Presentation on theme: "Start Investing for Tomorrow… Today!"— Presentation transcript:
1 Start Investing for Tomorrow… Today! tomorrow’s scholar®Start Investing for Tomorrow…Today!
2 Disclosure statements tomorrow’s scholar portfolios involve risks, including the possible loss of principal. Consult a program description for additional information on risks.An investment in the Ultra-Conservative Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Ultra-Conservative Portfolio seeks to preserve the value of your investment at $10.00 per share, it is possible to lose money by investing in it.An investor’s or a designated beneficiary’s home state may offer state tax or other benefits that are only available for investments in that state’s qualified tuition program. Please consider this before investing.Carefully consider the investment objectives, risks, charges, and expenses of tomorrow’s scholar before investing. For a current program description, containing this and other information, call or visit tomorrowsscholar.com. Read it carefully before investing.tomorrow’s scholar is a state-sponsored 529 college savings plan administered by the State of Wisconsin. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment management and administrative services to the tomorrow’s scholar plan. Shares in the program are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & CompanyNOT FDIC INSURED – NO BANK GUARANTEE – MAY LOSE VALUE
3 Agenda The importance of planning ahead Different college investing optionsWhat are 529s all about?tomorrow’s scholarInvestment options within tomorrow’s scholarThe multi-manager strategySAGE Scholars Tuition Rewards® ProgramExpenses and sales charges for tomorrow’s scholarThis seminar is designed to give you an introduction to tomorrow’s scholar, a 529 college savings plan, and provide you with a better understanding of the plan and its features and benefits.Today, we will talk about:The importance of a college education and some of the benefits of planning aheadOther college investing options and the benefits that 529 investing providesThe investment options available within tomorrow’s scholar, including the multi-manager approach utilized in the planFinally, we will show you the tools you can use with your clients to discuss tomorrow’s scholar.
4 “Increased earnings are by no means the only positive outcome of higher education. The knowledge, fulfillment, self-awareness, and broadening of horizons associated with education transform the lives of students and of those with whom they live and work.”“Increased earnings are by no means the only positive outcome of higher education. The knowledge, fulfillment, self-awareness, and broadening of horizons associated with education transform the lives of students and of those with whom they live and work.”For the majority of tomorrow’s leaders, a college education is becoming a necessity. As you may have heard or read, college costs are outpacing inflation and have become one of the leading reasons people invest — early and often. With all of the options available, I will show you in a few slides why 529 plans have become so popular. But first, we will talk about the importance of planning ahead.- The College Board, “Education Pays,” 20104
5 The need for effective college planning The rising costs of a four-year collegeTuition, books, room & board add up quickly$454,439Private UniversityPublic University$210,873Are you aware of the need to plan early? Can your clients afford to send their kids to school at the projected costs?Assuming a 6% increase in college costs, in 2030 a public university is projected to cost more than $52,000 per year and a private college over $113,000 per year.I’ll show how tomorrow’s scholar can help your clients meet their student’s college funding needs.Costs based on estimate of average tuition, fees, and room and board in current dollars for 4-year public and private universities according to the 2011 Trends in College Pricing published by the College Board. Projected pricing assumes a 6% annual increase in college costs.5
6 The power of planning ahead $350Advantage of Investing vs. Student Loans$165.56/month$301.31$300Invest now or borrow later:To cover $25,000 in college expenses, investing for 10 years before college is a lot cheaper than paying back loans for 10 years after college.*$250$200$150$135.75$100Every year, thousands of families take out loans to cover college-related expenses, taking on a financial burden that’s greater than they may realize. In the example on this slide, making a monthly investment ahead of time for 10 years to cover $25,000 in college costs could save you nearly $20,000 when compared to paying back a loan for $25,000 over ten years.$50$0Monthly InvestmentMonthly Loan Payment*Assumptions: Total cost of college $25,000; 8% annual return on investments and 8% loan interest rate, compounded monthly; 10-year investing period and 10-year loan payback period. Annual return does not represent the performance of any specific investment.
