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NOT FDIC INSURED- MAY LOSE VALUE - NO BANK GUARANTEEInvesco Distributors, Inc.
NA1932
The ABCs of Education SavingsHelping Create a Plan that Makes the Grade
Acquaint yourself with the education savings landscape 4Build a plan for success 12Care for your plan and help it grow 37
Table of Contents
2
Acquaint: Understand the education savings landscape
The ABCs of EducationSavings
3
$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000
Vocational School
Community College:2 Years Off Campus
Public College/University:4 Years on Campus…
Public College/University:4 Years on Campus…
Private College/University:4 Years on Campus
Total Cost of Attendance
Tuition and Fees Room and Board Books and Supplies Transportation Other Expenses
Cost of attending different types of post-high school education
Education Is an Expense that Should Be Planned For
Source: “Trends in College Pricing 2019,” College Board, 2019. Vocational school data provided by rwm.org, 2020. Trade school costs vary by specific trade.
4
$37,960 $41,704
$44,824
$62,296
$74,568
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
High SchoolDiploma
VocationalSchool
Associate'sDegree
Bachelor'sDegree
Master'sDegree
Average Earnings4.10%
3.70%
2.80%
2.20% 2.10%
0%
1%
1%
2%
2%
3%
3%
4%
4%
5%Unemployment Rate
Education Tends to Increase Future Earnings Potential
Source: Bureau of Labor Statistics, 2018. Average earnings and unemployment rates are for the year 2019.
5
Tuition Cost May Grow Faster than Your StudentProjected 4-year college costs today versus 18 years from now
Sources: “Trends in College Pricing 2019,” College Board, 2019, and Invesco, Ltd, 2019. This scenario shows calculations based on 4 years at a private college and includes tuition, room and board, and fees, and assumes an average of 4.5% increase per year. The hypothetical examples are for illustrative purposes only and do not predict or depict the performance of any specific investment. Actual results may vary.
20372019
$215,920
$476,855Tuition and fees are expected to increase at a rate of 3%–5% annually. This could mean an increase of $246,046 in tuition from the time your student is born until the time they graduate high school.
6
44% of American families say they have a plan to save for education.
Families that plan for education savings borrow significantly less than non-planners. (18% vs. 31%)
Build a PlanCareful planning may help your savings grow
Source: “How America Pays for College 2019,” SallieMae, 2019.
7
Assess Your Financial HealthCalculate your current savings, spending habits, and potential future expenses
8
1. Plan 2. Invest 3. Adjust 4. Mature 5. SpendIdentify personal goalsand associated costs
529 College Savings Plan Decide if you’d like to partner with anadvisor
Learn about markets,asset classes and their roles
Develop a strategy to spend wisely fromyour education savings
Identify anyprofessional goals
CoverdellEducation Savings Account
Identify andaddress important lifeevents
Learn about markettrends and their potential impacts
Think about spending inboth the short term andlong term
Determine how education savings fits into legacy planning
Trust Schedule regular reviews Attend educational seminars
Only spend what you need to—think about factors such as financialaid
Resources to Help You Start Planning“Do it yourself” vs. “do it with help” options
The organizations listed above are not affiliated with Invesco or its subsidiaries.
“Do It Yourself” Planning “Do It with Help” Planning
Many websites provide a lot of great resources and tips SavingForCollege NerdWallet FinAid
SallieMae Reports: How America Saves for
College How America Pays for
College
CNN College Costs website
Department of Education
Securities Exchange Commission (SEC)
Federal Student Aid
A financial advisor can help build education into your holistic financial plan.
Visit brokercheck.org to find an advisor.
The Internet Government Resources
Traditional Resources Financial Advisor
The research section of the library contains information on how to get started planning.
High school guidance counselors may provide resources on educationand vocational training.
9
Acquaint Yourself with the Education Savings LandscapePutting it all together
10
Education Costs Can Be Manageable with a PlanIdentify your education savings goals early to help lessen the burden.
Build a PlanHaving a plan can lead to increased success in reaching your education savings goal. The end result of your plan may not be to fully fund your student’s education, but remember that every dollar saved today is a dollar less to borrow and can help payfor future expenses.
Use All Available ResourcesThere are many resources—both in person and online—that can help you get started.
Build: Considerations in building a plan that fits your needs
The ABCs of EducationSavings
11
54%
2%
3%
38%
3%
Families Have Several Options to Save for EducationAs shown in the data below, Americans save for college in a number of ways. By using these options (either alone or in combination), families can help plan for future education expenses.
