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Saving and Paying for College

Presented by:Jayson Voigt, CFP®

Money AdvisorFrancis Investment Counsel LLC

Our Agenda

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We’ll Begin at the End and Work Backward

Paying for College

Saving for College

What is the annual cost of attendance at a private university for 2018-2019?

A. $19,189

B. $29,475

C. $38,935

D. $46,155

https://www.edvest.com/tools/calculator/

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What is the annual cost of attendance at a private university for 2018-2019?

A. $19,189

B. $29,475

C. $38,935

D. $46,155

https://www.edvest.com/tools/calculator/

What is the annual cost of attendance at a public university for 2018-2019?

A. $19,189

B. $29,475

C. $38,935

D. $46,155

https://www.edvest.com/tools/calculator/

What is the annual cost of attendance at a public university for 2018-2019?

A. $19,189

B. $29,475

C. $38,935

D. $46,155

https://www.edvest.com/tools/calculator/

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Paying for College

College bills don’t all come at once: some may be able to be paid as you go

Financial aid bridges the gap between cost and what family can pay for

Establish firm financial guidelines with your kids –what you will and will not pay

Have the “College Talk”

Establish firm financial guidelines with your kids –what you will and will not pay

State (in and out of state) vs. private

Community college vs. 4-year university

Dorm room or living at home

Does degree support cost?

What is Financial Aid?

GiftsGrants (Federal and State)ScholarshipsFederal Work Study

Self-HelpEmploymentLoans

Don’t spend money on scholarship search

services. Find scholarships at:

www.fastweb.comthe salliemaefund.com

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Applying for Financial Aid is Easy(apply for each child)

www.fafsa.ed.gov

How Financial Aid Works

Indicator of financial strengthMay need to contribute more

Cost of Attendance

ExpectedFamily

Contribution- = FinancialNeed

How Financial Aid Works

Tuition and fees Room and boardTransportationBooks and suppliesLiving expenses

Cost of Attendance

http://www.uww.edu/admissions/cost

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What is the largest determining factor for your Estimated Family Contribution (EFC)?

A. Parents’ age

B. Parents’ income

C. Child’s assets

D. Parent’s assets

What is the largest determining factor for your Estimated Family Contribution (EFC)?

A. Parents’ age

B. Parents’ income

C. Child’s assets

D. Parent’s assets

Expected Family Contribution

Factors used to determine your EFC (from 2 years before):

Income

Assets

Family size

Number in college

Age of older parent (the older, the less assets

that count)

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Is a step-parent’s income included as a resource for paying for college?

A. Yes

B. No

C. Depends on who

has custody

Is a step-parent’s income included as a resource for paying for college?

A. Yes

B. No

C. Depends on who

has custody

How your Assets Affect your EFC

Important!20% of child’s assets count, no more than 6% of parent assets count

ExcludedIncluded

Cash and savingsEducation IRAs529 PlansSecond home

Your homeValue of life insuranceRetirement plansPersonal vehicles

https://fafsa.ed.gov/help/assetnetworth.htmhttps://ifap.ed.gov/efcformulaguide

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How Financial Aid Works

Doesn’t mean this is always met

Cost of Attendance

ExpectedFamily

Contribution- = FinancialNeed

You’ll Need When You Apply

Personal information for students and parents

Financial information for students and parentsTaxes and W-2s (IRS retrieval tool)Bank statementsAsset information

Online process can be completed in about 45 minutes

Results sent electronically to colleges

Financial Aid Application

File early: earliest you can apply: October 1 for all entry

There may be supplemental forms required by school

Under 24 = dependent student, unless… In militaryMarried with childIn grad school

https://ifap.ed.gov/efcformulaguide

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FAFSA Follow Up

EFC calculated

Results sent electronically to schools

You receive Student Aid Report

Then school takes over (It’s your job to notify school of extraordinary circumstances)

Your Financial Aid AwardCould be a combination of…

GrantsPell Grant ($5,920 max)SEOG (if Pell Grant eligible – Max $4,000)State GrantsInstitutional Grants

Employment (Federal Work Study or regular on campus job)

Loansstudentaid.ed.gov

Stafford Loans

Two Types

Subsidized Stafford Loans

Unsubsidized Stafford Loans

studentaid.ed.gov

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Stafford Loans - Subsidized

No interest accrues while in school

Maximum annual loan amount $3,500 for freshman$4,500 for sophomore $5,500 for juniors and seniors

Payments deferred until six months after graduation

studentaid.ed.gov

Stafford Loans - Unsubsidized

Interest accrues while in school

Maximum Subsidized and Unsubsidized annual loan amount

$5,500 for freshman, $6,500 for sophomore, $7,500 for juniors and seniors

Payments deferred until six months after graduation

studentaid.ed.gov

What if it’s not enough?

