From Here to There. Michigan s 529 College Savings Plan

Transcription

1 From Here to There Michigan s 529 College Savings Plan

2 You Can Get There. We Can Help. Paying for a college education can be one of the most pressing financial challenges a family may face. Although it may seem overwhelming, it s not unattainable. It s important to start early, contribute regularly and choose a plan that can help you accomplish your college savings goals. The Michigan Education Savings Program (MESP) can help you get there with its tax advantages, flexible features and low cost. Table of Contents Saving for College...1 Contributing to MESP... 2 Tax Advantages... 3 Flexible Features... 4 Investment Options... 5 Your Questions Answered... 8 Summary of Benefits Two easy ways to enroll: 1 Enroll online at 2 Complete and mail the enclosed paper application. For assistance, call us toll-free at MESP or visit

3 Higher Education A Smart Investment in Your Child s Future. The cost of college. A college education is an important ingredient for success. Research shows that people with college degrees generally have more job choices and can earn more money than those without degrees. In fact, according to the College Board, 2010 Education Pays report, the typical bachelor s degree recipient can expect to earn about 66% more during a 40-year working life than the typical high school graduate earns over the same period. ( Education Pays, 2010). For most families, saving enough to pay for college can seem overwhelming especially since tuition costs have historically risen faster than the overall rate of inflation. Average national tuition costs historically have risen over 6% a year and Michigan colleges have increased over 7.2% per year over the last 22 years. With proper planning, funding a college education, like any major financial goal, can be easier to achieve. Projected College Costs $500k 300k 100k Public Colleges Four-Year (In-state tuition) Private Four-Year (Not-for-Profit Colleges) This chart indicates actual (2009) and projected (2027) average college costs including four years of tuition, fees, and room and board. Based on average tuition and fees for as reported by The College Board and assumed to increase 6% annually. This is a hypothetical example for illustrative purposes only. Source: 2009 Trends in College Pricing, What is a Section 529 Plan? Recognizing the escalating costs of college and the financial burden placed on families, Congress authorized Qualified Tuition Plans (QTPs), known as Section 529 plans. 529 plans are flexible, tax-advantaged state programs designed to help families invest for future college costs. When choosing a 529 plan, it s important to consider what additional benefits your own state s plan may offer to residents, the investment options available, and any costs or fees associated with the plan. Michigan offers three 529 plans which include the Michigan Education Savings Program (MESP), the Michigan Education Trust (MET) and the Michigan 529 Advisor Plan (MAP). MESP rated one of the Top 529 Plans * MESP is Michigan s direct-sold Section 529 college savings plan, administered by the Michigan Department of Treasury and managed by TIAA-CREF Tuition Financing, Inc., a leading program manager of 529 college savings plans. For over 10 years, MESP has been helping families save for college. low-fees, a choice of Investment Options and state income tax benefits make MESP one of the most competitive plans in the nation. We re not the only ones who think so. Kiplinger chose MESP as one of the Top 529 Plans in the Nation. * And, Michigan s 529 plans are the only plans that offer Michigan taxpayers a state income tax deduction on contributions. * Based on the comparison of Investment Options, fees and expenses, state tax benefits and other features. Michigan was noted for having a low-risk option appropriate for conservative investors (June 2010). C48754 How Much Will College Cost? iphone app Go to and click on our College Savings Calculator. The calculator projects college costs in your child s time frame and calculates how much more you need to save periodically to meet those costs. It also estimates the potential tax savings on your investment. The Planner includes a college cost database with approximately 3,800 colleges. Download the free TIAA-CREF College Savings Planner iphone or Android smart phone app. 1