Source: SallieMae, “How America Saves for College,” 2018. Personal savings is defined as a general savings account, piggy bank, Bitcoin, checking accounts, CD, investment account, juvenile life insurance, and U.S. savings bonds.
12
Personal Savings
529 Plan
Coverdell ESA
Trust(UGMA/UTMA)
Other
Different Options, Different Tax TreatmentsYou have options when saving for education. Some of these options may work better than others, depending on your situation.
Source: Federal Student Aid, Department of Education. https://studentaid.ed.gov/sa/fafsa/filling-out Visit IRS.gov for more information.
Coverdell Education Savings Account
UGMA/ UTMA
IRAROTH
(After-Tax)
IRATraditional (Pre-Tax)
529 Plan
13
Different Options, Different Tax Treatments529 college savings plans
Source: Federal Student Aid, Department of Education. https://studentaid.ed.gov/sa/fafsa/filling-out*Visit IRS.gov for more information. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
Tax Implications Account Control Financial Aid Impact
Tax-free growth and tax-free withdrawals as long as they are used for qualified education expenses.*
Owner-driven account. Parental Assets:5.6% weight in FAFSA calculations.
529 College Savings
Plans
14
Different Options, Different Tax TreatmentsIndividual Retirement Accounts (IRAs)
Source: Federal Student Aid, Department of Education. https://studentaid.ed.gov/sa/fafsa/filling-out*Visit IRS.gov for more information. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Taxand other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
IRAROTH
(After-Tax)
IRATraditional (Pre-Tax)
Tax Implications Account Control Financial Aid Impact
Tax-deductible contributions. Tax-free growth.Taxed on distributions.Penalty-free withdrawals for education expenses for you, your spouse, your child, or your grandchild.
Parental-owned account. Retirement assets are not counted in FAFSA calculations; however, distributions could spike income.
After-tax contributions. Tax-free growth.Possible tax-free withdrawals.*Penalty-free withdrawals for education expenses for you, your spouse, your child, or your grandchild.
Parental-owned account. Retirement assets are not counted in FAFSA calculations; however, distributions could spike income.
15
Different Options, Different Tax TreatmentsUniform Gift to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
Source: Federal Student Aid, Department of Education. https://studentaid.ed.gov/sa/fafsa/filling-out *Visit IRS.gov for more information.
16
Tax Implications Account Control Financial Aid Impact
Higher balances could potentially be taxunfriendly.
Yield control of account to the child atage of majority. Account may beinvested in various vehicles.
Student’s Assets:20% weight in FAFSA calculations.
UGMA/ UTMA
Accounts
Coverdell Education Savings
Accounts
Different Options, Different Tax TreatmentsCoverdell Education Savings Accounts
Source: Federal Student Aid, Department of Education. https://studentaid.ed.gov/sa/fafsa/filling-out *Visit IRS.gov for more information.
17
Tax Implications Account Control Financial Aid Impact
Tax-free growth, but $2,000 maximum annual contribution limit.
Remains a parental-owned account until the beneficiary turns 30 years old.
Parental Assets:5.6% weight in FAFSA calculations.
Coverdell Education Savings Account
$5,441
$3,902
$2,616
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000
529 College Savings Plan
Investment Accounts
Savings Accounts
Saving in the Right Places Can Help Your Student SucceedParents who save in a 529 college savings plan typically save more than parents using other types of accounts
Source: “How America Saves for College,” SallieMae, 2018.
18
Type
of A
ccou
nt
Amount Saved
Essentially an investment account*
Authorized by individual states.
Earnings not taxed when spent on qualified educational expenses.1
Can be used at any accredited college, including some overseas.
Traditional 529 College Savings Plans
Pay tomorrow’s tuition at today’s price
Only valid for specific issuing state or participating institution
There are no tax implications because money is not invested, “units or semesters” or “tuition certificates” are being purchased
These “units or semesters” or “tuition certificates” are bought at today’s prices and can be used to pay for education at a future day.
