A PROFESSIONAL S GUIDE TO EDUCATION SAVINGS

Transcription

1 CPAs Attorneys Enrolled Agents Tax Professionals A PROFESSIONAL S GUIDE TO EDUCATION SAVINGS Professional Education Network TM

2 CONTENTS 1 Introduction 2 Saving versus Borrowing 3 Traditional (Taxable) Ways to Save for College 4 Tax-free Ways to Save for College 8 Additional 529 Plan and Coverdell ESA Considerations 9 Education Comparison Chart 11 Education Tax Credits and Deductions 12 Coordination of Benefits 12 Conclusion 12 How Edward Jones Can Help Introduction Because parents and grandparents want the best for their children and grandchildren, helping cover the cost of obtaining a college degree is often a priority. Tax and legal professionals may be asked to provide clients guidance regarding their options when it comes to financing a college education. As the cost of higher education increases, it becomes even more important for professionals to be prepared to assist families in evaluating savings strategies and selecting options that will help them reach their goals. Annual Cost of Higher Education Cost in 10 years Cost in 18 years Community College $ 3,300 $ 5,400 $ 7,900 Public University (in state) $ 18,900 $ 30,800 $ 45,500 Private University $ 42,400 $ 69,100 $ 102,000 Amounts represent one year of education expenses, including room and board for public and private universities. Assumes 5% annual inflation rate; rounded to nearest hundred. Source: CollegeBoard

3 Saving versus Borrowing While financial aid programs offer assistance in the form of grants, scholarships and work-study opportunities, the majority of financial aid is in the form of loans. Students who borrow money to pay for college must factor in interest payments on top of the costs of tuition and other education expenses. Ultimately, the cost of a college education is higher if funds are borrowed. The following example demonstrates the potential cost of borrowing versus creating a savings plan on a student s behalf. GOAL: $35,000 for college Strategy: BORROW $35,000 Strategy: SAVE $35,000 BORROW $35,000 at a 6.8% interest rate and pay it off every month for 10 years. 2 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 SAVE $200 every month for 10 years at a 7% rate of return. 1 Earnings $11,000 Contributions $24,000 Strategy: SAVE Total cost $200 a month Interest $13,000 Principal $35,000 Strategy: BORROW Total cost $400 a month 1 Saving compounded monthly at 7%; computations rounded to the nearest $1,000 2 Interest compounded annually Examples are for illustration purposes only and do not reflect the performance of any specific investment. There are no guarantees that an investor will achieve a consistent rate of return. 2

4 Traditional (Taxable) Ways to Save for College Personal accounts and custodial accounts are two options available to individuals who wish to set aside funds for the future needs of their children or grandchildren without necessarily designating the specific use of those funds. Personal Accounts Personal accounts, including bank and brokerage accounts, have been around for a long time, and many investors have taken advantage of their flexibility to save for college. Following are some attributes of a personal account used for college savings: The account owner controls the assets. The assets may be used to cover expenses for more than one child. No limitations are placed upon how the assets are used. No contribution limits are imposed. A variety of investment options are available. Investments are taxed at the account owner s tax rate. Custodial Accounts A custodial account is set up under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). A custodial account allows any adult to make irrevocable gifts to a minor in the form of cash or securities. Following are some traits of a custodial account: The custodian retains control over the account until the child reaches legal age, which varies from state to state but generally is age 18 or 21. Any withdrawals made before the child reaches legal age must be used solely for the benefit of the child. At legal age, the child gains control of the account and may use the funds at his or her discretion. When investment assets are sold, earnings are taxed at the account owner s marginal ordinary income or capital gains rate, depending upon how long the investment has been held. Planning Tip Income generated from custodial accounts may be subject to kiddie tax, as defined in the Internal Revenue Code (IRC). Kiddie tax generally applies to children up to age 18, or full-time students over age 18 but under age 24, whose earned income does not exceed one-half of their support. Under the kiddie tax provisions, it is possible that a child's unearned income may be taxed at his or her parents' higher rate. 3

