College Planning Solutions for investing in your child s future

Transcription

1 College Planning Solutions for investing in your child s future

2 ADVANTAGES and COSTS Education Fuels Better Employment and Earnings Higher education lasts a lifetime. According to research from the College Board, the Census Bureau, the Bureau of Labor Statistics and others, people with college degrees: Have significantly lower rates of unemployment. Earn more on average, $22,000 per year than those with high school degrees. Score better on measures of health, well-being, and social involvement. The value of higher education According to the Georgetown Center for Education Research, by 2018, 62% of jobs will require at least some college. While it may seem obvious that higher levels of education come with higher incomes, the impact of education on employment may be surprising. This chart illustrates that those with higher education are not only likely to enjoy higher incomes but also least likely to face unemployment. Want to know more? Download our white paper titled Education, Employment and Earnings, americancentury.com/college Employers also seek specialized degrees In the current economy, employers value those with technical or vocational degrees. These colleges provide students with specific skill sets that are in demand, and are typically less expensive than the traditional four-year college. These options include local public institutions, community colleges, and two-year schools, and are eligible for most college savings vehicles. Source: Bureau of Labor Statistics, Current Population Survey 2 Call

3 Don t wait another day start saving now Your best ally in saving for a higher education is time. If your future student is younger, the best thing to do is start now. But even if your child is already a teenager, don t pass up the chance to help them bring college a little closer. Even small amounts, invested regularly, can give your student an advantage. How much will you need to save? Check out our college savings calculator and plug in your own numbers. Visit americancentury.com/college Monthly Investments Can Add Up Monthly Investment 5 Years 10 Years 15 Years 18 Years $300 $25,147 $57,252 $102,766 $138,751 $200 $17,946 $39,843 $70,885 $95,428 $100 $10,745 $22,434 $39,003 $52,105 $50 $7,145 $13,729 $23,063 $30,443 Source: American Century Investments. This is a hypothetical example to show the benefits of starting with an initial investment of $2,500 and then making regular monthly investments of different amounts over different periods of time on the first day of each month. It assumes an average annual return of 7%. This does not represent an actual investment, and the projections are before taxes. The value and return may vary, and different investments may perform better or worse than this example. This strategy does not assure a profit and does not protect against loss in a declining market. Reduce your need for student loans While the numbers are decreasing, 62% of parents still plan to rely on some type of student loan. Seventeen percent plan to borrow against retirement or other investments. Putting your money to work today may help you avoid the additional cost of paying interest on student loans tomorrow. Source: College Savings Foundation 2010 Survey of Parents The long-term consequences of college loans Many students who come out of schools with large loans share similar hurdles: 1. Living paycheck to paycheck due to the loan repayment 2. Delaying saving for retirement and/or buying a home 3. Postponing necessary medical and dental procedures Borrowing: $100,000 loan repayable over 10 years at 7% Monthly payment = $1,162 Total cost of borrowing = $139,440 Saving: Saving monthly for 18 years at 7% Monthly contribution = $232 Total cost of saving = $50,112 Cost of Borrowing vs. Cost of Saving: $139,440 - $50,112 = $89,328 Visit americancentury.com/college 3

4 Savings Options Choose the Plan That s Right for You When choosing how to invest for college, several options exist, each with its own particular benefits. Whether you are looking for tax breaks or a flexible way to pass on your investment, we can help. What are 529 plans? A 529 plan is an investment vehicle created by Congress to assist people saving for college (529 refers to a section of the IRS code). American Century Investments manages the Learning Quest 529 Education Savings Program. (See page 6 for more details about Learning Quest.) 529 Plans are popular because: You can save large amounts in them typically enough to cover all the educational costs of the beneficiary. Annual earnings are tax-deferred, and the assets in them can be withdrawn tax free if used for qualified educational expenses (tuition, fees, room and board, books, required supplies and equipment). Anyone can open a 529, and designate anyone as a beneficiary. You can even open one for yourself. Almost all states offer a 529 plan. But you do not need to be a resident of that state to use any states plan, and you can use the money anywhere nationwide including graduate schools, vocational schools, and any other qualifying educational institution unless plan rules specify otherwise. There are many other benefits to a 529: 529 accounts are owned and controlled by the person who opens them, not by the beneficiary. That provides peace of mind to parents, who want to make sure the assets are used for education. The assets can be transferred without tax consequences to any eligible family member. State plans offer a wide variety of investment choices and plan options. Many states also provide state tax benefits for residents that choose their in-state plan. What are UGMAs/UTMAs? A common alternative to a 529 is a type of tax-advantaged vehicle known either as a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account. The main benefit of a UGMA/UTMA is that, under current tax laws, income is subject to a preferential tax treatment known as the kiddie tax: A certain amount of the minor s investment income is tax-free. An equal amount of investment income is taxed at the child s rate. Above these limits, the tax benefits no longer apply. Income is taxed at the parents tax rate, while long-term capital gains are taxed at a maximum of 15%. 4 Call