4 Contributing to MESP Is Simple And Affordable Low minimum contributions Parents, grandparents, family and friends can start an account with as little as $25. Additional contributions can be made at any time in a variety of flexible ways: Personal Check: Write a personal check and mail it to MESP at any time. Electronic Funds Transfer: Contribute automatically online from a checking or savings account by setting up banking instructions on your account. Gifts from Family Members and Friends: Family members and friends can also open an account. If they are Michigan taxpayers, they may be eligible for a Michigan income tax deduction on their contributions too. Automatic Contribution Plan: Set up an automatic contribution plan to contribute as little as $25 biweekly, monthly, or quarterly. You can stop, restart or increase the automatic contribution at any time. Payroll Deduction: If your employer allows, you can set up payroll deduction from your paycheck for a minimum of only $15 per pay period, per account. Rollovers: If you currently have another state s 529 plan or a Coverdell Education Savings Account, you may roll over funds from those accounts to MESP tax free. Transfers and rollovers may be subject to differences in features, costs, and surrender charges. Indirect transfers may be subject to taxation and penalties. Please consult your tax advisor about your particular situation. No income restrictions There are no income restrictions with MESP. Anyone at any income level can start and contribute to an MESP account. With a low minimum contribution of only $25, it s easy to start today. No annual contribution limits You can contribute any amount each year. However, an overall maximum account balance limit of $235,000 applies to all Michigan 529 plan accounts for a particular beneficiary which includes contributions made to MET and MAP. Although you can no longer add to the account(s) once it has reached the maximum account balance, the account s earnings can continue to grow. Consistent Investing Gives Your Money Time to Grow $100k 80k 60k 40k 20k Monthly Contribution $50 $100 $ Years 12 Years 18 Years Years of Accumulation This hypothetical example illustrates the future values of different regular monthly investments for different time periods and assumes an annual investment return of 6% with an initial investment of $2,500 and no withdrawals during the relevant time period. It is presented for illustrative purposes and does not reflect actual performance or predict future results and does not reflect any deduction for expenses or taxes or the benefits of any state tax deduction that may apply. Account values in the Investment Options are not guaranteed and will fluctuate based upon a number of factors, including general market conditions. Note that systematic investing doesn t guarantee a profit or protect against loss. 2

5 Tax Advantages Can Help Save More Save on federal and state income taxes Contributions made to MESP are contributed after tax but any earnings on the account will be tax deferred. If the account proceeds are used to pay for qualified higher education expenses, any earnings will be completely tax free upon withdrawal of the funds. Potential Michigan income tax deduction Michigan taxpayers contributing to an MESP account may be eligible for an annual Michigan income tax deduction on contributions up to $10,000 for married couples filing jointly or $5,000 for individual filers. Contributions must be made by December 31 to be eligible for a Michigan income tax deduction on the current year s tax return. A Michigan taxpayer is permitted a deduction from Michigan adjusted gross income for a contribution to an MESP account less any Qualified Withdrawals made during the tax year. Amounts transferred from another 529 college savings plan are not eligible for the Michigan income tax deduction. Estate planning and gifting Federal estate and gift tax benefits can help parents and grandparents save on taxes and create a legacy for their children and grandchildren. Contributions to an MESP account may reduce the taxable value of your estate. Contributions, together with all other amounts given by the account owner to the beneficiary, may qualify for the current annual federal gift tax exclusion of $13,000 per contributor ($26,000 for married contributors), per beneficiary. If a contributor s gifts to an MESP account in a single year exceed $13,000, then for purposes of the federal gift tax exclusion, the contributor may elect to treat up to $65,000 of the contributions ($130,000 for married couples), as having been made proportionally over a period of up to five years. Please consult your tax advisor regarding federal and gift tax benefits. The Benefits of Tax-Free Growth Potential $80k 60k 40k 20k 0 $66,676 $55, Account Taxable Account This hypothetical example illustrates the growth of an annual investment of $2,000 made at the beginning of each year for 18 years. It assumes there are no withdrawals of contributions and earnings. It also assumes a 30% combined federal, state and local income tax rate and an annual investment return of 6%. It is presented for illustrative purposes only to show the effect of compounding and tax deferral and does not represent the actual performance or predict the future results of MESP or any Investment Option in the MESP and does not reflect any reduction for expenses. Nonqualified withdrawals may be subject to federal and state taxes, and an additional 10% federal tax. Give a Gift that Can Last a Lifetime Make your gift more meaningful by downloading and printing a gift certificate from Remember, the Michigan income tax deduction can be a powerful incentive for friends and relatives wondering what to give your children as gifts on birthdays and special occasions. Why not invite them to open an account for your child a gift that can last a lifetime. 3

