TURN A DREAM INTO A DEGREE A COLLEGE SAVINGS PROGRAM FOR NEW JERSEY RESIDENTS. Follow

Transcription

1 TURN A DREAM INTO A DEGREE A COLLEGE SAVINGS PROGRAM FOR NEW JERSEY RESIDENTS Follow

2 What Does the Future Hold? As soon as your child is born, you begin imagining what the future will hold. You await the first word, watch for the first step. As your child grows, you note what interests them, what they do well, and try to envision what career they might pursue. Whatever that career, it s likely to require a college degree. So as your child takes the first steps toward the future, it s important you take the first steps toward seeing that a college education can be part of it. College can be expensive. That s why the state of New Jersey has joined with Franklin Templeton Investments to offer NJBEST 529 College Savings Plan specifically for New Jersey residents. 1 By taking advantage of Section 529 of the Internal Revenue Code, NJBEST offers you a number of features and benefits that can make saving for a college education much easier. The Future Holds More for College Graduates A college education is an investment in your child s future that pays handsomely college graduates on average earn 76% more per year than high school graduates. Over a lifetime, that difference amounts to more than $1.2 million in earnings. 2 People who hold advanced degrees can earn even more clear evidence of the lifelong value of a college education. Average Earnings in 2013, Based on Level of Education 2 $27,508 $35,309 $43,063 $62,048 $76,637 New Jersey Higher Education Student Assistance Authority (HESAA) HESAA s mission is to provide students and families with investment options and informational resources that can enable students to pursue their education beyond high school. NJBEST, administered by HESAA and managed by Franklin Templeton, offers numerous options for families to save for college expenses and is the only plan in the country that provides a scholarship for qualified investors who attend a New Jersey college. For more information visit No High School Diploma High School Diploma, includes GED Associate Degree Bachelor s Degree Master s Degree 1. Offered and administered by the New Jersey Higher Education Student Assistance Authority (HESAA); managed and distributed by Franklin Templeton Distributors, Inc., an affiliate of Franklin Resources, Inc., which operates as Franklin Templeton Investments. No federal or state guarantee. Principal value may be lost, and investing in the plan does not guarantee admission to college or sufficient funds for college. Please refer to the Investor Handbook for more complete information. 2. Source: U.S. Census Bureau, Current Population Survey, 2014 Annual Social and Economic Supplement. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE

3 A College Education Is Expensive If paying for your child s college education is your goal, you ll need to plan well in advance. College education expenses have climbed over 5% annually during the past 10 years, more than 1.5x our nation s inflation rate. That means a child born today could need over $215,000 to attend a four-year public college in 2035, more than triple today s college costs. 3 Invest for College Now or Borrow Later? Let s look at a hypothetical example of investing now vs. borrowing later. You could wait until your child is 18 years old and borrow the money, paying interest for at least 15 years. Or, when your child is born you could begin investing $510 monthly in a tax-advantaged investment earning a hypothetical 7% annual return before taxes and investment expenses. In this example, you save about $190,000 by investing now, rather than borrowing later. 4 How Much Will It Cost? 3 Projected Average Cost for Four Years of College Public College Private College Today $81,928 $181,322 5 Years $111,252 $235, Years $143,562 $292, Years $185,254 $363, Years $215,877 $414,127 Invest or Borrow? Cost by investing $510 monthly for 18 years $110,220 a $189,235 difference Cost by borrowing the money for 15 years at 4.66% $299, Source: Trends in College Pricing, 2014 The College Board, Projected cost based upon child s entrance to a 4-year public or private college. As reported by the College Board for , the $18,943 public college cost and $42,419 private college cost include tuition, fees, room and board. College cost inflation figures of 5.23% (public) and 4.44% (private) are based on the 10-year average annual increase in public and private college costs respectively, as reported by The College Board for Source: Trends in College Pricing, 2014 The College Board, Projected cost based upon child s entrance to a 4-year public or private college. As reported by the College Board for , the $18,943 public college cost and $42,419 private college cost include tuition, fees, room and board. College cost inflation figures of 5.23% (public) and 4.44% (private) are based on the 10-year average annual increase in public and private college costs respectively, as reported by The College Board for Savings example assumes an 7% annualized rate of return with contributions made at the beginning of each period. The borrowing example assumes a fixed interest rate of 4.66% based on a subsidized Stafford loan issued between 7/1/2014 7/1/2015. Assumed payments are made at the beginning of each period. NJBEST.com NJBEST New Jersey s 529 College Savings Plan 1