Prepaid 529 College Savings Plans
529 College Savings Plans: The FactsTwo types of 529 plans to fit your preferences and savings goals
*Subject to market risk.1 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
19
Traditional 529 College Savings Plans: Designed for Education SavingsTraditional 529 plans have potential advantages over other savings vehicles when it comes to saving for education
Accepted at most schools nationwide
Account holder maintains controlAnyone can open an account
Tax advantagesPlans are flexible
Traditional 529 College Savings Plan Features
20
Prepaid 529 College Savings Plans: Pay Tomorrow’s Tuition at Today’s PricesPrepaid 529 plans can help alleviate concerns surrounding market volatility or future tuition increases.
Lock in future rateswith a guarantee
Anyone can open an account
Tax advantagesPurchase “units” or “semesters” of tuition
Plans are flexible
Prepaid 529 College Savings Plan Features
21
10,000
15,000
20,000
$25,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Tara’s Family: Tax Advantaged Account Oliver’s Family: Taxable Savings Account
Acco
unt B
alan
ce
Growth of $10,000 of savings over 18 years
Tax-Advantaged Plans, Such as 529 College Savings Plans, Have Potential BenefitsTake a look at two families—Tara’s and Oliver’s—and how the different ways they save affected how much they had by the time Tara and Oliver were ready to graduate high school.
Source: Invesco, 2020. This hypothetical illustration assumes an initial investment of $10,000 and a 5% annual rate of return. The taxable account assumes a 28% federal and 5% state tax rate. The illustration does not represent the performance of any specific account or investment and does not reflect any plan fees or sales charges that may apply. If such fees or sales charges were taken into account, returns would have been lower.
22
Tax advantaged account grows $5,970 more than a taxable savings account
Tara’s balance at age 18:$24,066Oliver’s balance at age 18:
$18,096
Both Tara and Oliver’s families started with a $10,000 balance in their accounts: Tara in a tax-advantaged 529 college savings plan and Oliver in a taxable account.
529 College Savings Plans: Estate Tax Planning FeaturesBeyond education savings, 529 college savings plans can help families leave a legacy
1. The gift-tax exclusion applies, provided the 529 account owner makes no other gifts to the beneficiary during a five-year period. Contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples filing jointly) made in one year may be pro-rated over a five-year period without subjecting the donor(s) to federal gift tax or reducing his/her federal unified estate and gift tax credit. If an individual contributes less than the $75,000 maximum ($150,000 for married couples filing jointly), additional contributions may be made without subjecting the donor to federal gift tax, up to a pro-rated level of $15,000 ($30,000 for married couples filing jointly) per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given beneficiary in the year of contribution. If the account owner dies before the end of the five-year period, a pro-rated portion of contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples filing jointly) made in one year may be included in his or her estate for estate tax purposes. Please consult your tax and/or legal advisor for further guidance. 2. Non-qualified withdrawals from a 529 plan are subject to income tax and a possible 10% federal penalty on the earnings portion of the account.2. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
23
An individual may contribute up to $15,000 a year ($30,000 for a married couple) per beneficiarywithout triggering the federal gift tax.1
Special gift and estate tax treatment allows an individual to contribute up to $75,000 ($150,000 for a married couple) in one lump sum, per beneficiary, free of federal gift taxes (i.e., five times the annual gift tax exclusion), under a provision known as “accelerated gifting.”
For tax purposes, the Internal Revenue Service considers assets held in a 529 college savings plan as a completed gift and therefore treats them as the beneficiary’s assets and NOT the account owner’s.
529 college savings plan contributions and investment earnings may be withdrawn federal income tax free if the money is used for Qualified Higher Education Expenses (QHEE).2
The 529 college savings plan owner maintains complete control over account assets and is allowed to make beneficiary changes or even discontinue the account and take the money back.2
Contributions Accelerated Gifting Tax Planning Tax-Free Withdrawals 2 Control
Key ConsiderationsWhen considering whether to use a 529 plan in your estate plan, keep in mind the following key points:
Parents’ income is the most heavily weighted factor in determining financial aid.
Students are required to repay education loans (plus interest).
Financial Aid: What You Need to KnowFinancial aid helps fill the gap between what school costs and what students are expected to pay.
Many undergraduates receive some type of financial aid.
Grants and/or scholarships are “free money”—they do not
need to be repaid.
Aid is based on two factors: student merit and financial need.
B
AA
%
24
Understanding Financial AidImportant Terminology
Source: Federal Student Aid. https://studentaid.ed.gov/sa/types
25
Reflects the cost of attending a specific school. Includes tuition, room, board, and related fees and expenses.
