equityAsset based options, fixed income, equity
Fund specific optionsFund specific options
Account owners can change options yearlyAccount owners can change options yearly
States set contribution maximums set to allow for fullStates set contribution maximums set to allow for fullfunding of four years of collegefunding of four years of college
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College Savings MarketplaceCollege Savings Marketplace
529 Assets have grown to over $90 Billion industry wide529 Assets have grown to over $90 Billion industry wide
Federal Tax Permanency enactedFederal Tax Permanency enacted Sunset ProvisionSunset Provision
eliminatedeliminated
BrokerBroker--Driven Growth, 70Driven Growth, 70--80% of assets are invested through80% of assets are invested throughAdvisors and BrokersAdvisors and Brokers
Confusing 529 LandscapeConfusing 529 Landscape
PrePre--Paid vs. Savings vs. Other College Savings Options suchPaid vs. Savings vs. Other College Savings Options suchas UGMA accountsas UGMA accounts
Large number of 529 programs to choose fromLarge number of 529 programs to choose from
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College Savings ProgramsCollege Savings Programs Market OverviewMarket Overview
Programs are maturing and assets arePrograms are maturing and assets aregrowing, driving down costs and leading togrowing, driving down costs and leading to
product innovationproduct innovation affinity programs etc..affinity programs etc.. State market is segmenting as larger statesState market is segmenting as larger states
accumulate more assetsaccumulate more assets
Industry Groups are Pushing for State TaxIndustry Groups are Pushing for State Tax
EquityEquity more attention to suitabilitymore attention to suitability
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Principles for SuccessfulPrinciples for Successful
College Savings StrategyCollege Savings Strategy Start Early and make continuous, onStart Early and make continuous, on--goinggoing
contributionscontributions
Typical ReTypical Re--contribution Ratecontribution Rate 60%60% Use a diversified portfolio of investmentsUse a diversified portfolio of investments
Age Based Allocation Options typically hold 60%Age Based Allocation Options typically hold 60% --70% of program assets70% of program assets
Take advantage of federal and state basedTake advantage of federal and state basedtax incentivestax incentives
Minimize expensesMinimize expenses
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Take Advantage of TaxTake Advantage of Tax
IncentivesIncentives
$129,752
$137,867
$148,035$154,325
$115,000$120,000$125,000$130,000$135,000
$140,000$145,000$150,000$155,000
Mutual
Fund(After-
tax)
Mutual
Fund(UGMA)
529
Sav ngs(no state
ded.)
529
Sav ngs(with
state tax
ded.)* $6,000 invested each year for 15 years. 6% investment return. Account owner in 27% federal and
5% state income tax brackets. Beneficiary child is in the 10% federal and 5% state income tax
bracket. 35% of proceeds are dividends taxed at 27% federal and 5% state income tax rates. 30%
are short-term capital gains and 35% are deferred capital gains taxed at a 20% rate (10% forUGMA). FS-19
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Minimize ExpensesMinimize Expenses
$30,546$29,529
$28,543
$26,215
0.60% 0.80% 1.00% 1.50%$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Assumes a $10,000 deposit at birth and allowed to grow for 18 years in the same plan,
with different annual asset-based fee charges . Assuming a 7% return.
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TIAATIAA--CREFCREF College Savings ProgramsCollege Savings Programs
TIAATIAA--CREF is program manager for 10 stateCREF is program manager for 10 stateprogramsprograms
MichiganMichigan Connecticut Connecticut
IdahoIdaho KentuckyKentucky
TennesseeTennessee MississippiMississippi
GeorgiaGeorgia MinnesotaMinnesota
VermontVermont CaliforniaCalifornia
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TIAATIAA--CREF College Savings ProgramCREF College Savings Program --
Independent College (IIndependent College (I--529) Pre529) Pre--Paid ProgramPaid Program
II--529 program provides for the pre payment of tuition at529 program provides for the pre payment of tuition atIndependent Colleges and Universities, it is operated by theIndependent Colleges and Universities, it is operated by theTuition Plan Consortium (TPC)Tuition Plan Consortium (TPC)
Approximately 275 Member Private Colleges and Universities,Approximately 275 Member Private Colleges and Universities,including Princeton, Stanford, University of Notre Dame andincluding Princeton, Stanford, University of Notre Dame andJohns Hopkins (new member.)Johns Hopkins (new member.)
PrePre--paid tuition can be applied to any member institutionpaid tuition can be applied to any member institution
If child does not attend member institution, account ownerIf child does not attend member institution, account owner
receives a refund with a nominal rate of investment returnreceives a refund with a nominal rate of investment return