4 Saving for College Doesn t Have to Be Taxing You may be like many parents who can t imagine being able to save enough for college. You may be tempted to give up on the possibility altogether or choose to go into debt to pay for your children s higher education. But it is possible to save a significant amount over time; and the earlier you begin, the better off you ll be because of tax-free compounding. Benefits of Tax-Free Compounding over Time With Investments of $150/month $64,985 $54,208 n Taxable Account n Tax-Free Account $41,262 $47,822 $23,762 $26,114 $10,322 $10,802 5 Years 10 Years 15 Years 18 Years The hypothetical illustration is based on a constant monthly investment of $150; assumes a 7% annual fixed rate of return, compounded monthly; and a 25% federal income tax applied at the end of each year for the taxable account. Examples are for illustrative purposes only and are not representative of any particular investment. This chart does not take into account investment expenses, which if reflected, would lower the results shown. Investments do not guarantee any specific rate of return, and you may have a gain or a loss on the amount invested. Periodic investments do not assure a profit or protect against loss in declining markets. Our son is only in preschool now but with the rising cost of a college education, it s important for our family to invest in his future now. 2 NJBEST New Jersey s 529 College Savings Plan NJBEST.com

5 New Jersey s 529 College Savings Plan NJBEST 529 College Savings Plan can be an advantageous way to invest for college. The program offers maximum flexibility and investment diversification to fit the needs of almost any investor. Here are just a few features and benefits you can enjoy as an NJBEST account owner. 5 Smart Benefits Smart Tax Advantages Control over Plan Assets As plan owner, you maintain control over how and when plan assets will be spent for higher education expenses. If the beneficiary you ve saved for decides not to go to college, you can use the funds to educate another family member. Potential College Scholarship of up to $1,500 Students at New Jersey colleges and universities can receive a tax-free scholarship whose value depends on time and investment in the plan. 6 All Accredited Colleges and Universities Are Available Plan assets can be used at any accredited college, not just colleges or universities in New Jersey. Admissions are not guaranteed by the 529 plan. Won t Interfere with New Jersey Financial Aid The first $25,000 in savings will be excluded from the criteria used to determine eligibility for financial aid awarded by the state of New Jersey. Low Contribution Requirement You can open an NJBEST plan with as little as $25. High Contribution Limit Contributions can be made until the plan value for a beneficiary is $305,000. No Income Restrictions You can open a plan regardless of how much you earn. Double Tax-Free Investing Investments grow federal and New Jersey state income tax free and qualified withdrawals are not subject to federal or state income tax. Special Gift and Estate Tax Treatment A contribution in one year of up to $70,000 (or $140,000 if a married couple) to a single beneficiary is generally excludable for federal gift and estate tax purposes if the contributor makes no further gifts to the beneficiary for five years. Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. Gift examples are general; individual financial circumstances and state laws vary consult a tax advisor before investing. If the contributor dies within the five-year period, a prorated portion of contributions may be included in their taxable estate. See the Investor Handbook for more complete information. 529 plans have risks which cause investment return and principal value to fluctuate, these can include risks of stocks; bonds, including lower-rated; and foreign investing, especially in developing markets. These and other risks are discussed in the Investor Handbook. 5. Please read the Investor Handbook for more information. 6. Investing in NJBEST does not guarantee admission to college in New Jersey or elsewhere. The scholarship is awarded during the beneficiary s first year of college. NJBEST.com NJBEST New Jersey s 529 College Savings Plan 3