5 Tax-free Ways to Save for College A tax-free college savings account, such as the 529 plan or the Coverdell education savings account (ESA), can also help individuals accumulate money to pay for college; with these accounts the investor receives certain tax benefits that are not available through a personal or custodial account. 529 Plans Section 529 plans, also referred to as qualified tuition programs (QTPs), are state-sponsored plans designed to encourage families to save for college. Section 529 plans provide for tax-free withdrawals for qualified education expenses, including tuition and room and board. They also provide special estate and gift tax treatment that cannot be obtained through trust planning. 529 Plan Contributions Contributions to a 529 plan are, by statute, considered completed, present interest gifts; the amount contributed, as well as future earnings the gift may ultimately generate, is removed from the grantor s gross estate. However, if the grantor is also the account owner, he or she retains full control over, and access to, the money. This control, coupled with the special gifting provision described below, makes the use of a 529 plan a viable strategy for those who want to pass assets on to a desired beneficiary, such as a child or grandchild, without relinquishing control of those assets. 529 plan contributions are made with after-tax dollars and accumulate tax free. Anyone, regardless of age or income, can make contributions to a 529 plan on behalf of a beneficiary, even if the beneficiary is him- or herself. Three limitations apply to contributions to a 529 account, as follows: Gifting limit Special gifting provision Account limit Gifting Limit Section 529 does not impose an annual contribution limit on 529 plans, so contributors must take care not to exceed the federal annual gift exclusion defined in IRC Section 2503(b) when contributing to an account for someone other than themselves. To avoid gift tax and reductions in the applicable exclusion amount, contributors may take advantage of the annual gift exclusion (for 2015, single, $14,000; married couples, $28,000) per 529 plan beneficiary. In addition, some transfers that fall under the definition of a gift may be exempt from federal gift taxation, such as payment for tuition and medical expenses on behalf of another. Special Gifting Provision IRC Sec. 529(c)(2) allows a special gifting method that is not available in any other vehicle and allows for potential accelerated earnings within the tax-favored account. Under this provision, a contributor may gift five years worth of annual exclusion gifts in one year on behalf of a 529 plan beneficiary without causing a taxable gift. For 2015, this amount is $70,000 ($140,000 for married couples). To elect application of this special gifting provision, the contributor must file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. 4

6 The example below outlines how, in one year, husband-and-wife grandparents could gift $700,000 ($140,000 5) to fund college educations for their five grandchildren without liability for gift tax, generation-skipping transfer (GST) tax or potential estate taxes. Because this election accelerates the annual exclusions over the five-year period, any additional gifts from that donor to the same beneficiary are subject to the gift tax, although this may be offset by his or her lifetime exemption. If the donor dies before commencement of the fifth year, a proportionate amount (by years) of the gift is included in the donor s estate. Thus, if the grantors in the example below should die within the five-year accelerated gifting period, the portion of the original gift allocated to the years following death is considered part of their estate for estate tax purposes. Grantor $700,000 Beneficiary 1 $140,000 Beneficiary 2 $140,000 Beneficiary 3 $140,000 Beneficiary 4 $140,000 Beneficiary 5 $140,000 Account Limit The intended purpose of a 529 plan is to provide a way to save for college. Therefore, sponsoring states set account limits to prevent accumulation of more money than needed to send a beneficiary to college. Account limits vary by state, generally ranging from $235,000 to $453,000. Once the balance in a 529 plan reaches the account limit, new contributions cannot be made to the plan, although earnings may cause the account to exceed the limit. Contributions to a 529 plan are not deductible from federal income tax. However, many states provide a state tax deduction or credit for residents who participate in their 529 plans. Six states (AZ, KS, ME, MO, MT, PA) provide a state tax deduction for contributions made to any 529 plan. 529 Plan Distributions Distributions used for qualified higher education expenses pertaining to the enrollment or attendance at an eligible educational institution are free from federal income tax and, in most cases, state income tax as well. A list of eligible education institutions can be found at Examples of qualified expenses pertaining to the enrollment or attendance at an eligible educational institution include the following: Tuition and fees Room and board (including off-campus housing, up to the cost of on-campus housing) Books, supplies and equipment, as required by the institution Expenses for special needs services required by a special needs beneficiary in connection with enrollment or attendance at an eligible institution 5

