1. Building Bridges with College Funding Beyond 529 Plans: Advanced College Funding Strategies Building Bridges with College Funding Beyond 529 Plans: Advanced College Funding Strategies Rick Darvis, CPA, CCPS 1-800-765-2031 rdarvis@solutionsforcollege.com www.solutionsforcollege.com

2. Agenda The College Funding Opportunity College Funding vs. Retirement Education Tax Strategies

3. Building Bridges with College Funding Bridge to existing and prospective clients Product has lost its sizzle Added Value is the key College funding will provide a niche College funding is HOT and recession proof Ultimate door-opener to premium clients

4. College is EXPENSIVE! $16,000 $32,000 $48,000 5,000 15,000 25,000 35,000 40,000 $45,000 30,000 20,000 10,000 Average Public University Average Private College Elite Private College *Source of college costs is from the College Board.

5. If You Haven’t Saved for College… You May Have A Retirement Issue! If You Haven’t Saved for College… You May Have A Retirement Issue! ?? How are you going to fund your own retirement after paying for college? How old will you be when your last child graduates from college?

6. Assumes 5% investment rate, one child in college, after-tax dollars College Dollars Spent Equals Retirement Dollars Lost Years Until Retirement 15 20 Public $80,000 $166,320 $212,240 Private $160,000 $332,640 $424,480 Elite $240,000 $498,960 $636,720

7. Solving the Dilemma… How can I determine the most efficient way to fund college and retirement without going broke? Education Funding Retirement Funding

8. College is Paid with After-Tax Dollars *Assumes additional 5% state and local tax and only ONE child’s college expenses Tax Brackets 25% 28% 33% 35% Five-Year College After-Tax Cost Public $80,000 $114,286 $119,403 $129,032 $133,333 Private $160,000 $228,571 $238,806 $258,065 $266,666 Elite $240,000 $342,857 $358,209 $387,097 $400,000

9. Education Tax Strategies A new-found tax benefit is the same as a “tax scholarship” The higher the income tax bracket, the greater the benefit of any tax strategy All tax strategies MUST be reviewed with a tax advisor Using the IRS to Help Fund College

10. Introduction to Tax Capacity Opportunities in the child’s tax return Child’s tax capacity definition Income shifting to utilize tax capacity Age 0-13 $1,600 Age 14-HS $34,700 College $37,900 + HC/LC The term “Tax Capacity” is from Practitioners Publishing Company

11. Example: College Years $ 7,442 Tax Scholarship Wages IRA Withdrawal Capital Gain Personal Exemption Standard Deduction Taxable Income Tax Rate Tax Hope Tax Credit Child’s Tax Liability $ 5,000 $ 12,000 $ 10,000 (3,100) (4,850) 19,050 X 5/15% $1,508 (1,500) $ 8 Income Shifted Parents’ Tax Rate Parents’ Tax Liability $ 27,000 X 15/35% $ 7,450

12. Case Study #1 — Facts Income — $145,000 Assets — $140,000 (outside of retirement) Medical expense of $9,000 per year Ineligible for aid at $35,000/year college Pay undergraduate & graduate school

13. Case Study #1 — Strategies 1) Sole Proprietor Employ Mother in the business Establish SIMPLE IRA (Mother & Father) Employ the two children in the business

14. Case Study #1 — Strategies 1) Sole Proprietor Employ Mother in the business Establish SIMPLE IRA (Mother & Father) Employ the two children in the business 2) Tax Strategy Medical reimbursement plan First year depreciation election

15. Case Study #1 — Strategies 1) Sole Proprietor Employ Mother in the business Establish SIMPLE IRA (Mother & Father) Employ the two children in the business 3) Junior Year Employer Education Assistance Gift and leaseback of equipment Gifts of appreciated securities Life Insurance or Federal PLUS Loans 2) Tax Strategy Medical reimbursement plan First year depreciation election

16. Case Study #1 — Added Value Eligible for $43,240 of financial aid Tax Scholarships of $36,125 IRC 105 & SIMPLE IRA tax benefit of $73,850 IRC 127 tax benefit of $9,870 Tuition Deduction tax benefit of $2,880 TOTAL BENEFITS - $165,965 RETIREMENT DOLLARS - $345.041 SIMPLE IRA CONTRIBUTIONS - $140,000

17. Income - $624,000/year Assets - $4,017,000 Newborn child Save and pay for K-12 private & college Grandparents have desire to help Case Study #2 — Facts

18. Case Study #2 — Strategies 1) Birth Grandparents fund Coverdell ESA and 529 Plan Fund UTMA with municipal bond fund

19. Case Study #2 — Strategies 2) Teenager Employ child and invest wages in IRA (age 10) Gift and leaseback of equipment (age 14) 1) Birth Grandparents fund Coverdell ESA and 529 Plan Fund UTMA with municipal bond fund

20. 3) College Employer Education Assistance (age 21) Grandparents contribute to CRT Gifts of appreciated assets as needed Case Study #2 — Strategies 2) Teenager Employ child and invest wages in IRA (age 10) Gift and leaseback of equipment (age 14) 1) Birth Grandparents fund Coverdell ESA and 529 Plan Fund UTMA with municipal bond fund

21. Tax scholarships of $98,601 IRC 127 tax benefit of $4,515 Grandparents Avoid tax on income of $123,005 from the 529 Plan & CESA Remove $226,000 from estate Receive a charitable tax deduction of $78,791 Avoid tax on $80,000 of appreciation Case Study #2 — Added Value

22. Review The College Funding Opportunity - Added value is the key - Network with other professionals - Attract premium clients, including grandparents College Funding vs. Retirement - Paying for college is a retirement problem - College dollars saved are retirement dollars gained Education Tax Strategies - Use “tax capacity” to add value and increase cash flow for investing - Unique opportunities for business owners - Employees also have opportunities

23. The Next Steps The College Funding Opportunity - How to maximize financial aid eligibility -How to maximize the education tax incentives - Methods and investments to fund college & retirement - A roadmap to meet financial goals Building Bridges with College Funding