6 Smart Investment Options When you open an NJBEST plan, you get experienced and knowledgeable management of your assets from Franklin Templeton Investments, providing a variety of investment options designed to help you pursue your college savings goals. 7 You may choose to invest among as many of the following portfolios as you d like, as long as the total allocation equals 100%. Age-Based Asset Allocations Pursue your goals by choosing an age-based asset allocation track suitable for you conservative, moderate or growth. Your investments will be placed in a portfolio within the asset allocation you choose based on the beneficiary s age. As your beneficiary ages, the age-based asset allocations are designed to move into plan portfolios that invest less in equity-based funds (which have more stocks) and more into conservative, income-seeking funds (such as bond and money-market funds). By the time college is around the corner, a greater proportion of your assets will be in more conservative, lower-risk investments. How Your Investment Changes as Your Beneficiary Ages Child s Age Newborn 8 Years 9 12 Years Years 17+ Years FRANKLIN CONSERVATIVE ALLOCATION 529 PORTFOLIO 10% 35% 40% 15% 15% 17.5% 20% 7.5% 60% 80% 40% 60% FRANKLIN MODERATE ALLOCATION 529 PORTFOLIO 20% 5% 25% 50% 10% 35% 40% 15% 15% 17.5% 60% 7.5% 20% 80% FRANKLIN GROWTH ALLOCATION 529 PORTFOLIO 30% 70% 5% 20% 25% 50% 10% 35% 40% 15% 15% 17.5% 60% 7.5% n Domestic Equity n International Equity n Income n Cash 7. The plan is managed by Franklin Mutual Advisers, LLC, an affiliate of Franklin Templeton Distributors, Inc. Plan portfolios generally invest in mutual funds managed by affiliates of Franklin Mutual Advisers, LLC. An investment in NJBEST 529 College Savings Plan is an investment in a municipal security that may invest in one or more underlying mutual funds. It is not an investment in shares of the underlying mutual fund(s). 4 NJBEST New Jersey s 529 College Savings Plan NJBEST.com

7 Customize Your Own Strategy If you want to take an active role in creating the investment mix of your NJBEST plan, you may customize your own investment strategy. These portfolios allow you to invest your assets according to the amount of investment risk you re comfortable taking and the potential return characteristics you prefer. Objective-Based Investment Options Individual Investment Options FRANKLIN GROWTH ALLOCATION 529 PORTFOLIO This growth allocation is designed for investors with a longer time horizon and/or a higher tolerance for risk. 30% 70% S&P 500 INDEX 529 PORTFOLIO This allocation is for investors looking for a portfolio that seeks to replicate the performance of holdings of the Standard & Poor s 500 Index before expenses. 100% FRANKLIN GROWTH & INCOME ALLOCATION 529 PORTFOLIO This moderate allocation is designed for investors who have a long to medium time horizon and/or who can tolerate a moderate amount of risk. 10% 40% 35% 15% FRANKLIN MONEY 529 PORTFOLIO This allocation is designed for conservative investors seeking current income, consistent with the preservation of principal. 100% FRANKLIN INCOME ALLOCATION 529 PORTFOLIO This more conservative allocation is designed for investors with a short to medium time horizon and/or who can tolerate a lower amount of risk. 80% 20% FRANKLIN COREFOLIO 529 PORTFOLIO This portfolio invests in a combination of four underlying equity funds with distinct investment strategies. The allocation provides significant diversification across multiple industries, which may help reduce overall risk, and offers potential for long-term growth. n Franklin Flex Cap Growth Fund n Franklin Growth Fund n Templeton Growth Fund n Franklin Mutual Shares Fund 25% 25% 25% 25% n Domestic Equity n International Equity n Income n Cash The Franklin Money 529 Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency and it is possible to lose money by investing in the portfolio. NJBEST.com NJBEST New Jersey s 529 College Savings Plan 5