7 Distributions are made up of a proportionate amount of the principal (contributions) and earnings within the plan. If a distribution is taken from a 529 plan but not used for a qualified expense, the portion of the distribution representing earnings is subject to ordinary income tax and a 10% federal penalty. The 10% penalty does not apply to distributions that are: Paid to a beneficiary, or to the designated beneficiary s estate, on or after the designated beneficiary s death Made because the designated beneficiary is disabled Included in income because the designated beneficiary received veterans educational assistance, employer-provided educational assistance, a tax-free scholarship or fellowship, or other nontaxable payments designated for educational expenses (with the exception of gifts or inheritance) Made on account of the designated beneficiary s attendance at a U.S. military academy, not to exceed the costs of education attributable to attendance Included in income only because the qualified education expenses were taken into account in determining the American Opportunity or Lifetime Learning Credit Additional 529 Plan Considerations The following additional considerations should be taken into account when considering the use of a 529 plan: Investments within the 529 plan are considered municipal securities. The plan is required to provide all corresponding disclosures. Coverdell Education Account The Coverdell ESA was created to help families save for education expenses, including kindergarten through high school (K 12)* and postsecondary expenses. Coverdell Contributions Coverdell ESA contributions are made with after-tax dollars and accumulate tax free. The Coverdell ESA allows contributions of $2,000* per beneficiary, per year. Individuals must meet certain income restrictions to be eligible to make contributions. The chart below describes the 2015 phaseout ranges based upon marital status and modified adjusted gross income (MAGI): Single MAGI Full Contribution Up to $95,000 Partial Contribution No Contribution Between $95,000 $110,000 $110,000 or more Married Filing Jointly MAGI Full Contribution Up to $190,000 Partial Contribution No Contribution Between $190,000 $220,000 $220,000 or more Annual contributions can be made through the tax filing deadline (without extensions) of the following year until the beneficiary reaches age 18. As of January 2015, the IRC allows account owners to change their investment options twice per calendar year without changing beneficiaries; previously, changes could be made only once per calendar year. Investment options may be changed any time a beneficiary is changed. *These provisions of the Coverdell ESA were made permanent by the Taxpayer Relief Act of

8 Coverdell Distributions Distributions used for qualified expenses at an eligible educational institution are free from federal income tax. Qualified expenses pertaining to the enrollment or attendance at an eligible postsecondary institution generally include tuition and fees; room and board; and books, supplies and equipment. In addition, the purchase of computer technology, equipment, or Internet access and related services is a qualified expense for elementary and secondary education students. Coverdell was expanded in 2002 to cover K 12 expenses.* Examples of qualified expenses pertaining to the enrollment or attendance at a public, private or religious elementary and/or secondary school include the following: Tuition and fees Books, supplies and equipment Academic tutoring Room and board Special needs services Uniforms Transportation Computer, software or Internet services (does not include software designed for sports, games or hobbies, unless predominantly educational in nature) for elementary and secondary education students Distributions are made up of a proportionate amount of the principal and earnings within the plan. If a distribution is taken from a Coverdell ESA but not used for a qualified expense, the portion of the distribution representing earnings is subject to ordinary income tax and a 10% federal penalty. The 10% penalty does not apply to distributions that are: Paid to a beneficiary, or to the designated beneficiary s estate, on or after the designated beneficiary s death Made to cover expenses related to the designated beneficiary s attendance at a U.S. military academy Included in income because the designated beneficiary received veterans educational assistance, employer-provided educational assistance, a tax-free scholarship or fellowship, or other nontaxable payments designated for educational expenses (with the exception of gifts or inheritance) Made because the beneficiary is disabled Included in income only because the qualified education expenses were taken into account in determining the American Opportunity or Lifetime Learning Credit Additional Coverdell Considerations The following should be taken into account when considering the use of a Coverdell ESA: Coverdell ESA account owners investment choices are not limited by statute, with the exception of life insurance. Investment options are determined by the custodial financial institution and may include stocks, bonds, mutual funds and certificates of deposit (CDs). Account owners may make contributions to both a Coverdell ESA and a 529 plan in the same year for the same beneficiary. However, the annual gift exclusion limit still applies. Beneficiaries designated as having special needs can maintain a Coverdell ESA indefinitely. In all other cases, assets may remain in a Coverdell ESA until the beneficiary reaches age 30. If a beneficiary reaches age 30 and funds still remain in his or her Coverdell ESA, he or she has three choices: Roll the balance into a 529 plan and designate the Coverdell ESA beneficiary as the beneficiary of the 529 plan Roll the balance into the Coverdell ESA of another eligible family member Remove the balance by taking a nonqualified withdrawal *These provisions of the Coverdell ESA were made permanent by the Taxpayer Relief Act of

