1. Funding a College Education Presented by (Name, CPA) Member, The Ohio Society of CPAs 5/2/2015 1

2. It pays to plan ahead Funding a college education is one of the largest financial burdens most families face and requires advance planning. Average costs for tuition, fees, room and board: –Four-year public college $13,000/year (2006/07) –Private college $30,400/year (2006/07) 5/2/20152

3. It pays to plan ahead Over 5 years, (2002 – 2007) there has been a 35% jump in inflation-adjusted average tuition and fees for in-state students at public four-year colleges Recent trends show students are staying in college longer than the usual 4 years 5/2/20153

4. A few sobering statistics To accumulate $150,000 in savings in 15 years requires $560/month, or $6,720/year, at an average rate of 5% /year. According to the College Board, 2007-08 undergraduate students received an average of $8,896 in financial aid per FTE including $4,656 in grant aid and $3,650 in federal loans. 5/2/20154

5. A few sobering statistics Graduate students received an average of $20,320 in aid per FTE student, including $6,948 in grant aid and $12,746 in federal loans. 5/2/20155

6. Getting started Begin by gathering information: –Determine anticipated tuition and expenses –Adjust to account for inflation until the child enters college –Determine the estimated 4-year cost of a college education 5/2/20156

7. Costs of attendance Financial aid can be obtained for costs of attendance (COA), which encompass (in addition to tuition and fees) reasonable educationally related allowances for room and board, a personal computer, study abroad, transportation, supplies and books, and extraordinary expenses due to disability. 5/2/20157

8. Federal financial aid Applicants for need-based aid must annually file the Free Application for Federal Student Aid (FAFSA), available online at www.fafsa.edu.gov.www.fafsa.edu.gov The FAFSA information is used to determine an Expected Family Contribution (EFC). 5/2/20158

9. Federal financial aid A federal methodology (FM) is used by all educational institutions for determining eligibility for federal student aid, an institutional methodology (IM). Some private colleges use the College Board’s Profile application (www.collegeboard.com).www.collegeboard.com There are distinctions between FM and IM. 5/2/20159

10. Determine financial need FAFSA – the Free Application for Federal Student Aid EFC – Expected Family Contribution Tuition/cost of attendance - EFC Financial Need There are lots of financial resources available 5/2/201510

11. Grants Federal Education Grants Pell Grant Academic Competitiveness National SMART Grants Supplemental Educational Opportunity Grants Byrd Grants—funded by the U.S. government and administered by the states AmeriCorps 5/2/201511

12. Federal loan programs Stafford Loan Perkins Loan PLUS Loan 5/2/201512

13. Financial aid Web sites http://www.nysscpa.org/cpajournal/2006/1206/esse ntials/p50.htm, Twenty Questions About Paying for College, The Online CPA Journalhttp://www.nysscpa.org/cpajournal/2006/1206/esse ntials/p50.htm www.finaid.org: Searches scholarships, loans, saving plans, and military and financial aid.www.finaid.org www.princetonreview.com: The Scholarship Advisor by the Princeton Review details scholarship opportunities.www.princetonreview.com www.collegeboard.com. Information for students and educators from the maker of the SAT and AP exams.www.collegeboard.com 5/2/201513

14. Financial aid Web sites www.collegeboard.com. Information for students and educators from the maker of the SAT and AP exams.www.collegeboard.com www.fastaid.com: The world’s largest and oldest private-sector scholarship database.www.fastaid.com www.scholarships.com: Searches scholarships with information on financial aid and education loans.www.scholarships.com www.collegeview.com: Searches colleges and financial aid information.www.collegeview.com 5/2/201514

15. Financial aid Web sites www.fastweb.com: Provides personalized scholarship matches.www.fastweb.com www.gocollege.com: Tips on financial aid.www.gocollege.com www.finaid.org/calculators: Contains online calculators (see question 4 and Exhibit 1).www.finaid.org/calculators www.savingsforcollege.com: IRC section 529 plans.www.savingsforcollege.com 5/2/201515

16. Section 529 Plans Qualified State Tuition Plans (QSTPs) Tuition Credits (Prepaid tuition plans) –Account owner purchases tuition credits or certificates on behalf of account beneficiary that entitles waiver of Qualified Higher Education Expense (QHEE) College Savings Plan –Account owner makes contribution to plan that is established to meet QHEE of designated beneficiary 5/2/201516