7 Putting time on your side Regular contributions of any amount can really add up over time.This chart shows an account with monthly contributions over a 10-year period.Planning ahead also helps you put the power of time on your side. This chart illustrates how different contribution levels can add up over a ten year period if you continue to invest on a regular basis. This can go a long way in helping pay for those future college costs.$125per month$250per month$500per monthA program of regular investment cannot assure a profit or protect against a loss in a declining market.This hypothetical illustration assumes an average annual return of 8%. Annual return does not represent the performance of any specific investment.7
8 College investing options UGMA/UTMAsCoverdell Education Savings AccountsRoth IRAsSavings Bonds529 College Savings PlansWhat are the college planning alternatives that your clients may want to consider? Here are a few products that historically have been used for college planning, and some of their features, pros and cons.UGMA/UTMAs – One benefit to the Uniform Gifts to Minors Act accounts is that they do not have income restrictions or investment limits on contributing. A disadvantage, however is that minors assume control of the account once the custodianship terminates (age varies by state), which could result in the dollars being used for something other than college. As far as taxation, only some of the investment earnings may be exempt from federal income tax; others may be taxed at the child’s or parent’s tax rate.Coverdell Education Savings Accounts – ESAs provide families that have incomes below certain limits the ability to increase investment earnings through federal tax-free investing as long as the funds are used for educational purposes including private elementary and high school – all nice features. Contributions limits are quite low, however, at $2,000 per year. In addition, this limit may sunset after 2012 and revert back to the original contribution limit of $500 annually.Roth IRAs – While Roth IRA contributions are not tax deductible, qualified distributions are tax-free. Roth IRAs were designed as retirement vehicles, however, and if they are used for education expenses, withdrawals of earnings are penalty-free but not tax-free unless another qualifying factor is met. Students are also required to have earned income to open an account in their name, and for parents, opening these accounts in their name for college means they are not investing for their own retirement.Savings bonds – Savings bonds are a debt obligation of the U.S. government, and are backed by the Treasury Department. They are non-negotiable securities (unlike stocks, which fluctuate daily) that pay a set interest rate over a specific period of time. If certain qualifying factors are met, the income earned from these bonds is federal tax-free if used for education expenses. A key disadvantage to savings bonds is that due to the conservative nature of these vehicles, their return potential is low.Information about these alternatives is available in the tomorrow’s scholar marketing materials. Compare the features of tomorrow’s scholar and walk through the benefits of investing in a 529 with clients.
9 Building your business with 529 plans Flexibility for your clientsControl of the accountTax advantagesEstate planningCompared to those alternatives, 529 plans, like tomorrow’s scholar may be a great option for your clients.Yet, because many investors still don’t know about them, you have the opportunity to introduce your clients to a college savings plan that offers potentially more tax advantages and more flexibility than any other college investment plan available today.529 plans offer these benefits all in one place:FlexibilityControlTax advantagesEstate planning
10 Flexibility for your clients High contribution limitsAnyone can contribute – no income level restrictions or age limitationsUse at schools nationwide and many abroad for a wide range of expensesMoney can be used for qualified expenses, including tuition, fees, books, supplies, room and board (student must be enrolled at least half-time), and required equipmentOne of the most limiting factors of other college investing alternatives, such as the Coverdell Education Savings Account is the relatively low contribution limit. On the other hand, with 529 plans, contribution limits are much higher. For example, with tomorrow’s scholar, your client can invest up to $330,000 per beneficiary. Of course, many families are looking for a relatively easy and flexible way to get started.Anyone of legal age can open an account for anyone else and anyone can contribute to an existing account. It is even possible for an investor to open an account for their own education. One of the downsides to other investing alternatives, such as the Coverdell Education Savings Account, is that the ability to contribute may be limited by income. And with 529 plans, there are no income limits for contributors to worry about.Withdrawals can be used for any qualified higher education expenses at any eligible post-secondary school in any state (and even some schools abroad). Additionally, if the student receives scholarships, it is still possible to withdraw the amount equal to the scholarships penalty-free (the earnings portion on the account is subject to applicable federal and state income tax but free from the additional 10% federal tax).And don’t forget, it is possible to transfer a 529 plan penalty-free to another beneficiary as well. Transfers are allowed tax and penalty-free to eligible members of the beneficiary’s family – including first cousins.Note: Individual states impose their own restrictions and rules on 529 College Savings Plans.