9 Additional 529 Plan and Coverdell ESA Considerations A few additional considerations applicable to both 529 plans and Coverdell ESAs should be taken into account when developing a savings strategy. 529 Plan and Coverdell ESA Rollovers The balance in a 529 plan or a Coverdell ESA may be rolled over to a family member s 529 plan or Coverdell ESA income tax and penalty free within 60 days of a distribution. Gift tax liability is determined as follows: If the transferee beneficiary is a family member and in the same generation as the current beneficiary, the rollover is not subject to gift tax. If the transferee beneficiary is within one generation of the current beneficiary, the rollover is considered a gift between the current beneficiary and the transferee beneficiary, and gift tax applies. GST tax also applies when the transferee beneficiary is two or more generations from the current beneficiary. Family member includes the following people related to the beneficiary: FAFSA and College Plans Pursuant to current federal financial aid rules, the assets and income of both students and parents are considered in determining financial need. Assets in a 529 plan or a Coverdell ESA are considered assets of the account owner (the parent, in most instances). Because federal financial aid formulas generally expect parents to contribute up to 5.6% of their assets per year to send a child to college compared to a higher percentage expected of the student, under current rules, using a 529 plan or Coverdell ESA (with a parent as the account owner) as a college funding vehicle may be more advantageous from a federal financial aid perspective than saving in the student s name, e.g., saving in a custodial account. Colleges and universities may offer financial aid packages that treat 529 plan and Coverdell ESA assets differently from the way federal formulas treat them. More complete information on federal financial aid is available at A child, a foster child or an adopted child A descendant of a child, a foster child or an adopted child A stepson or stepdaughter A brother, sister, stepbrother or stepsister The father or mother, or an ancestor of either A stepfather or stepmother A niece or nephew An aunt or uncle A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law The spouse of the designated beneficiary or the spouse of any individual described above A first cousin 8