8 Frequently Asked Questions8 Q: What are the exclusive benefits to New Jersey residents?»qualified withdrawals made by New Jersey residents are not subject to New Jersey state income tax. Taxpayers of other states may be subject to state income taxes on qualified withdrawals and should consider whether their state of residence offers plans with alternative tax advantages. A college scholarship opportunity of up to $1,500 is available for attending college in New Jersey. 9 Limited impact on New Jersey financial aid need determination. Q: Do I own the plan?»absolutely. You not the beneficiary maintain control over how and when plan assets will be spent for higher education expenses. Q: What is the minimum investment to open a plan?»you can open an NJBEST 529 College Savings Plan with as little as $25. The maximum aggregate plan balance per beneficiary is $305,000. Q: What are the federal tax benefits?»investments grow federal income tax free, and withdrawals for qualified higher education expenses are free from federal income taxes. Contributions are not federal income tax deductible. Q: Can I change the beneficiary?»yes, you can change the beneficiary at any time. To avoid taxes, however, the new beneficiary must be a member of the previous beneficiary s family (including children, grandchildren, siblings, spouses, nieces and nephews, aunts and uncles, cousins and in-laws). Q: Can I access my money for a non-education-related expense?»yes. You can access your money at any time. However, if you withdraw money for reasons other than qualified higher education expenses, you must pay federal income tax, a 10% federal tax penalty, and may be liable for state income tax and penalties on the taxable portion of the earnings. Q: What education expenses are eligible?»savings may be applied to tuition, fees, required books, supplies and equipment, and room and board if the beneficiary is enrolled at least half time. Q: Are there restrictions on schools?»no. The beneficiary can attend any university, college or vocational school accredited by the U.S. Department of Education. Q: What is the NJBEST program management fee?»the program management fee is currently 0.10% annually. This fee is used to pay for the services of Franklin Templeton Distributors, Inc., and its affiliates and subcontractors, as well as the New Jersey Higher Education Student Assistance Authority for its services in connection with the program. The program management fee is subject to change. Investment management fees and expenses are also assessed by the mutual funds in which the plan portfolios generally invest. Please see the NJBEST Investor Handbook for further discussion of the expenses associated with an NJBEST plan. Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. See the Investor Handbook for more complete information. 8. Please read the Investor Handbook for more information. 9. Investing in NJBEST does not guarantee admission to college in New Jersey or elsewhere. The scholarship is awarded during the beneficiary s first year of college. 6 NJBEST New Jersey s 529 College Savings Plan NJBEST.com

9 Ways to Save for College A number of college savings vehicles are available, and the chart below illustrates their main features. Once you ve compared them, we think you ll agree that NJBEST can be a smart choice. Coverdell Education Regular Investment NJBEST 529 College Savings Plan UGMA/UTMA Savings Account Account Federal income tax free State income tax free Scholarship opportunity Maximum contribution Maximum income to qualify Who controls disbursement of assets? Ability to change beneficiary Estate-planning features Freedom to choose colleges Early or nonqualified withdrawal Investments available Professional management/ asset allocation Yes. Money grows income tax No. Earnings are taxed Yes. Money grows income tax free No free and qualified distributions at the parent s or the and qualified distributions are federal are federal income tax free minor s rate income tax free 10 Yes. Money grows income tax free No. Earnings are taxed Yes. Qualified distributions are No and qualified withdrawals made by at the minor s rate generally state income tax free New Jersey residents are state income tax free Yes. Students at New Jersey No No No colleges and universities can qualify for a tax-free scholarship $305,000 in all plans for any None $500 per beneficiary under age 18, None one beneficiary per year No limits No limits Phases out for single filers at No limits $95,000 to $110,000; for joint filers at $150,000 to $160,000 Plan owner Custodian, until minor Responsible individual Registered owner reaches age of majority (varies by state) In most instances, the beneficiary No Can be transferred to the account of No named beneficiary; can be changed to another an eligible member of the same transfer may be member of the beneficiary s family without tax consequences considered a gift family, without penalty or sale Assets are generally transferred Assets are transferred Assets are transferred out of the Transfer or income may out of the donor s estate, yet the out of the donor s estate donor s estate be considered gifts donor retains control Can be used for qualified expenses No restrictions on use Can be used for any qualified No restrictions at any accredited post-secondary education expenses at school in the U.S. and many post-secondary schools. institutions outside the U.S. Must be used before beneficiary is age Earnings are taxable and are No Earnings are taxable and are No subject to a 10% federal tax subject to a 10% federal tax penalty, state taxes and penalties penalty, state taxes and penalties Multiple portfolio options Wide range of securities Varies by provider Any legal security and personal property, as permitted by state law Yes Yes, varies based Yes, varies based upon provider Yes, varies based upon provider upon provider For NJBEST 529 College Savings Plan: Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. Gift examples are general; individual financial circumstances and state laws vary consult a tax advisor before investing. If the contributor dies within the five-year period, a prorated portion of contributions may be included in their taxable estate. See the Investor Handbook for more complete information. 10. Distributions will be tax-free only for those taxpayers who do not claim an American Opportunity for Lifetime Learning credit (if eligible) in the same year. 11. Except in the case of a Special Needs Beneficiary. NJBEST.com NJBEST New Jersey s 529 College Savings Plan 7