COACost of Attendance
Amount a family is expected to contribute to education costs eachyear. Determined by FAFSA submission, not dependent on a specific school’s COA. Cost of Attendance – EFC = Financial Need. Keep in mind: EFC does not always reflect a family’s actual ability to pay.
EFCExpected Family Contribution
Helps to determine amount of federal aid families are eligible for. Used by many public, private, community, and vocational schools to calculate financial
aid packages (the amount of aid—whether through grants, scholarships, or loans—offered by a school to a student).
FAFSAFree Application for Federal
Student Aid
Financial Aid Eligibility COACost of Attendance
EFCExpected Family Contribution= -
With FAFSA, Not All Money Is Considered EquallyIncome and assets are considered differently when determining EFC
For illustrative purposes only. The EFC calculation factors in the following financial resources that Tara’s family has: 1. 22%–47% of Tara’s parents’ income (based on a sliding income scale and after certain allowances). 2. 2.6%–5.64% of her parents’ nonretirement assets (including 529 plans, based on a sliding income scale and after certain allowances).Assets such as retirement accounts and real estate are excluded from the FAFSA formula when calculating EFC. A full list of excluded assets is available at irs.gov.
Parents Income
Parent’s Assets
x 47%
x 5.64%
FAFSA
Calculations
Keep in mind:
Money Earned $75,000
Excluding Retirement Savings $100,000
$35,250 $5,640
AssetContribution
Expected Family Contribution
Income Contribution
Student Contribution
$0
Tara and her family have saved diligently for Tara to attend culinary school.
Her family has $75,000 in income and
$100,000 in nonretirement assets.
Assuming Tara has not made any contributions, what can Tara’s family do to bridge the gap between what they are expected to pay and what they can actually pay?
Example—Tara’s Family:
26
=
Maximizing Financial AidKeep these points in mind when applying for financial aid
Source: SallieMae. How America pays for college, 2016
27
Always submit a FAFSA form (you may be unaware of all available aid).
The way the system works today may not be the same when your future student graduates high school.
Saving reduces your reliance on the financial aid system.
Savings and investments held by a student’s parents count far less than income in calculating EFC.
Future financial aid eligibility is notnecessarily affectedby your currentinvestment decisions.
Points to Remember
Subsidized Loans Unsubsidized Loans
The U.S. Department of Education paysinterest on subsidized loans while student
is inschool
Interest accrues on unsubsidized loans while student is inschool
Federal Student LoansConsider these points when applying for financial aid
Source: StudentAid.gov. Loan information based on dependent student status. For illustrative purposes only. This does not apply to private loans. Individual private lenders will provide their own rules on limits.
Limits: FirstYear Undergraduate
Limits: SecondYear Undergraduate
Limits: ThirdYear and Beyond
UndergraduateAggregate Loan Limit
• $5,500 total
• A maximum of $3,500 may be in subsidized loans
• $6,500 total
• A maximum of $4,500 may be in subsidized loans
• $7,500 total
• A maximum of $5,500 may be in subsidized loans
=• $31,000 total
• A maximum of $23,000 may be in subsidized loans
28
Student LoansLoans can have a large impact on a student’s financial future, so it’s important to start building a savings plan early to minimize borrowing
*This chart is for illustrative purposes only.
29
Loan-Focused Strategy
Oliver’s Family: Loan-focused education funding strategy.
Assume Oliver’s education costs$100,000. Relying on loans, Oliver’s funding strategy may look like this:
Financial Aid
25%
Loans
75%
25%
75%
Saving Now Means Borrowing Less LaterStart now to help relieve the burden of debt
*This chart is for illustrative purposes only
30
Loan-Focused Strategy
Tara’s Family: Savings-focused education funding strategy.
Assume Tara’s education costs$100,000 and her family saved a portion of that in a 529 college savings plan. This reduced the amount of loans she would have to take, but did not create a large reduction in the amount of financial aid received.
Financial Aid20%
529 Savings40%
Loans40%
Loan-FocusedStrategy
Financial Aid
Loans
IncreasedSavings-Focused Strategy
Potential to Maximize Financial Benefits During and After SchoolPutting money away now may help you—and your student—later
31
Put money away now Money may grow if invested
The more you save/invest now,
the less your future student may have to find later
After graduation, your student may
have less debt and can start their own
savings earlier
Retirement Savings Are Not Education SavingsConsider these four points before using retirement accounts to fund education expenses:
32
Retirement Savings
1
2
3
4
Retirement savings are meant to be long-term strategies.