10 Education Comparison Chart Who Can Contribute? Contribution Limit Who Has Control? Qualified Distributions Income Tax Considerations 529 College Plan Anyone Maximum contribution limits, which vary by plan Contributions must be in the form of cash. Account owner Federally tax free if used for qualified higher education expenses Earnings in the plan accumulate tax free. Withdrawals are federally tax free if used for qualified higher education expenses. State tax benefits may also be available. 1 Custodial 529 College Plan Anyone Maximum contribution limits, which vary by plan Contributions must be in the form of cash. Custodian (Beneficiary gains control at the age of termination.) Federally tax free if used for qualified higher education expenses Earnings in the plan accumulate tax free. Withdrawals are federally tax free if used for qualified higher education expenses. Coverdell Education Account Custodial Account (UGMA and UTMA) Zero Coupon Bonds 6 Bonds Series EE and I Personal Investment Roth IRA Traditional IRA Anyone (Certain income limitations may apply.) 4 Anyone Contributions from all sources cannot exceed $2,000 per year, per beneficiary. Contributions must be in the form of cash. No limit; however, there are gift tax consequences for contributions exceeding $14,000 (in 2015) per beneficiary, per contributor, per year. May contribute cash and/or securities Account owner (Beneficiary may gain control at legal age, depending on plan provider.) Custodian (Beneficiary gains control at legal age.) Federally tax free if used for qualified education expenses, including primary and secondary education Funds are set aside solely for the specific beneficiary; no limitations otherwise. Qualified withdrawals are not subject to federal income tax. Earnings in the plan accumulate tax free. A portion of income may be offset by the standard deduction; some income may be taxed at beneficiary s and/or parent s rate. Anyone No limit Bond owner No limitations Zero coupon bonds pay no interest until maturity. The bond owners are generally taxed on the implied interest they ve earned, even though they have not received any payout of that income. Anyone; must be issued in the name of a parent of the student or an adult student at least age 24 Anyone Anyone with earned income Anyone with earned income $10,000 per year per bond type No limit May contribute cash and/or securities $5,500 (for 2015) $6,500 (for 2015) if age 50 or over Contributions must be in the form of cash. $5,500 (for 2015) $6,500 (for 2015) if age 50 or over Contributions must be in the form of cash. Bond owner Federally tax free if used for specific qualified higher education expenses Interest is free of state and local taxes but subject to federal income tax, unless used for specific qualified higher education expenses. Income limits apply. 7 Account owner No limitations Capital gains, dividends and interest are taxed at the account owner's tax rate. Account owner No limitations Contributions can be withdrawn anytime without tax or penalty. Earnings withdrawn prior to age 59½, or within five years of establishing and contributing to the IRA, are generally subject to tax and penalty. Earnings withdrawn for qualified higher education expenses are subject to ordinary income tax, but no penalty. Account owner No limitations Assets can be withdrawn at any time. Assets withdrawn prior to age 59½ are generally subject to tax and penalty. Earnings withdrawn for qualified higher education expenses are subject to ordinary income tax, but no penalty. 1 In certain states, contributions may be eligible for a state tax deduction or credit for certain taxpayers. 529 plan tax issues can be complex; taxpayers should consult their tax advisors before acting upon this information. 2 Withdrawals used for expenses other than qualified education expenses may be subject to federal and state taxes plus a 10% penalty on the earnings portion of the withdrawal. 3 Special gifting provisions allow a contribution of $70,000 (single filer) or $140,000 (joint filers) in a single year. For 2015, such a contribution represents a gift of $14,000 ($28,000 for joint filers) for the current year and each of the next four years. In the event of the contributor s death within that five-year period, the portion of the original gift allocated to the years following his or her death is considered part of his or her estate for estate tax purposes. The annual gift tax exclusion amount increased to $14,000 in 2013; for years , the annual gift tax exclusion amount was $13, Single and joint filers surpassing MAGI limitation ceilings ($95,000 $110,000 and $190,000 $220,000 respectively in 2015) are ineligible to contribute. 9

