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Education Planning Options
College is an investment in your children or grandchildren for a lifetime. It can open the door to a world of opportunity. With the cost of a college education continuing to increase, saving, even a little at a time, can make a big difference. The key is to save what you can, and to invest early and often. We can also help you with investments and retirement funding. Click on a topic below to learn more about education funding and your options.The Rising Cost of Education A College Education Pays Education Funding Options: 529 Plan Coverdell Education Savings Account UTMA Education Funding Options Comparison Chart Small Amounts Can Add Up Save Early and Often Maximize Funding with Tax Deferral Increase Available Assets with Tax Free Withdrawals The Rising Cost of Education As you may know, college costs are rising significantly each year. Assuming a 5% inflation rate on current college costs, it will cost a person who is a newborn now, $190,092 to attend a public school or $387,840 to attend a private institution for 4 years beginning in 2027. However, saving for college no matter how much, can help with the increasing cost and help you to be financially prepared when your children or grandchildren are ready for college. (Based Upon 2008 average costs from College Board, “Trends in College Pricing” 2008) A College Education Pays There are several different types of accounts that can be used to save for college education expenses. One that is growing in popularity is the 529 plan. A 529 plan is a tax advantaged education savings plan in which the account owner selects investment options to invest in. These assets can then be used to pay for qualified education expenses at any eligible educational institution. Some of the benefits of a 529 plan are: What's more, 529 plans may be opened for anyone; children, grandchildren, relatives, even friends. There are no income limitations on the account owner, so anyone can establish an account regardless of their income level. The account owner has control of this account and maintains control. It is never transferred to the beneficiary. The account owner also has the ability to change beneficiaries at any time. There is no annual limit to the amount that can be contributed to a 529 plan. However, each plan will have its own limit. These are typically high dollar amounts, often in excess of $200,000. 529 plans also have fees and expenses that vary from plan to plan. Although, there is no annual limit, you may want to be aware of gift tax limits. The gift tax is a federal tax applied to an individual giving anything of value to another person. However, there is an annual amount ($13,000 in 2009) that you can give to as many people as you want each year. Therefore, if your gift is under this amount, the gift tax will not apply. 529 plans give you accelerated gift tax treatment. You are allowed to gift up to 5 times the federal gift tax limit ($65,000 in 2009) to a 529 plan and treat it as though you made 5 gifts over a 5 year period. To learn more about 529 plans, find a local agent today. Education Funding Options: Coverdell Education Savings Account (ESA) Education Funding Options: UTMA There are no income limitations on contributors to UTMA accounts and no limit on the amount that can be contributed. (However, gift tax limits may apply). Anyone can contribute to a UTMA account for the benefit of the minor. These funds can, but do not have to be, used for higher education expenses. They can be used for any benefit of the child. Please see the Education Funding Comparison Chart below for details. To learn more about UTMA plans, find a local agent today. Education Funding Comparison Chart
To learn more about college funding options, find a local agent today. Small Amounts Can Add Up When it comes to college saving, set your goals realistically. You may not be able to save enough to cover it all, but you could save enough to give your child the right start. If you’re still unsure, start small and then consider increasing the amount you’re saving each year. This will allow you to “test drive” how college savings fits into your budget. In addition, many college savings plans can be started with as little as $25 or $50 per month. For more information, contact your local Farm Bureau agent. Save Early and Often Take a look at the numbers on the chart below and how an investment can grow over time. Even a small amount, such as a $100 per month, can turn into a significant amount. Even if you have a shorter time horizon, you can still amass some funds for college and potentially reduce the amount of loans that need to be taken.
This example is hypothetical in nature and used for illustrative purposes only. It should not be considered representative of any specific investment or product. No product fees or expenses were included. Fees and expenses will reduce performance and may vary between funding options. For more information, contact your local Farm Bureau agent. Maximize Funding with Tax-Deferral On the other hand, if that person is in the 25% tax bracket and invests in an account WITHOUT tax-deferral that earns the same 8% rate of return it would only have a value of $76,561.95 at age 18.
This example is hypothetical in nature and used for illustrative purposes only. It should not be considered representative of any specific investment or product. No product fees or expenses were included. Fees and expenses will reduce performance and may vary between funding options. To learn more about tax deferred investing, find a local agent today. Increase Available Assets with Tax-Free Withdrawals In the example below, we assume that the parent invested $200 per month for 18 Years. We also assumed the money earned an 8% rate of return over this time period. Then the parent took withdrawals for 4 years to pay for education expenses. If this was done in a taxable account and the parent is in the 25% tax bracket, he/she would be able to withdraw $22, 507 each year for a total of $90,005 over the four year period. However, if a tax-deferred account was used and the client was in the same 25% tax bracket for withdrawals, they would be able to withdraw $24,064 each year for a total of $96,216 over the 4 year period. Finally, if the parent invested in an account that grows tax-deferred and has tax-free withdrawals, they would be able to withdraw $28,299 each year for a total withdrawal of $113,196 over the 4 year period. Just by investing in an account that has tax-deferred growth and tax-free withdrawals, the account owner, in this situation, is able to withdraw $23,191 more than if they had used a taxable account and $16,980 more than an account that had tax-deferred growth, but taxable withdrawals.
Non-qualified withdrawals from a tax deferred account would be taxed at ordinary income tax rates. Withdrawals of capital gains and dividends from a taxable account may be subject to lower maximum tax rates. Thereby reducing the difference in performance of the accounts shown. To learn more about these accounts, find a local agent today. IMPORTANT: The information and material contained on this Web site is not an offer to sell or a solicitation to buy any security or any insurance product in any jurisdiction. No security or other insurance product is offered or will be sold in any jurisdiction in which such offer or solicitation purchase or sale would be unlawful under the securities, insurance or other laws of such jurisdiction. Not all products are available in all states. Exclusions, limitations and reductions may apply. This Web site briefly highlights Farm Bureau's insurance policies and their benefits. The contract is contained only in the policy. Farm Bureau products are offered by Farm Bureau agents -- for more information about any Farm Bureau product, please contact your local agent or nearest office using the Agent Locator. Mutual funds and municipal fund securities are subject to market risk and possible loss of principal. This and other important information is contained in the prospectus and in the issuer's official statement, which can be obtained from a registered representative and should be read carefully before you invest or pay money. Investors should consider the investment objectives, risks, charges and expenses carefully before investing. Agent must be a registered representative of EquiTrust Marketing Services, LLC to discuss mutual funds or variable products. |