6 Mesp Is Flexible to Use Choice of colleges Your beneficiary can use the funds in the MESP account at any eligible college, university, or trade school in the nation and even some schools abroad, not just Michigan institutions. Use for a variety of qualified expenses Account proceeds can be used for a variety of qualified higher education expenses including tuition, certain room and board costs, required supplies and equipment, and books. Transferable among family members The beneficiary designated on the account can be changed to another eligible family member at any time. The new beneficiary (or beneficiaries) must be a member of the previous beneficiary s family as described in the MESP Disclosure Booklet, to avoid this change being treated as a nonqualified withdrawal. Control over the account The account owner controls all withdrawals and makes all investment decisions regarding the account, regardless of the age of the beneficiary. Withdraw funds at any time When it comes time to use the proceeds for qualified education expenses, you can withdraw funds from your account tax free via a paper form or automatically online. Receipts are not required by MESP, but it s important to keep them for your tax records. If the funds are used for any other purpose besides qualified higher education expenses. Nonqualified withdrawals may be subject to federal and state taxes and the additional federal 10% tax. No age or time restrictions Account proceeds can be used at any age at any time in the future. If your beneficiary is not ready to attend college after high school, you can use the funds in the future. 4

7 Choice of Low-Fee Investment Options Choice of Investment Options MESP offers experienced professional money management from TIAA-CREF Tuition Financing, Inc. along with a choice of seven Investment Options designed to help meet your family s college savings goals and risk tolerance. You can invest contributions in one or a combination of these Investment Options. Aggressive Age-based Allocation Option Moderate Age-based Allocation Option Conservative Age-based Allocation Option 100% Equity Option Balanced Option 100% Fixed-Income Option Principal Plus Interest Option Any time you add new contributions, you can choose a new option. You can transfer funds from one option to another option one time per calendar year or upon the change of a beneficiary. MESP is a low-fee 529 plan MESP strives to be one of the lowest-fee Section 529 college savings plans in the nation. The total annual administrative fee, which covers the cost of administration, operations, marketing, and investment management, is only 0.35% (less than ½ %) per year. The Principal Plus Interest Option is offered without the 0.35% fee. No other fees are associated with the account. That includes no additional administration fee or broker commissions. A word about risk Each Investment Option and underlying fund has its own risks. For example, there are special risks inherent in international investing, including currency, political, social and economic. Investments in growth stocks may be more volatile than other securities. Fixed-Income investing entails credit and interest risks. When interest rates rise, bond prices generally fall, and the underlying fund s share price can fall. Diversification doesn t guarantee profit or protect against loss. Investment returns over your investment period could be lower than the rate of increase in the costs of higher education during that period. It s also possible to lose part or all of the value of your Account. Trusted Investment Management TIAA-CREF Tuition Financing, Inc., a leader of 529 savings plan management, provides program management for MESP. TIAA-CREF Tuition Financing, Inc. is an affiliate company of TIAA-CREF. TIAA-CREF is a national financial services group of companies and a leading provider of retirement services in the academic, research, medical and cultural fields. For more information, visit tiaa-cref.org. 5