11 Education Comparison Chart (continued) What Happens to Unused Balances? Financial Aid Considerations Other Considerations 529 College Plan Generally, account owners can: 1) Leave the assets in the account; 2) Transfer the account to another eligible family member; or 3) Request a nonqualified distribution. 2 Considered an asset of the account owner: 529 plans owned by the parent or dependent student are considered parental assets and generally have less impact on financial aid than studentowned assets. Gift and estate tax benefits 3 Funds may be used at any accredited postsecondary school in the U.S. and some foreign schools. Custodial 529 College Plan When the beneficiary assumes control of the account, he/she can: 1) Leave the assets in the account; 2) Request a nonqualified distribution; 2 or 3) Transfer the account to another beneficiary. Considered an asset of the parent for financial aid purposes Parentally owned assets generally have less impact on financial aid than student-owned assets. Contributions are irrevocable gifts. Gift and estate tax benefits 3 Funds can be used at any accredited postsecondary school in the U.S. and some foreign schools. Coverdell Education Account No later than the beneficiary's 30th birthday, 5 the remaining assets generally must be: 1) Withdrawn, potentially subject to tax and/or penalty; 2) Rolled to a 529 plan for the same beneficiary; or 3) Rolled to a 529 or Coverdell ESA for an eligible family member. May be considered an asset of the account owner: Coverdells owned by a parent or dependent student are considered parental assets and generally have less impact on financial aid than student-owned assets. Contributions may not be made after the beneficiary reaches age Most Coverdell ESAs require the account owner to be a parent or legal guardian. Custodial Account (UGMA and UTMA) Assets must be used solely for the benefit of the beneficiary. May be considered an asset of the student; this account generally has a greater impact on financial aid. Contributions are irrevocable gifts. Zero Coupon Bonds 6 Zero coupon bonds are offered at a discount and mature at face value. Considered an asset of the bond owner Bonds Series EE and I Earnings are subject to federal tax when bonds are redeemed. No penalty applies. Considered an asset of the bond owner Smaller portion of parents assets is counted for federal financial aid. Bonds cannot receive the tax-free benefit for education expenses if issued in the child s or a grandparent s name. Personal Investment Considered an asset of the account owner Smaller portion of parents assets may be counted for financial aid. Roth IRA Assets can generally be withdrawn tax free the later of age 59½ or after five years of establishing and contributing to an IRA, and distributions can serve many purposes. The entire withdrawal, principal and earnings may count as income on the following year s aid application. Assets can serve many purposes. Traditional IRA Assets can be withdrawn after age 59½, subject to the account owner s ordinary income tax rate, and distributions can serve many purposes. The taxable portion of distributions may be included in the following year s financial aid application. Assets can serve many purposes. 5 Unless the beneficiary is a special needs beneficiary. 6 Bond investments are subject to interest rate risk; when interest rates rise, bond prices can decrease, resulting in loss of principal value if the bonds are sold prior to maturity. 7 Single and joint filers surpassing MAGI limitation ceilings ($77,201 $92,199 and $115,751 $145,749 respectively in 2015) are ineligible for the tax exemption. Equity investments are subject to market risks, including the potential loss of principal invested. Edward Jones, its employees and its financial advisors cannot provide tax or legal advice. This interpretation of tax law is a summarization and should not be depended upon for anything other than broad informational purposes. Individuals should consult their attorneys or qualified tax advisors for assistance with tax concerns. A financial aid professional should be consulted regarding the potential impact of savings options on financial aid awards. 10

12 Education Tax Credits and Deductions In addition to using 529 plans and Coverdell ESAs, taxpayers may be eligible for certain tax credits or deductions when paying for college: American Opportunity Tax Credit The American Opportunity Tax Credit modifies what was previously known as the Hope Credit and is available through The credit covers up to 100% of eligible expenses up to $2,000 plus 25% of the next $2,000, for a maximum credit of $2,500 per eligible student, for up to four years of post-secondary qualified expenses. For 2015, the full credit is available to individuals whose MAGI is $80,000 or less ($160,000 or less if married filing jointly). A partial credit is available to individuals whose MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if married filing jointly). This credit includes course materials as a qualifying expense and can be claimed for four postsecondary education years. The amount of the credit that exceeds an individual s tax liability is refundable, up to a maximum of 40% of the amount of the credit for which the taxpayer is eligible. Note: This provision will expire after 2017 unless extended by Congress. Lifetime Learning Credit The Lifetime Learning Credit covers 20% of the first $10,000 contributed to qualified tuition expenses for an annual maximum of $2,000 per return. For 2015, the full credit is available to individuals whose MAGI is $55,000 or less ($110,000 or less if married filing jointly). A partial credit is available to individuals whose MAGI is between $55,000 and $65,000 ($110,000 and $130,000 if married filing jointly). This credit can be claimed for an unlimited number of years for each student, no matter how many courses are taken. Tuition and Fees Deduction An individual may be able to deduct qualified tuition and related expenses paid for him- or herself, a spouse or a dependent. The tuition and fees deduction is taken as an adjustment to income, so taxpayers do not have to itemize. A maximum deduction of $4,000 is available to individuals whose MAGI is $65,000 or less ($130,000 or less if married filing jointly). A partial deduction is available to individuals whose MAGI is between $65,000 and $80,000 ($130,000 and $160,000 if married filing jointly). Taxpayers cannot benefit from tuition and fees deductions if their filing status is married filing separately or if the student is claimed as a dependent on someone else s return. Note: This deduction expired after 2013 and was extended by the Tax Increase Prevention Act for At the time of publication, Congress had not yet taken action for

