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Tools & Techniques of Financial Planning Leimberg, Satinsky, Doyle & Jackson Education Planning.

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Presentation on theme: "Tools & Techniques of Financial Planning Leimberg, Satinsky, Doyle & Jackson Education Planning."— Presentation transcript:

1 Tools & Techniques of Financial Planning Leimberg, Satinsky, Doyle & Jackson Education Planning

2 7-2 Education Funding Calculation  Estimate cost in today’s dollars Public  Tuition/room/board Private Number of years Percent student pays Percent financial aid/scholarships

3 7-3 Education Funding Calculation  Inflate today’s costs to future dollars Education inflation rate Guess high/low? Inflate sophomore – senior years  Determine lump sum investment Start of college Current savings  Determine periodic savings required

4 7-4 Education Funding Calculation  Determine periodic savings required Rate of return  Portfolio allocation Number of years  Before start of college?

5 7-5 Topic 8: Educational Planning  American Opportunity 100% of first $2,000 and 25% of next $2,000  First four years of out of pocket tuition/full time  Per student  Up to $1,000 refundable  Lifetime Learning Credit 20% of $10,000 out of pocket tuition  Part-time and grad students  Per family limitation Can’t take Hope/Lifetime for same student  Phaseout 2010: AGI from $ vs. $96-$116 in 2008

6 7-6 Coverdell ESA Funds withdrawn not taxed if used for tuition, cost of attendance room/board Can no longer be used for K-12 private school after 2010 Anyone (grandparents) can contribute up to $2,000 per under 18 beneficiary per year  Can change beneficiary to other family members under 30 (pg. 122 liberal definition)  Beneficiary change is gift from old to new Can contribute to both an ESA and 529 Phase out on contributions: $95-$110,000 single; $190-$220,000 MFJ for 2009

7 plans Prepaid tuition (not as common); savings plan Funds withdrawn not taxed if used for tuition, cost of attendance room/board for half-time student Anyone can contribute for any beneficiary  Grandparents: five years at once ($65,000)  Not included in estate if live five years  Often, state income tax deduction for contribution Asset of parent; not student for financial aid Can change beneficiary to other family members Plans sponsored by state; investment options vary  Only permitted one change in portfolio allocation during year

8 7-8 Grants and Loans Pell Grants up to $4,860 in 2010; SEOG: up to $4,000  No repayment Loans  Perkins Must have need 5% interest rate $4,000 per year undergrad; $20,000 max $6,000 per year grad; $40,000 max No interest while in school 10 year repayment

9 7-9 Grants and Loans Loans  Stafford Up to $5,500 fresh; $6,500 soph; $7,500 after that  Independent students – higher limit  Also limited to Cost of Attendance - Grants Grad $20,500 per year (only $8,500 subsidized) Interest rates based on T-bills (as of %)  Max 8.25%  4% origination fee No interest while in school and following 6 months 10 year repayment Cancelled due to disability, death of student Forgiveness not income in certain situations: doctor in rural area

10 7-10 Grants and Loans Loans  Parents (PLUS) No limit on amount Interest rates based on T-bills (as of %)  Max 9%  4% origination fee Interest is capitalized while in school 10 year repayment Cancelled due to disability, death of student

11 7-11 Student Loan Interest Expense Savings Bond Interest Income  Student Loan Interest Expense Can deduct up to $2,500 per year Phase out: $60-$75,000 single; $120- $150,000 MFJ for 2009  Savings Bond Interest Income Parents can exclude interest income on amounts up to tuition paid during year

12 7-12 Kids Working  Good idea while in school?  For you Deduct reasonable expense Earned income up to $5,350 generally not taxed No social security taxes if under 18

13 7-13 Shifting Income  Gift assets UTMA/UGMA  Under 19 or full-time student dependents under 24; parents rate on income > $1,900  First $950: no tax; second $950: 10%  Kid’s assets at 18 Gift appreciated property just prior to college  529 plan losses Cap gains tax: generally 5% for student  Financial aid

14 7-14 Financial Aid  Expected Family Contribution Student Contribution  35% of assets; 50% of earnings Parent Contribution Generally 6% of assets  Excludes home equity; retirement accounts  Based on year before student starts college


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