8 Choose From a Variety of Investment Options Age-Based Managed Allocation Options Investing in the Age-based Options (Conservative, Moderate, and Aggressive) follows the method of using the number of years an investor has for saving to determine the appropriate investment allocation. Although there is no guarantee that the investment objectives will be met, this option offers the opportunity to invest aggressively when the beneficiary is young, and over time, more conservatively, thus creating a balanced approach. Aged-based Investment Options combine equity, real estate, fixed-income, and money market mutual funds offered by the TIAA-CREF Funds Institutional Class. Younger beneficiaries will have a higher exposure to equities and real estate investments which will decrease significantly as they approach college age, as the following charts illustrate: Ages 0 3 Ages 8 11 Ages 18+ conservative Conservative Moderate moderate Aggressive AGGRESSIVE Equities Real Estate Bonds Inflation-Linked Bonds Money Market Allocations for all investments are as of October Allocations are reviewed and adjusted periodically. 6

9 Balanced Option 100% Fixed-Income Option Equities 36.0% International 18.0 Equities Real Estate 6.0 Bonds 40.0 Bond Index 75.0% Inflation-Linked 25.0 Bonds Risk level Moderate The Balanced Option seeks to provide a favorable long-term total return by investing in a balanced mix of equity and fixed-income mutual funds. Because of the high exposure to domestic and foreign equities, and the corresponding degree of risk, this option may be appropriate for you if you can tolerate a degree of volatility in exchange for potentially higher returns over time. Risk level Conservative The 100% Fixed-Income Option seeks to provide preservation of capital along with a moderate rate of return through a diversified mix of fixed-income investments. This Option may be appropriate for you if you have a medium to short investment time horizon and can tolerate a moderate level of risk. 100% Equity Option Risk level Aggressive International 30.0% Equity Mid-Cap Equity 8.4 Small-Cap Equity 5.6 S&P 500 Index 56.0 The 100% Equity Option seeks to provide a favorable longterm total return, mainly from capital appreciation, by investing in equity mutual funds. Because of the high exposure to domestic and foreign equities, and the corresponding high degree of risk, this Option may be appropriate for you if you already have substantial college savings from less volatile investments (e.g., fixed-income investments) or you have a long time until college and can tolerate a higher level of risk. Principal Plus Interest Option The Principal Plus Interest Option provides the stability many people may want for at least a portion of their college savings funds. It provides an investment option to investors who can tolerate little risk, including those who have tradition ally saved using fixed-income vehicles and are willing to accept returns that may be lower than those offered in the other Invest ment Options. Effective October 1, 2010, accumulations (including contributions and earnings) under the Funding Agreement for the Principal Plus Interest Option as of September 30, 2010 will be credited to MESP with an effective annual interest rate of 2.50%, and are guaranteed to earn this rate through September 30, 2011, subject to the claims-paying ability of TIAA-CREF Life Insurance Company. 7

10 Your Questions Answered What is the difference among the Michigan Education Savings Program (MESP), the Michigan Education Trust (MET) and the Michigan 529 Advisor Plan (MAP)? MET is a prepaid Section 529 plan that locks in the current costs of tuition and mandatory fees at Michigan public institutions. MESP and the MAP are Section 529 college savings plans which can be used at virtually any qualified higher education institution in the nation for tuition, certain room and board expenses, fees, mandatory equipment and books. MESP is a direct-sold program, managed by TIAA-CREF Tuition Financing, Inc. and offers seven low-fee investment options. MAP is offered by Allianz Global Investor Distributors and managed by TIAA-CREF Tuition Financing, Inc. MAP offers different Investment Options than MESP. MAP is sold only by advisors and higher fees apply. All three of Michigan 529 plans (MET, MESP and MAP) offer Michigan taxpayers a state income tax deduction on contributions. Total contributions for all three plans must not exceed $235,000 per beneficiary. Who can open an account? Any U.S. citizen or resident alien with a valid Social Security Number or federal Taxpayer Identification Number and a U.S. mailing address can open an account on behalf of a beneficiary. Each account has one account owner and one listed beneficiary. A contingent account owner can be set up on the account in the event of the original account owner s death. The account owner can be changed at any time. Who can be an account beneficiary? The beneficiary is the student for whom you are saving. Only one beneficiary may be listed per account, but multiple accounts may be opened by different account owners for the same beneficiary. The beneficiary must have a valid Social Security Number. Can more than one person contribute to the account? Yes. Anyone, including family members and friends, can contribute to your account as long as the total contributions do not exceed $235,000 per beneficiary, including all contributions made to a MET account and MAP. How can I set up payroll deduction for my account? If your employer allows payroll deduction (direct deposit) from your account, you can set up contributions from your paycheck for a minimum of $15 per pay period, per account. You must set up an MESP account first and obtain an account number for each beneficiary for whom you want to contribute via payroll deduction. Once you have an account number, fill out a payroll deduction form and return one copy to MESP and another copy to your Human Resources/ Benefits department. You can stop, start or change the contribution at any time, and it s portable to any new employer that offers payroll deduction for MESP. 8