11 Control of the accountControl of assets remains with the person who establishes the accountSuccessorDistributionBeneficiaryWith 529 plans, control of assets remains in the hands of the account owner.It is not uncommon for parents and grandparents to worry that their gift of funding a college education may be used for other purposes. If your client has these same concerns, 529 plans can ease these worries because control remains with the person who established the account. The account owner also maintains control over the distribution decisions concerning the assets, regardless of the student’s age. This is unlike other college investing plans, like UGMA/UTMA accounts where the owner is required to relinquish control over the assets when the beneficiary of the account reaches the age of majority. The ability to assign a successor account owner also helps ensure that your client’s wishes will be carried out in the event they no longer can.If unforeseen needs or emergencies arise, the account owner can withdraw 529 funds at any time. Similar to IRAs, however, there are penalties to consider for doing this: the earnings portion of non-qualified withdrawals is subject to applicable federal and state income tax, as well as an additional 10% federal tax.One more feature of the 529 is an account owner’s ability to change the beneficiary. This is a penalty-free change as long as the new beneficiary is related to the original beneficiary. This can be an important benefit if the original beneficiary decides not to attend college or if the student receives a scholarship.
12 The power of tax-deferred growth Compare the growth potential of a taxable investment vs. a tax-deferred 529 accountOne of the most powerful features of 529 plans is the potential for tax advantages both now and in the future. With earnings on contributions being tax-deferred, this means that a client’s investments can potentially grow faster than investing in an account that’s taxed each year. When the time comes that the money is needed for school, withdrawals used for qualified expenses like tuition and room and board, are federal tax-free.If your clients are Wisconsin taxpayers, a unique feature specific to tomorrow’s scholar versus other state 529 plans is the ability for your clients to be able to deduct from taxable state income, up to $3,000 per year per eligible beneficiary for contributions to an account. Eligible beneficiaries include their children, grandchildren, great-grandchildren, nieces and nephews, and even themselves. Additionally, qualified withdrawals are not taxed by the state of Wisconsin.This hypothetical illustration shows the growth of an annual investment of $5,000 made at the beginning of each year. It assumes a 28% tax bracket and an annual return of 8%, compounded monthly with a tax rate of 15% for dividends and long-term gains and 28% for short-term gains. The chart is for illustration only and does not predict or guarantee the performance of any tomorrow's scholar portfolio. Investors should consider their personal investment horizon, as well as their current and anticipated income tax brackets when making an investment decision.
13 Estate planning benefits Ability to capture larger dollars than traditional college investing plansContributions to the plan qualify for the annual gift tax exclusion ($13K single / $26K married couple)Can gift up to $65K ($130K married couple) per beneficiary in one year without incurring gift and generation-skipping transfer taxes, provided no other gifts are made to the same beneficiary in the year periodContributions are considered removed from the donor’s estate*If your clients have worked hard to build up their net worth, you’ll be interested in another powerful benefit of 529 plans––they can take advantage of gift and estate tax benefits. Annual contributions to 529 plans are considered completed gifts and, therefore, removed from their taxable estate.A couple can effectively remove $130,000 from their estate, or $65,000 per person for each individual beneficiary. They can contribute a maximum gift of $13,000 per year as a gift ($26,000 for the couple) over the next five years or $130,000 (as a couple) in one year, provided they give no other gift during the next 5-year period.*If donor contributes more than $13,000 in one year, and elects to apply the gift tax exclusion ratably over 5 years, but dies before the close of the 5-year period, the portion allocable to calendar years beginning after the date of death is included in the decedent's estate.
14 Grandparents can get involved too Decreasing a taxable estate while paying for collegeGrandparents$520,000Grandchild 1$130,000Grandchild 2Grandchild 3Grandchild 4Your client’s annual contribution to 529 plans is generally excludable for federal gift and estate tax purposes. Gifts up to $65,000 (or $130,000 if per couple) can be made to each beneficiary in the first year of a five-year period without owing federal gift tax, provided additional gifts are not made to the same beneficiary over the five years. Your clients also have the option to make their contributions to an account maintained by a grandchild’s parent and still take advantage of the gift tax exclusion. Of course, you should direct your clients to consult their tax and estate advisors before taking this approach.While parents are generally on the front lines when it comes to funding college—grandparents are increasingly becoming involved to create a multi-generational approach that helps with the college investing goals for their other family members. If your clients are grandparents and they have worked hard to build up their net worth, a 529 plan like tomorrow’s scholar can provide them with unique estate planning benefits while they help their grandchildren achieve their college dreams. In fact, anyone—not just grandparents—can take advantage of this benefit.The gift tax exclusion can be very powerful. In this example, a grandfather and grandmother each provide 4 one-time gifts of $65,000 to 4 grandchildren. The $65,000 gifts are prorated over five years and a total of $520,000 is removed from the couple’s taxable estate.
