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| 1 EO034 281069 5/13 | 1 EO034 281069 3/13. | 2 EO034 281069 5/13 Funding college education Survey the scene to understand your options.

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Presentation on theme: "| 1 EO034 281069 5/13 | 1 EO034 281069 3/13. | 2 EO034 281069 5/13 Funding college education Survey the scene to understand your options."— Presentation transcript:

1 | 1 EO /13 | 1 EO /13

2 | 2 EO /13 Funding college education Survey the scene to understand your options

3 | 3 EO /13 Figures include tuition, fees, room, and board. Estimated growth rate of 5.0%. Sources: The College Board, Trends in College Pricing, College costs are rising Four years of tuition, room, and board 2012 Public college (in state) $71,440 Private college $158,072 $171, $380,419

4 | 4 EO /13 College debt is also rising 57% of full-time undergraduates use loans to help finance their college costs. Among graduates from private universities who borrow money, the average debt is $29,900. The median starting salary for a graduate with a bachelor’s degree is $55,700. Sources: Trends in Student Aid, 2012; Education Pays, 2010 (The College Board),

5 | 5 EO /13 A 529 college savings plan has many benefits Tax advantages: Account grows tax free, and there are no taxes on funds withdrawn for qualified higher education expenses Control: Investor controls account assets after the beneficiary reaches legal age Flexibility: Anyone can contribute — parents, grandparents, other family members, friends Do you have existing custodial (UGMA/UTMA) accounts? Converting a custodial account to a 529 can help you benefit from tax advantages while increasing a child’s eligibility for financial aid.

6 | 6 EO /13 Estate planning Grandparent uses Putnam 529 for America SM to lower estate tax *Married couples filing jointly may contribute up to $140,000 per beneficiary. Individuals may contribute up to $70,000. Contributions are generally treated as gifts to the beneficiary for federal gift tax purposes and are subject to annual federal gift tax exclusion amount ($14,000 for 2013). Contributor may elect to treat contribution in excess of that amount (up to $70,000 for 2013) as pro-rated over 5 years. Election is made by filing a federal gift tax return. While contributions are generally excludable from contributor’s gross estate, if electing contributor dies during 5-year period, amounts allocable to years after death are includible in contributor’s gross estate. Consult your tax advisor for more information. Contribution to 529 plans* Ω $140,000 Ω Ω Ω Ω Grandparents $700,000 Ω $140,000

7 | 7 EO /13 Minimizing taxes Consider how to best allocate your resources

8 | 8 EO /13 Taxes increased in 2013 Tax item Ordinary income35%43.4% Dividends15%23.8% Capital gains15%23.8% Payroll tax4.2%6.2% Income phaseouts of itemized deductions and personal exemptions? NoYes Tax rates reflect highest marginal rate and incorporate additional taxes related to the health-care reform law. Health-care-related taxes include a surtax of 3.8% on net investment income and an additional 0.9% payroll tax affecting single filers with income in excess of $200,000, and joint filers with income in excess of $250,000. Highest marginal tax rate on income, capital gains, and dividends apply to tax payers with taxable income above $400,000 ($450,000 for couples).

9 | 9 EO /13 Annual U.S. Federal budget surplus/deficit, 2000–2012 ($B) Will taxes increase even more? Source: Congressional Budget Office, Monthly Budget Review, September 2012.

10 | 10 EO /13 The aging of America will further strain the system Total U.S. population age 65+ Source: U.S. Census Bureau, Facts for Features, May Today 40.3 million million

11 | 11 EO /13 New health-care taxes take effect in 2013 Increase in the individual portion of the Medicare payroll tax on wages from 1.45% to 2.35% New Medicare investment income tax of 3.8% – Will affect interest, dividends, capital gains, rental income – Distributions from retirement accounts are excluded – Interest from municipal bonds are not affected Targeted at individuals with more than $200K income (couples with $250K income)

12 | 12 EO /13 Be aware of the AMT You may owe the AMT if you Claim children as exemptions Live in an area with high income or property taxes Claim miscellaneous itemized deductions Your income Chance you will owe AMT $100K – $200K2% $200K – $500K48% $500K – $1M78% Source: Urban-Brookings Tax Policy Center, September 2012 estimates. Will you owe the AMT?