11 Can I change the account beneficiary? Yes, you can change the beneficiary at any time or transfer a portion of your investment to a different beneficiary. The new beneficiary must be an eligible family member of the previous beneficiary s family. See the Disclosure Booklet for more details. If I move out of Michigan, can I still contribute to MESP? You do not have to be a Michigan resident to use MESP. Only Michigan taxpayers qualify for a Michigan income tax deduction on MESP contributions, but earnings can still grow tax free regardless of where you reside. What if my child decides not to attend college? You have a variety of choices: If the beneficiary of an account does not attend college, the account owner may name another eligible family member as the account beneficiary. There is no time or age restriction for using the account, so you might want to hold onto the account in the event your current beneficiary changes her/his mind in the future. You can withdraw funds from the account at any time for any purpose, but if the account proceeds are not used for qualified educational expenses the withdrawal amount will be taxable and will incur an additional 10% federal excise tax. Indirect withdrawals may be subject to federal and state taxes and the additional federal 10% tax. Do I have to use my account at Michigan institutions? No, you can use your account at any qualified institution in the nation and many abroad. Visit the U.S. Department of Education website, to learn if an institution is qualified. What if my child gets a full or partial scholarship? If the beneficiary receives a scholarship that covers the cost of qualified expenses, you can withdraw funds from your account up to the amount of the scholarship. The earnings portion of a withdrawal due to receiving a scholarship are subject to federal and state income taxes, but not the additional 10% federal excise tax. Will participation in MESP affect my beneficiary s eligibility for financial aid? Generally, a parent s assets are counted at 5.64% of the expected family contribution when determining federal financial aid. Check with the college or institution your beneficiary may attend to learn about any financial aid requirements. Can I roll over funds from another 529 college savings plan? You may transfer funds from another 529 college savings plan to an account with MESP without triggering federal or state income tax if: it s for the same beneficiary, and the transfer takes place within 12 months. Transfers and rollovers may be subject to differences in features, costs, and surrender charges. Indirect transfers may be subject to taxation and penalties. Please consult your tax advisor about your particular situation. Can I transfer or roll over assets from another college savings investment? You can roll over funds from a Coverdell Education Savings account tax free. Transfers from custodial accounts (UGMA or UTMA) are taxable. The college savings investment from which you are transferring may be subject to different features, costs and surrender charges. Consult your tax advisor before rolling over to another 529 college savings plan. MESP Goes Green! Kiplinger Rating Once you are an MESP account owner, you can sign for our convenient e-delivery services and help the environment too. Visit to sign up. MESP offers e-delivery of quarterly statements Online Withdrawals Access to your account online 24/7 Kiplinger chose the Michigan Education Savings Program as one of the Top 529 Plans in the Nation * C