5 One advantage of a UGMTA/UTMA is that the assets can be used for anything, not just college costs. However, UGMAs/UTMAs have one important drawback: the assets in the account legally belong to the minor beneficiary. Once the minor reaches the age of majority (varies by state), you no longer have any legal control over how the money is spent. While 529 accounts and UGMAs/UTMAs have common features, benefits, and potential drawbacks, every plan and family situation is different. It can be helpful to study your options and/or consult a tax advisor as you make your choice. Grandparents want to help? A 529 account can be a good choice for grandparents who wish to give gifts to their grandchildren. In addition to the educational opportunities it provides, a gift to a 529 can provide considerable estate planning advantages, such as lowering the amount of your taxable estate. 529 Plans vs. UGMAs/UTMAs 529 Plans UGMAs/UTMAs Who can contribute? Anyone Anyone Are contributions limited? Yes The typical plan maxes contributions in the $250,000-$350,000 range. No How are they taxed? Earnings are tax-deferred for the life of the account, and withdrawals are tax-free as long as they are used for qualifying educational expenses. A certain amount of earnings in a UGMA/UTMA (up to $1,900 in 2011) is subject to preferential kiddie tax rules. Who owns/controls the assets in the account? The account holder (i.e., the parent) owns the account and directs how the assets are used. The beneficiary (i.e., the child) gains full control over the assets when they reach the age of majority. How are the assets invested? The state sponsoring the plan contracts with investment managers to offer a set of investment options. The contributor can invest in any fund or security. Are there state tax benefits? Can the beneficiary change to another family member? Can the assets be used for anything other than college costs? Yes, for some plans and some states. Yes Yes, but the earnings will be taxed and the amount of the withdrawal will be penalized. No No Yes, without limit. Looking for other ways to save for college? We can help. American Century Investments offers Coverdell Education Savings Accounts (CESA s) and Traditional or Roth IRAs. Call us today to discuss your options Visit americancentury.com/college 5

6 EXPAND YOUR OPPORTUNITIES A Closer Look at Learning Quest In partnership with the state of Kansas, American Century Investments provides professional investment management for the Learning Quest 529 Education Savings Program. How do I choose a 529 plan? Almost all states offer some type of 529 plan, but there s no requirement that you pick your own state s plan. It s important to compare plans and make note of their differences. Some state plans do not offer income tax deductions for plan contributions. Some states do not have a state income tax. In those cases, other states plans may have lower costs or more attractive investment features. Please consult your tax advisor for more information on which 529 plan makes the most sense for the state in which you reside. Available to all U.S. residents, Learning Quest offers benefits for anyone saving for higher education: Assets can be used at any accredited college, university or vocational school in the country. Learning Quest offers a variety of portfolio options to suit your investing style, risk tolerance and time horizon. > Age-based tracks are diversified portfolios that automatically adjust over time. > With a static portfolio, you decide when it s time to move to a different portfolio. > The portfolios are managed by American Century Investments. The experts at American Century Investments have a long history of developing and managing asset allocation strategies. A flexible program that fits your needs A student may use the money to pay for qualified education expenses at any accredited university, college or approved technical or vocational program. Parents, grandparents, friends and even the student can open the account. Any U.S. resident or citizen can contribute to the account. The account owner can change the beneficiary at any time. The owner controls the account, even after qualified withdrawals begin. Earn college savings from your everyday spending Boost your savings by earning money for college from everyday purchases with Upromise and inviting family and friends to contribute with Ugift. We make it easy Kansas residents and non-residents can open a Learning Quest account with a low initial investment or an automatic monthly investment. And with our online application process, you can have an account set up in about 15 minutes. Give us a call today to get started. Join Upromise for free and you can earn college savings when you shop online, book travel, go out to eat and more. You can even set up automatic transfers to your 529 account. Ugift is a new way to invite family and friends to celebrate a child s milestones with the gift of college savings. This easy-to-use service lets the special people in your life make gift contributions directly to your 529 plan account. Use Ugift for: Birthdays School milestones/graduations Religious celebrations Holidays or any special occasion Upromise is an optional service offered by Upromise, Inc. It is separate from Learning Quest and is not affiliated with the state of Kansas. Specific terms and conditions apply. Participating companies, contribution levels and conditions subject to change without notice. Transfer subject to a $25 minimum. Upromise, Inc. is affiliated with Upromise Investments, Inc. and Sallie Mae, Inc. 6 Call

7 Managing Money, Making a Difference In 1958, American Century Investments was founded on the principle that if we make others successful, we ll be successful. We relentlessly focus on delivering superior investment performance and building long-term relationships with our clients. Our track record of performance, our private, independent business model and the legacy of our founder set us apart. Who we are: Performance for more than 50 years Professional money management is our sole focus Privately controlled and independent Profits with a purpose What we offer: Investment solutions that match your needs Financial professionals who understand your goals Superior service that puts you first Our commitment to you: Customized solutions for your goals Great value for your money Genuine dedication to your success Get started today americancentury.com/college Saving for college can be challenging but it s easier with our help. At American Century Investments, we can help you find a college investment plan that s right for you, whether you re planning to pay the entire cost or just a portion. Even if your goal seems overwhelming now, we can help you put the cost of any college within your reach. Visit americancentury.com/college or call to speak to a specialist. Visit americancentury.com/college 7

8 Before investing, carefully consider the plan s investment objectives, risks, charges and expenses. This information and more about the plan can be found in the Learning Quest Handbook, available by contacting American Century Investment Services, Inc., Distributor and Underwriter, at , and should be read carefully before investing. If you are not a Kansas taxpayer, consider before investing whether your or the beneficiary s home state offers a 529 plan that provides its taxpayers with state tax and other benefits not available through this plan. Notice: Accounts established under Learning Quest and their earnings are neither insured nor guaranteed by the state of Kansas, the Kansas State Treasurer or American Century Investments. Administered by Kansas State Treasurer Ron Estes. Managed by American Century Investment Management, Inc. American Century Investment Services, Inc., Distributor and Underwriter. IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice. The projections or other information generated by the college savings calculator regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. P.O. Box Kansas City, MO Business Retirement Specialists CL-BKT American Century Investment Services, Inc., Distributor and Underwriter 2012 American Century Proprietary Holdings, Inc. All rights reserved.