Parent PLUS LoansInterest rate 7.2%Taken out in parent’s namePayments begin right away

Alternative Education Loans

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Where else could the money come from?

Home equity loan may be better deal

Beware of variable rates though!

Is borrowing from my workplace retirement

plan a good idea?

What about cashing out retirement plan

balances?

Your deposits in Roth IRAs can be

withdrawn at anytime with no

tax!

Tax Breaks Might Be Available

American Opportunity Tax CreditMaximum credit of $2,500Fully eligible if adjusted gross income under $80,000 ($160,000 if you file a joint tax return)Student must be enrolled at least half-time

Lifetime Learning CreditMaximum credit of $2,000Fully eligible if adjusted gross income under $66,000 ($132,000 if you file a joint tax return)

https://www.irs.gov/credits‐deductions/individuals/aotchttps://www.irs.gov/credits‐deductions/individuals/llc

Student Loan Interest May Be Deductible

Deduct the interest you pay on student loans, up to $2,500 a year

Phase outs begin if Modified adjusted gross income is more than $65,000 ($130,000 if filing jointly)

Deductible only for the one liable for the loan

https://www.irs.gov/taxtopics/tc456

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We’ll Begin at the End and Work Backward

Paying for College

Saving for College

How Much Do You Need to Save?

How Much Do You Need to Save?

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How Much Do You Need to Save?

Your Investment Decisions Matter

$100 per month for 18 years at varying rates of return

$0$5,000

$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000$50,000

8% return 6% return 4% return

$44,900

$37,000

$30,800

For illustration purposes only

Past Performance is no guarantee of future results

Considerations when Choosing an Account

It matters who owns the account

Uncle Sam might give you a break

Investment options are endless but can be made simple

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Ways to Save for College

Best: 529 Plans

Good: Coverdell Savings Accounts

Interesting Idea: Parents’ Roth IRAs

Bad Idea: Custodial Accounts

Best: 529 Plans

Roth-like tax breaks: after-tax going in, tax-free if used for college, state might also give you a tax break

Considered parents asset for financial aid

Easy to invest: age-based premixed funds

Easy to start: available online with low minimums and systematic deposits

Taxes and 10% penalty applies to gains if NOT used for college

Financial Aid

If grandparentsown account, it doesn’t count

at all!

ifap.ed.gov/efcformulaguideIRS publication 970

529 Plans…

A. Can be used for any college expense, not just tuition

B. Can be transferred to siblingsC. Can be retained for student’s own childD. All of the above

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529 Plans…

A. Can be used for any college expense, not just tuition

B. Can be transferred to siblingsC. Can be retained for student’s own childD. All of the above

Wisconsin’s 529 Plan: Edvest

Good: Coverdell Savings Plans (Education IRA)

Roth-like tax breaks: after-tax going in, tax-free if used in college

Considered parents asset for financial aid

Virtually unlimited investment options

Low annual savings limits deposits

Taxes and 10% penalty applies to gains if NOT used for college

Can be used for private primary and secondary education

https://www.irs.gov/taxtopics/tc310https://ifap.ed.gov/efcformulaguide

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Interesting Idea: Parents’ Roth IRAs

Deposits can be withdrawn at anytime: gains are taxable but not penalized if used for college

NOT considered as an asset for financial aid

Virtually unlimited investment options

No penalties if not used for college

ifap.ed.gov/efcformulaguideirs.gov publication 509a and 509b

Bad Idea: Custodial Accounts

Considered student asset for financial aid

No tax breaks (gains may be taxed at child’s rate)

No requirement to use for college

ifap.ed.gov/efcformulaguide

Great Resource: savingforcollege.com

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Call 866-232-6457 or visit moneyadviceatwork.com

to schedule a personal MoneyAdvice session.

@francisinv

Francis Investment Counsel does not provide legal or tax advice. As investment returns are variable, we cannot guarantee any certain investment return or result. Historical performance information has been compiled from sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. Past performance is not a guarantee of future results.

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