12 Summary of MESP Benefits Affordable to start and contribute: You can open an account with a minimum contribution of only $25 or $15 via payroll deduction. Family members and friends can also contribute to your account or open a new account on behalf of your beneficiary. Anyone can open an account: A parent, grandparent, friend or relative at any income level can open or contribute to an account for a beneficiary. Control of the account: The account owner designates the beneficiary and controls the funds in the account regardless of the beneficiary s age. Tax free earnings: Any earnings are free from federal and Michigan income taxes when used for qualified higher education expenses. State income tax deduction: Michigan taxpayers may be eligible for a Michigan income tax deduction on Program contributions. Choice of schools: Funds may be used at virtually any qualified college, university or career school in the nation and some abroad. MESP is not limited to Michigan institutions. Transferable: If your student decides not to attend college or uses a scholarship, you can change the beneficiary to another eligible member of the family. Access to the money: Only the account owner has access to the funds in the account. You can use the money at any time for any purpose other than qualified college expenses, but taxes and penalties may apply. Range of Investment Options: There are seven different Investment Options to choose from to best meet your savings objectives and risk tolerance. Low-Fees: The total annual asset-based fee is only 0.35% (less than ½ %). There is no annual asset-based fee for the Principal Plus Interest Option. There are no additional broker commissions or annual administrative fees. Professional management: TIAA-CREF Tuition Financing, Inc. has served as MESP Program Manager since the launch of MESP in November TIAA-CREF Tuition Financing, Inc. is a leader in 529 plan management and is an affiliate of TIAA-CREF, a financial services organization with more than 90 years of investment experience. How to learn more MESP offers a variety of online presentations to learn more about the plan and spread the word to your friends and families. Webinar: Sign up for a live online webinar. You can participate in an online presentation from work or home and interact with a live presenter. Visit the MESP website for dates and times. Webcast: Take five minutes to listen to our MESP Webcast which is a recorded video on the advantages and benefits of MESP. Visit to learn more. 10

13 Open an Account Today With each day that passes, the time until your child goes to college shortens. When your child reaches kindergarten, he or she is one-third of the way to college! So don t delay. A few minutes of your time today could mean a lifetime of benefits for your child s tomorrow. Don t forget, family members can contribute to your account too. Encourage family members and friends to contribute to your existing account or open an account. It s a gift that can last a lifetime. Two easy ways to enroll Remember to read the MESP Disclosure Book and Participation Agreement before opening an account. ONLINE 1 Visit 2 Click Open an Account and enter the information. 3 Contribute online via electronic banking, or mail a personal check. 4 An account will automatically be established. 5 Print copies for your records. MAIL 1 Complete the application in the back of this enrollment book. 2 Mail the application and a check to the address on the form. 3 Keep copies for your records. 4 A confirmation will be sent to the address of record once the account is opened. MESP Tools and Resources Great tools and resources to help you stay on track with your college savings goals. 1 2 Online Access to your account 24/7. iphone application to calculate your college savings goals. 3 E-newsletters to learn more about community events and pertinent news. 11

14 We re Here to Help Contact us by MESP or visit to learn more. 12

15 MESP

16 * Based on the comparison of Investment Options, fees and expenses, state tax benefits and other features. Michigan was noted for having a low-risk option appropriate for conservative investors (June 2010). Consider the investment objectives, risks, charges and expenses before investing in the Michigan Education Savings Program (MESP). Please visit for a Disclosure Booklet containing this and other information. Read it carefully. Account value in the investment options is not guaranteed and will fluctuate based on a number of factors, including general market conditions. Before investing in a 529 plan, you should consider whether the state where you or your designated beneficiary reside or have taxable income has a 529 plan that offers favorable state income tax or other benefits that are available only if you invest in that state s 529 plan. The tax information contained herein is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax penalties. It was written to support the promotion of the Michigan Education Savings Program. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor. Nonqualified withdrawals may be subject to federal and state taxes and the additional federal 10% tax. TIAA-CREF Tuition Financing, Inc., Program Manager MESP C48725 A12120 MI1010.XXB