13 | 13 EO /13 Tips for avoiding or minimizing the AMT Select municipal bonds wisely Proceed with caution before exercising stock options Assess the impact of large capital gains Defer certain tax deductions like local property taxes if you are going to owe AMT

14 | 14 EO /13 Taxes on traditional retirement plans A dollar inside a traditional (pretax) retirement savings account may only provide 60¢ of income in retirement Income for expenses Federal income taxes

15 | 15 EO /13 Consider the benefits of a Roth IRA Tax-free income in retirement No required distributions in retirement Heirs receive assets free from income taxes Remember, beginning in 2010 everyone can convert to a Roth Few benefitsSome benefitsConsider Strongly consider

16 | 16 EO /13 Planning for income in retirement and transferring wealth The decisions you make today impact the shape your retirement takes tomorrow

17 | 17 EO /13 Longevity comes at a cost 30 years $50,000 income Amount needed to maintain purchasing power: $90,568 $162,169 $287,174 Inflation rate

18 | 18 EO /13 The end of Social Security? If nothing changes – Beginning in 2010, benefits owed exceeded taxes collected – The trust fund will be exhausted in 2033 Potential solutions – Raise wage base – Decrease or delay benefits – Pre-fund benefits through personal, voluntary savings accounts Sources: SSA 2011 Annual Report. Workers per beneficiary Worker-to-beneficiary ratio has fallen dramatically 1960Current2030

19 | 19 EO /13 Create an income plan Social Security IRA withdrawals Real estate Later in retirement 401(k) withdrawals Part/full-time work Pension income Immediate annuity Early in your retirement Life insurance Long-term-care insurance Investments are subject to market risk, including possible loss of principle.

20 | 20 EO /13 Choose the right withdrawal rate This example assumes a 95% probability rate. These hypothetical illustrations are based on rolling historical time period analysis and do not account for the effect of taxes, nor do they represent the performance of any Putnam fund or product, which will fluctuate. These illustrations use the historical rolling periods from 1926 to 2012 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20- year corporate bond (50%)), and cash (U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index. Years Percentage of your portfolio’s original balance withdrawn each year 10% will last 10 years 9% will last 11 years 4% will last 33 years 5% will last 20 years 6% will last 16 years 7% will last 13 years 8% will last 12 years 3% will last 50 years How long would your money have lasted?

21 | 21 EO /13 Watch your asset allocation PORTFOLIO TYPEALLOCATION20 YEARS30 YEARS40 YEARS CONSERVATIVE 20% stocks 50% bonds 30% cash BALANCED 60% stocks 30% bonds 10% cash GROWTH 80% stocks 20% bonds 0% cash 80%–100% probability60%–79% probability0–59% probability 96% 76% 79% 54% 69% 89% 3% 27% How long would your money have lasted? The information below shows how various asset allocations affect a portfolio’s expected longevity. It assumes that 5% of the original account balance is withdrawn each year and that withdrawals were increased each year to account for inflation. This example assumed a 95% probability rate. These hypothetical illustrations are based on rolling historical time period analysis and do not account for the effect of taxes, nor do they represent the performance of any Putnam fund or product, which will fluctuate. These illustrations use the historical rolling periods from 1926 to 2012 of stocks (as represented by an S&P 500 composite), bonds (as represented by a 20-year long-term government bond (50%) and a 20- year corporate bond (50%)), and cash (U.S. 30-day T-bills) to determine how long a portfolio would have lasted given various withdrawal rates. A one-year rolling average is used to calculate performance of the 20-year bonds. Past performance is not a guarantee of future results. The S&P 500 Index is an unmanaged index of common stock performance. You cannot invest directly in an index.