17. Section 529 plans Tuition credits Advantages –Lock future tuition at current rates Disadvantages –Presupposes child will attend that college –Child may not meet admission requirement –Child may want to go/receive scholarships to another college 5/2/201517

18. Section 529 plans Savings plans Requirements –Must be established and maintained by the state (can contract out mgmt) –Only cash contributions allowed –No investment discretion by owner (discretion is the initial choice of plan) –May not be used as collateral for loan –Limit (generous) on contributions 5/2/201518

19. Section 529 plans Savings plans Requirements (cont) –Proceeds must be used for “QHEE” at “Eligible Educational Institutions”, including housing costs –QHEE defined –Eligible Institutions defined –Designated Beneficiary defined –Penalty on non-qualified withdrawals 10% of earnings portion 5/2/201519

20. Section 529 plans Savings plans Advantages - tax –Qualified withdrawals are tax-free –Withdrawals for non-QHEE are taxed as ordinary income, to the extent of earnings –HOPE and lifetime learning credits can be claimed in same year –Currently, you may contribute up to $331,000 to your Ohio 529 plan 5/2/201520

21. Section 529 plans Savings plans Advantages - tax –Estate tax – treated as completed gift and is not subject to estate tax if owner dies (Usually account ownership and ability to change beneficiary causes inclusion in estate.) Pay no taxes as funds grow — withdrawals used for qualified higher education expenses are exempt from both federal and Ohio income tax. 5/2/201521

22. Section 529 plans Savings plans Advantages - other –Account owner controls the withdrawals –Considered property of account owner for federal financial aid purposes –No income limitations on account owner –Can transfer to another state 5/2/201522

23. Ohio’s Prepaid Tuition Program Most are state-based and good at any public school in the state. Usually can be exchanged for dollars for use at private schools or out of state schools. Ohio no longer allows contributions to the Tuition Credits side of their 529 plan (and hasn’t since 2003). That side of their plan is now called the Guaranteed Savings Fund. 5/2/201523

24. Ohio’s Prepaid Tuition Program Those with funds in the Guaranteed Savings Fund should check out the College Advantage Web site: http://www.collegeadvantage.com/cms.aspx ?SectionID=100 http://www.collegeadvantage.com/cms.aspx ?SectionID=100 5/2/201524

25. Other sources offering tax advantages Educational IRAs Uniform Gift to Minor’s Act (UGMA/UTMA) The Roth IRA The Hope Scholarship Credit The Lifetime Learning Credit Series EE Bonds 5/2/201525

26. Education IRA (Coverdell education savings account) Contributions not tax deductible Qualified withdrawals are tax-free Qualified withdrawals include QHEE as well as elementary/secondary education (k – 12), including private schools Non-qualified withdrawals subject to 10% additional tax 5/2/201526

27. Education IRA (Coverdell education savings account) Maximum contribution $2,000 per child; must be in cash and cease at age 18 Income must be below $110,000 for single filers and $220,000 for joint filers in 2009 May also claim HOPE or lifetime learning credit 5/2/201527

28. Education IRA (Coverdell education savings account) Account transfers to beneficiary at age 30 (except “special needs”) Ownership by child for aid purposes 5/2/201528

29. UGMA/UTMA custodianship Irrevocable gift to child Control of withdrawals transfers to child at age of majority (18 in Ohio) Income and capital gains taxed at child’s rate Contributions qualify for the $12,000 annual gift tax exclusion Ownership by child for aid purposes 5/2/201529

30. Roth IRA Roth and traditional IRA funds grow tax free. No tax or penalty to withdraw contributions in funds that have been in the account for 5 years (Roth only). No tax or penalty to withdraw earnings if used for QHEE or account owner is >59 ½ (Roth and traditional IRA). Advantage: If funds are not needed for education, remain for retirement use later. 5/2/201530

31. Roth IRA Income restrictions apply Contribution maximums: –2009 (49 and below) $5,000 –2009 (50 and up) $6,000 –2010 Indexed to Inflation 5/2/201531

32. Investment strategies to accomplish education goals Develop and implement a savings plan as early as possible Monitor and update the plan as unknown factors become known College fund portfolio –Begin aggressive –Mix should gravitate toward fixed income/liquid as college nears 5/2/201532

33. Estimating savings needs Current college costs Estimated annual growth rate in college costs Estimated after tax return on investment 5/2/201533

34. Thank you If you have questions or would like to discuss planning for college or other financial matters, please contact me: –Name, CPA –Company –Address –Phone –Web site 5/2/201534