Withdrawing funds during your prime savings years mayreduce the amount you have for your retirement.
Distributions from retirement accounts such as IRAs can actually hurt the amount of financial aid your student may be eligible for.
Borrowing from retirement accounts comes with stipulations (ie. Taxes and potential penalties) that may not make it the best option for funding college.
Saving for Both Education and Retirement Can Benefit in the Long-TermTake a look at Tara’s family’s strategy
For illustrative purposes only.Source: Invesco, 2018. This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Investment contributions are based upon an average annual contribution of $7,500, with $3,750 going into a 529 plan and $3,750 going into retirement savings vehicles for years 0–18, then $7,500 going into retirement savings vehicles for years 19–31. Growth is determined by a 5% annual rate of return. Systematic investing does not assure a profit and does not protect against loss in declining markets. Before investing, investors should evaluate their long-term financial ability to participate in such a plan.
33
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
$400,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32
529 College Savings Plan Retirement Savings
$0 starting balance for 529 plan
$0 starting balance for retirement accounts
Amou
nt o
f Sav
ings
Years
Balance in 529 plan when Tara turns 18: $110,771
Balance at retirement: $348,365
Education Savings Now May Lead to a More Comfortable RetirementPutting money away now may help you—and your student—later
Source: Invesco 2018. This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Retirement savings assumes $5,000 in contributions per year with a 6% rate of return. Illustration is based off of loan repayments for each student. College costs represent four years of tuition and fees with a 4.5% inflation growth in cost each year. Starting salary for both individuals after graduation is $40,000. Tara’s payments represent 30% of her annual income devoted to loan payments, and Oliver’s represents 50%.
34
0
100,000
200,000
300,000
400,000
$500,000
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42
Ret
irem
ent S
avin
gs
15 years after graduation, when Oliver has started contributing,
Tara’s 401(k) balance has reached $40,801.82
At retirement, Tara had$224,609.62more in her account than Oliver
Tara’s balanceat retirement:$468,931.91
Oliver’s balanceat retirement:$244,322.29
• 529 College Savings Plan Saver, Tara
• Non-529 Plan Saver, Oliver
Years After College
Having a Plan is Better than No PlanPutting it all together
35
Understand your options• There are many ways to go about saving for college.• Some plans are built for college savings and have potential benefits in the financial
aid process.123
Maximize financial aidUnderstanding how financial aid works and the detriment to not saving can focus your plan on saving a little over time.
Review the costs before withdrawing from retirement accountsThis may lessen your chance of a dignified retirement.
Care: How to care for the plan and help maintain consistent saving
The ABCs of EducationSavings
36
Plan Features to Help Maintain Consistent and Dedicated Savings HabitAutomatic Investment Programs (AIPs) allow for regular contributions directly to your account
For illustrative purposes only.
37
September1
4 5 6 7
11 12 13 14 15
18 19 20 21 22
25 26 27 28 29
November1 2 3 4
7 8 9 10
14 15 16 17 18
21 22 23 24 25
26 27 28 29 30
October1 2 3
6 7 8 9
13 14 15 16 17
20 21 22 23 24
27 28 29 3 0 31
August1 2 3 4 5
8 9 10 11
15 16 17 18 19
22 23 24 25 26
29 30 31
July1 2 3
6 7 8 9
13 14 15 16 17
20 21 22 23 24
27 28 29 30 31
June1 2 3
6 7 8 9
13 14 15 16 17
20 21 22 23 24
27 28 29 30
March1 2 3
6 7 8 9
13 14 15 16 17
20 21 22 23 24
27 28 29 30 31
January1 2 3 4 5
8 9 10 11
15 16 17 18 19
22 23 24 25 26
29 30 31
February1 2
5 6 7 8
12 13 14 15 16
19 20 21 22 23
26 27 28
April1 2 3 4
7 8 9 10
14 15 16 17 18
21 22 23 24 25
26 27 28 2 9 3 0
May1 2 3 4 5
8 9 10 11
15 16 17 18 19
22 23 24 25 26
29 3 0
December1 2 3 4 5
8 9 10 11
15 16 17 18 19
22 23 24 25 26
29 30 31
$4,680
$21,600
$34,560
$8,476
$39,118
$62,589
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
$80,000
1 Coffeeper Week
5 Coffeesper Week
5 Coffees and 1Meal Outper Week
Consuming Investing in 529
How much they cost you… If you invested instead of consumed it…
Saving a Little Can Save a LotBe diligent about saving a little bit for education savingsConsider saving one coffee a day…or month…it adds up! Put that money directly into savings to take advantage of potential growth. Take a look at the growth potential if you invested the money in a 529 college savings plan and it grew over 18 years…
1 Coffee per Day $5 1 Meal Out per Week $15
Weekly Cost $25 Weekly Cost $15
Monthly Cost $100 Monthly Cost $60
Yearly Cost $1,200 Yearly Cost $720
Over 5 years $6,000 Over 5 years $3,600
Over 10 years $12,000 Over 10 years $7,200
After 18Years $21,600 After 18Years $12,960
Cost of a Coffee
Cost of a Meal Out
Source: SavingForCollege.com. Weekly cost is based on a 5-day business week. Sources: SavingForCollege.com. This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Estimated annual investment return of 6% each year for 18 years. Assumes $5 for a cup of coffee and $15 for dinner. Weekly cost is based on a 5-day business week.