13 Coordination of Benefits Tax-free distributions can be taken from both a 529 plan and a Coverdell ESA in the same year, but the distributions may not be used for the same qualified higher education expenses. The American Opportunity Tax Credit, Lifetime Learning Credit and tuition and fees deduction can be claimed in the same year a beneficiary takes a tax-free distribution from a 529 plan or Coverdell ESA, but the credit or deduction may not be used for the same qualified higher education expenses. A taxpayer may claim either the American Opportunity or the Lifetime Learning Credit for each child, but not both for the same child in the same year. The tuition and fees deduction cannot be claimed for the same student in the same year a taxpayer uses the American Opportunity or Lifetime Learning Credit for that student. A taxpayer cannot use expenses paid using tax-free educational assistance received, such as scholarships, Pell Grants, employer-provided educational assistance and veterans educational assistance, as the basis for any other deduction or credit, including the American Opportunity Tax Credit, Lifetime Learning Credit or tuition and fees deduction. It is unclear whether this coordination restriction also applies to exclusions from income, such as distributions from a 529 plan or Coverdell ESA. Additional details can be found on the IRS website at Conclusion The demand for proper college financial planning is increasing exponentially. Among numerous other financial considerations, Americans must often shoulder the responsibility of helping their children and grandchildren cover the costs of college educations. Investing a set amount of money each month through a tax-advantaged savings vehicle, such as a 529 plan or Coverdell ESA, may seem challenging to some, but developing such a strategy can help investors prepare for future education expenses and possibly improve students financial aid eligibility as well. How Edward Jones Can Help Edward Jones is committed to a team approach when it comes to meeting client needs. We offer a variety of investments and services to help clients finance an education, including 529 plans and Coverdell ESAs. In addition, an Edward Jones financial advisor can develop a report listing projected college costs for specific colleges and universities to help you and your clients customize an investment strategy that can help them reach their goals. For more information on these and other Edward Jones services, contact your local Edward Jones financial advisor. 12

14 Building a Team of Professionals to Help Provide Solutions for Our Clients At Edward Jones, we believe that when it comes to financial matters, the value of professional advice cannot be overestimated. In fact, in most situations we recommend that clients assemble a team of professionals to provide guidance regarding their financial affairs: an attorney, a tax professional and a financial advisor. The legal, accounting and financial services industries are governed by constantly changing complex laws and regulations; by working together as a team, driven by similar philosophies and guiding principles, professionals in a variety of financial fields can use complementary knowledge and skills to assist mutual clients in planning for today s financial and tax challenges. This publication is for educational and informational purposes only; it is not intended, and should not be construed, as a specific recommendation or legal, tax or investment advice. The information provided is for tax and legal professionals; it is not for use with the general public. Edward Jones, its financial advisors and its employees cannot provide tax or legal advice; before acting upon any information herein, individuals should consult a qualified tax advisor or attorney regarding their circumstances Edward D. Jones & Co., L.P. All rights reserved. CPA-4108E-A EXP 31 MAY 2016