15 Additional tomorrow’s scholar plan details Wells Fargo and the State of Wisconsin have teamed up to offer the tomorrow’s scholar college savings plan.The program is managed by Wells Fargo Funds Management, LLC.Let me talk to you a little bit more about tomorrow’s scholar. Wells Fargo and the State of Wisconsin have teamed up to offer the tomorrow’s scholar college savings plan. It offers all the benefits of a 529 we have already discussed, with a multi-manager approach to investing through ten different investment options.
16 The flexibility of multiple investment options Wide range of options to meet your needsSeven fixed allocation optionsOffering a range of investments, from more aggressive to very conservativeThree enrollment-based tracksOffering portfolios that are based on the number of years until college enrollmentThese “target date”-type options automatically get more conservative as the years go bytomorrow’s scholar offers a choice of two investment approaches, with ten investment options. Having multiple options from which to choose gives you and your client the opportunity to select a portfolio that most closely matches their investment objectives and the future needs of the beneficiary of the account.Once money is invested your client may change that option once per calendar year or when they change the designated beneficiary on the account.
17 Fixed allocation portfolios AggressiveGrowth PortfolioGrowth PortfolioModerateGrowth PortfolioBalanced Portfolio13%10%77%64%25%11%9%7%40%50%43%51%ConservativePortfolioIncomePortfolioUltra-ConservativePortfolio5%3%17%30%100%65%80%Within the fixed allocation option, there are several different alternatives available ranging from more aggressive to more conservative. Each portfolio's allocation is fixed, which means that the allocations of underlying investments generally do not change over time.These seven portfolios provide a varying asset allocation mix among stock, bond, and/or money market funds. They allow your clients to invest according to the amount of investment risk they are willing or able to take on. The appropriate portfolio for your client will depend on his or her personal risk tolerance and the length of time until the beneficiary starts college.International Stock FundsBond FundsDomestic Stock FundsMoney Market Funds
18 Enrollment-based portfolios Aggressive GrowthTrack PortfoliosModerate GrowthTrack PortfoliosConservative GrowthTrack Portfolios100%100%100%80%80%80%60%60%60%40%40%40%20%20%20%The other group of investments available is the enrollment-based portfolios.Similar to the concept of target date funds, these funds automatically become more conservative as college age approaches. Portfolios for younger children will invest more heavily in stocks, while older children's will have more conservative bond investments.As with the fixed option, it is possible to invest aggressively, moderately, or conservatively. The selection should be made based on your client’s personal risk tolerance, time horizon, and investment goals.0%0%0%10 or more7 to 94 to 61 to 3In College10 or more7 to 94 to 61 to 3In College10 or more7 to 94 to 61 to 3In CollegeYears to CollegeInternational Stock FundsDomestic Stock FundsBond FundsMoney Market Funds
19 The strength of a multi-manager strategy The portfolios include investments from the following fund families:Wells Fargo Advantage Funds®Wells Fargo Advantage Capital Growth FundWells Fargo Advantage Diversified Small Cap FundWells Fargo Advantage Growth FundWells Fargo Advantage Heritage Money Market FundWells Fargo Advantage Income Plus FundHarbor FundsHarbor International FundColumbia FundsColumbia Marsico Growth FundColumbia Diversified Equity Income FundING FundsING Intermediate Bond FundWells Fargo Advantage Large Company Value FundWells Fargo Advantage Opportunity FundWells Fargo Advantage Special Mid Cap Value FundWells Fargo Advantage Total Return Bond FundAs the Program Manager of tomorrow’s scholar, Wells Fargo has brought together a premier group of experienced investment managers from four leading mutual fund companies. tomorrow’s scholar harnesses the collective expertise of these talented money managers. And on an ongoing basis, these investment options are monitored to ensure they stay in line with objectives. On a daily basis, we keep your clients’ end-goal in mind.This multi-manager platform gives your clients access to a unique team of investment managers from these mutual fund families: Wells Fargo Advantage Funds, Harbor Funds, Columbia Funds, and ING Funds.You can also reference the Program Description included in the tomorrow’s scholar kits for more information about the underlying mutual funds included from each of these fund families.