22 | 22 EO /13 Pay attention to order Type of incomeTaxability Social Security May be partially taxable as ordinary income Pension incomeTaxed as ordinary income IRA and 401(k) distributionsOrdinary income rates Dividend income23.8% rate Long-term capital gains23.8% rate Liquidation of investment principal Not subject to taxation This is not intended as tax advice. Please consult your independent tax advisor regarding tax ramifications. Dividend and capital gains rates reflect highest marginal tax rate (20%) plus the 3.8% net investment income surtax.

23 | 23 EO /13 Stretching an IRA to create generations of wealth Income is based upon an initial investment of $200,000 and cumulative annual distributions for 39 years. This hypothetical illustration assumes an 8% annualized return (8.30% effective return) and that distributions are kept to the required minimum. It does not represent the performance of any Putnam fund or investment or take into account the effect of any fees or taxes. Investors should consider various factors that can affect their decision, such as possible changes to tax laws and the impact of inflation and other risks, including periods of market volatility when investment return and principal value may fluctuate with market conditions. The Stretch IRA feature is designed for investors who will not need the money in the account for their own retirement needs. IRA owner’s wife dies at age 70, ten years after the IRA was created and before taking RMDs. Their 46-year old son begins receiving annual payments based on his life expectancy. He names his wife as his beneficiary. Value of IRA: $200,000. Annual Required Minimum Distributions in selected years 29 years later, the son dies. His wife continues the established distribution schedule. She may not treat the IRA as her own and no rollover is available. First yearYear 10Year 20Year 30Year 39 $12,019 $24,506 $54,566 $124,329 $270,526 The IRA is depleted, having generated over $3 million in income.

24 | 24 EO /13 Consider a bucket approach Short-term income bucket Meet immediate cash flow needs, emergency fund, etc. Cash CDs/money market Short-term bonds Immediate annuities Social Security/pension income Wages Mid-term income bucket Mix of growth and income, replenish short-term, guard against market volatility Bonds Deferred annuities Absolute return funds Asset allocation funds, balanced funds Long-term income bucket Inflation hedge, longevity Growth stocks/funds Real estate Commodities

25 | 25 EO /13 Do you need an estate plan? Do you have children who are minors? Are all of your assets owned jointly with your spouse? Are most of your assets in real estate, a business, or a retirement plan? Do you have a durable power of attorney? Do you have a living will/health-care proxy? Do you own property in another state? Do you have children from a prior marriage?

26 | 26 EO /13 Stick to your plan: Important documents for staying in control Durable power of attorney Health-care proxy Will Revocable and irrevocable trusts

27 | 27 EO /13 What are the next steps? Consider transferring existing custodial accounts to a 529 Fund a 529 to remove assets from your estate Talk to your tax professional on how to minimize AMT Use a Roth IRA to create tax-free income in retirement and avoid required distributions Consolidate retirement assets and develop an income plan Review legal documents like wills and trusts

28 | 28 EO /13 Putnam 529 for America is sponsored by the State of Nevada, acting through the Trustees of the College Savings Plans of Nevada and the Nevada College Savings Trust Fund. Anyone may invest in the plan and use the proceeds to attend school in any state. Before investing, consider whether your state’s plan or that of your beneficiary offers state tax and other benefits not available through Putnam 529 for America. If you withdraw money for something other than qualified higher education expenses, you will owe federal income tax and may face a 10% federal tax penalty on earnings. Consult your tax advisor. You should carefully consider the investment objectives, risks, charges, and expenses of the plan before investing. Ask your financial representative or call Putnam at PUTNAM529 for an offering statement containing this and other information for Putnam 529 for America, and read it carefully before investing. Putnam Retail Management, principal underwriter and distributor Putnam Investment Management, investment manager. Investors should carefully consider the investment objectives, risks, charges, and expenses of a fund before investing. For a prospectus containing this and other information for any Putnam fund or product, call your financial representative or call Putnam at Please read the prospectus carefully before investing. This information is not meant as tax or legal advice. Please consult your legal or tax advisor before making any decisions. Shares of mutual funds are not deposits or obligations of, or guaranteed or endorsed by, any financial institution; are not insured by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board, or any other agency; and involve risk, including the possible loss of the principal amount invested. Putnam Retail Management putnam.com

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