10 Start Saving Now When your child is young, it s easy to believe you have plenty of time to save for college. The truth is that saving for college is a long-term goal. Start small if you have to, but start now. A One-Time Contribution or Monthly Investments? The table below illustrates the one-time or monthly contributions you would need to invest today, assuming an 7% annual rate of return, to meet the projected cost of a four-year public college. CHILD S CURRENT AGE 2 Years Old 5 Years Old 10 Years Old 15 Years Old Projected Cost of College 12 Years to College $194,946 $167,292 $129,642 $100, One-Time Contribution Monthly Investments $66,035 $69,420 $75,453 $82,010 $561 $667 $1,015 $2,510 Examples are for illustrative purposes only and are not representative of any particular investment. The table does not take into account investment expenses, which if reflected, would lower results shown. Investments do not guarantee any specific rate of return, and you may have a gain or a loss on the amounts invested. Periodic investments do not assure a profit or protect against loss in declining markets. Our granddaughter is the first college graduate in our family. Knowing our contributions to her college savings helped make her graduation possible is one of our proudest moments. 12. Source: Trends in College Pricing, 2014 The College Board, Projected cost based upon child s entrance to a 4-year public or private college. As reported by the College Board for , the $18,943 public college cost and $42,419 private college cost include tuition, fees, room and board. College cost inflation figures of 5.23% (public) and 4.44% (private) are based on the 10-year average annual increase in public and private college costs respectively, as reported by The College Board for NJBEST New Jersey s 529 College Savings Plan NJBEST.com

11 Getting Started Is as Easy as 1, 2, 3 Everything you need to open an NJBEST 529 College Savings Plan can be found here. All You Need to Do Is: 1 EDUCATE YOURSELF Find more complete information about the plan in the Investor Handbook. 2 SELECT AN INVESTMENT PORTFOLIO Select the investment strategy that best suits your college savings needs. 3 OPEN A PLAN Just fill out an application and return it following the instructions provided. A few words about risk. 529 plan underlying funds have risks that will cause your investment return and principal value to fluctuate. Stocks tend to fluctuate dramatically over the short term. Bond prices generally move opposite to interest rates; as bond prices adjust to a rise in interest rates, a fund s share price may decline. High-yield, lower-rated bonds generally have greater price swings and higher default risks. Foreign investing, especially in developing markets, has additional risks such as currency and market volatility and political or social instability. These and other risks are discussed in each fund s prospectus. Investors should carefully consider plan investment goals, risks, charges and expenses before investing. To obtain the Investor Handbook, which contains this and other information, call Franklin Templeton Distributors, Inc., the manager and underwriter for the plan, at (877) 4NJ-BEST or visit NJBEST.com. You should read the Investor Handbook carefully before investing and consider whether your or the account beneficiary s home state offers any state tax or other benefits that are only available for investments in its qualified tuition program. You should note that: (i) depending upon the laws of the home state of the 529 plan account owner, third-party contributor or beneficiary, favorable state tax treatment or other benefits offered by such home state for investing in qualified tuition programs may be available only for investments in such home state s qualified tuition program; (ii) any state-based benefit offered with respect to a particular qualified tuition program should be one of many appropriately weighted factors to be considered in making an investment decision; and (iii) you should consult with your financial, tax or other advisor to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances; you may also wish to contact the home state of the account owner, third-party contributor and/or beneficiary, as applicable, or any other qualified tuition program to learn more about the features, benefits and limitations of that state s qualified tuition program.

12 Franklin Templeton Distributors, Inc. One Franklin Parkway San Mateo, CA NJBEST 529 College Savings Plan is described in the current Investor Handbook. Plans are opened by completing an application and are subject to a Participation Agreement. All of these documents should be read carefully before opening an account. The state of New Jersey, its agencies, Franklin Templeton and its affiliates do not insure any plan or guarantee its principal or investment return. Account value will fluctuate based upon a number of factors, including general financial market conditions. Federal and state tax benefits are subject to certain limitations. Logos are trademarks of their respective owners. Logos are used to identify their respective companies and should not be construed as an endorsement of, or affiliation with, Franklin Templeton Investments Franklin Templeton Investments. All rights reserved. 529NJ B 05/15