20 Value-added program SAGE Scholars Tuition Rewards tomorrows’s scholar account owners receive discounts at private collegesNo fee to joinOver 265 member schoolsTuition points are earned based on account balancesUp to 10% annuallyEarn up to 25% off of a four-year undergraduate tuitionClients can register online at tomorrowsscholar.com/sagescholarsAs an advisor, you can also enroll clients and keep track of accounts online at tuitionrewards.comOne added benefit for tomorrow’s scholar clients is the SAGE Scholars program, which allows them to earn Tuition Rewards Points each quarter, based on the balance of their accounts.How does it work? It works just like most frequent flyer programs, except this offers discounts off tuition at one of the SAGE Scholars private member colleges or universities. Reward points are calculated every quarter, equal to 2.50% of the value of your client’s tomorrow’s scholar account. Each Tuition Rewards Point equals one dollar in guaranteed scholarships at a SAGE member school. There is no charge for this benefit! This program helps to differentiate tomorrow’s scholar with other state 529 plans while helping you deepen your client relationships.The Tuition Rewards program is offered and administered by SAGE Scholars, Inc., a private for-profit corporation. SAGE Scholars is not sponsored by or affiliated with Wells Fargo or the tomorrow’s scholar college savings plan.20
21 Class A load schedule* Breakpoints Growth and Balanced Portfolios1 Fixed-Income Portfolios2Ultra-Conservative Portfolio$0 - $49,9995.75%4.50%0.00%$50,000 - $99,9994.00%$100,000 - $249,9993.50%$250,000 - $499,9992.50%$500,000 - $999,9992.00%$1,000,000+This slide shows the breakpoints and load schedule for the portfolios in the plan.*For accounts opened on or after September 10, 20051 Growth and Balanced Portfolios include the Aggressive Growth (90% equity), Growth (75% equity), Moderate Growth (60% equity), and Balanced (50% equity) Portfolios2 Fixed-Income Portfolios include the Conservative (35% equity) and Income (20% equity) Portfolios
22 Portfolio expenses Fund Expenses Admin Fees Portfolio Expenses Aggressive Growth (90% Equity)0.87%0.30%1.17%Growth (75% Equity)0.81%1.11%Moderate Growth (60% Equity)0.74%1.04%Balanced (50% Equity)0.70%1.00%Conservative (35% Equity)0.62%0.92%Income (20% Equity)0.56%0.86%Ultra-Conservative (100% Money Market)0.20%0.25%0.45%This slide shows the underlying investment expenses, calculated based on underlying investment expense ratios as of July 8, Portfolio expenses, ranging from 0.45 – 1.17% are competitive with other 529 college savings plans.Fund expenses are based on a weighted average of each underlying investment and the Fund’s expense ratio, as of July 8, These figures do not include the trailing commissions, which are 0.25% for Class A shares and Class C shares of the Ultra-Conservative Portfolio and 1.00% for all other Class C shares.
23 A recap of tomorrow’s scholar benefits Tax advantagesFlexibility and competitive pricingEstate planning and gifting benefitsMultiple investment optionsMulti-manager investment approachSAGE Scholars Tuition Rewards ProgramRemember, with tomorrow’s scholar, your clients can leverage the strength of its multi manager strategy, its flexibility and competitive pricing, SAGE Scholars, and the tax advantages associated with 529 investing.As an investment professional, begin to develop relationships with the parent(s) of the children, with the grandparents, and eventually with the beneficiary. tomorrow’s scholar can potentially help you bridge the multi-generational gap and help them start planning early.Tomorrow will be here sooner than your clients think. Help them get started early so that their young scholar can be all they can be.
24 Available tomorrow’s scholar materials Product brochure for clientsOne-page program reference sheetSAGE Scholars enrollment instructions and school listingProgram descriptionThere are various marketing tools that you can use to help you market the tomorrow’s scholar plan.A 14-page color brochure that goes over the benefits of 529 investing and the benefits of tomorrow’s scholar.A one-page quick reference sheet that you’ll find handy when you talk to your clients about tomorrow’s scholar. This handout summarizes all the various features of tomorrow’s scholar versus other college planning alternatives.A flyer describing the SAGE Scholars Tuition Rewards Program and outlining the list of eligible private colleges and universities (though with new colleges being added on an ongoing basis, the SAGE website is the most current source).In addition to these marketing materials, the Program Description will provide information about the plan, its fees, expenses, and portfolio allocations.Kits that include these items and applications to invest are available through the Sales Desk or through your Regional Director. Additional marketing materials are also available for order or can be downloaded online in the Investment Professional section of the website, tomorrowsscholar.com