38
$5,400 $20,520
$41,040
$115,752 $102,278
$67,420
$19,088
0
20,000
40,000
60,000
80,000
100,000
$120,000
$0 $25 $100 $200
Total saved in a tax-advantaged account Total out-of-pocket costs
Education costs, with and without savings
Any Amount HelpsSaving the entire tuition amount can seem daunting, but any amount you save will help reduce future student debt
All four scenarios show out-of-pocket costs based on an estimated $100,000 of a four-year college education at a public university. These scenarios also assume the receipt of approximately $25,000 in financial aid, which will vary depending upon how much is accumulated in a tax-advantaged savings account. The loan portion of each column is calculated to include a fixed interest rate of 6.25% to be repaid over 180 months as defined by Sallie Mae (that’s like paying off a 15-year mortgage) following graduation with 54 monthly payments of $25 made during college. All savings in the tax-advantaged account depicted in this chart assume 5% monthly compounded growth from the beneficiary’s birth until age 18. The hypothetical examples are for illustrative purposes only and do not predict or depict the performance of any specific investment. Actual results may vary.
39
Monthly amount contributed to a tax-advantaged account
$4,247 $8,901 $19,167
$8,494 $17,803 $38,335
$16,988 $35,606
$76,669
$42,469
$89,014
$191,674
$0
$50,000
$100,000
$150,000
$200,000
$250,000$50 Monthly Contribution $100 Monthly Contribution $200 Monthly Contribution $500 Monthly Contribution
The Power of CompoundingContributions—both large and small—may benefit from long-term compounding of growth
This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Assumes 5% growth on account balances every year over 5, 10, and 18 years. Compounded growth is defined as multiplying the account balance of any given year by 1.05 to show growth. There is no compounded growth in the first year of contributions.
40
Growth over 5 years Growth over 18 yearsGrowth over 10 years
Investment Features to Help Your Savings GrowUnderstanding the different ways money can be invested
41
1. Individual Investments 2. Age-Based Portfolios 3. Risk-Based Asset Allocation
A variety of fund portfolios with varying risk levels are available for you to choose and build your own portfolio.
Use your beneficiary’s age to build a portfolio that automatically adjusts to become more conservative over time as the student approaches high school graduation.
Based on your preferred risk tolerance, you have the ability to choose whether you want to take on more or less stock exposure.
Asset allocation seeks to balance your investments by creating a mix customized to yourpreferences and the level of risk you’d like to take. You pick and choose your mix to create your own, unique portfolio.
Care for Your Educational Savings Plan and Help It GrowPutting it all together
42
Saving, even a little, over time may make a difference in the long run• Being able to put a little bit away over time can add up with investing benefits such as compound
growth.• Features such as automatic investing can help you budget and put a regular amount away.
Understanding your investment options can help• Understanding the ways your money can be invested may help you make more informed
decisions and may make your money go further.
Act Now! Plan Smart!• Once you have a plan in place you are comfortable with, do not delay in getting started.
The more you save now, the less you may need to borrow later.
Disclosures
Diversification does not guarantee a profit or eliminate the risk of loss.
This information is provided for general educational purposes only and is not to be considered legal or tax advice. Investors should consult with their legal or tax advisors for personalized assistance, including information regarding any specific state law requirements.
The opinions expressed are those of the author and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
02/20 529ABC-PPT-1P NA1932
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