529 College Savings Plan

Transcription

1 529 College Savings Plan MI 529 Advisor Plan Wealth Management Strategies: A Tax-Advantaged Way to Save and Invest for College NOTICE: MI 529 Advisor Plan accounts are not insured by any state, and neither the principal deposited nor any investment return is guaranteed by any state. Furthermore the accounts are not insured, nor the principal or any investment return guaranteed, by the federal government or any federal agency.

2 Agenda 1 The Rising Cost of College 2 529s: How They Work 3 MI 529 Advisor Plan 2

3 01 The Rising Cost of College 3

4 The Rising Cost of College: A Disturbing Trend Published tuition and fees for full-time students excluding room and board Projected Tuition and Fees (excludes room and board and other expenses) Today (Enrolling 2015) In 18 years (Enrolling 2033) 4-Year Private College $ 134,600 $ 323,900 4-Year Public University $ 39,400 $ 94,800 2-Year Community College and 2-Year Private College $ 77,400 $ 186,400 Source: SavingforCollege.com. Based on average annual tuition and fees for as reported by The College Board and the ten-year historical rate of increase is approximately 5%. 4

5 The Rising Cost of College: A Disturbing Trend Estimated Cost of a College Education Annual Cost Estimate* 4 Year Estimate* University of Chicago $62,458 $249,832 Duke University $60,533 $242,132 Harvard University $58,607 $234,428 University of Michigan $23,732 $94,928 Michigan State University $22,354 $89,416 Central Michigan University $20,330 $81,320 Western Michigan University $19,628 $78,512 Eastern Michigan University $18,603 $74,412 MI college costs are in state tuition and fees + room and board expenses. All other costs are out-of-state tuition and fees + room and board expenses. * Inflation not factored in. Source: annual college costs fall

6 02 529s: How They Work 6

7 Ways to Pay for College Income or Cash Flow Personal Loans or Refinance Home Financial Aid or Grants Student Loans Scholarships (academic or athletic) Savings 529s: Savings & investment plans such as MI 529 Advisor Plan Pre-paid tuition plans Taxable: Savings Accounts, Money Market Funds, UGMAs and UTMAs Tax-Advantage: Coverdells (Education IRA) 7

8 529 Plan Benefits Tax-free growth of assets- potential for federal & state Tax-free qualified withdrawals 1 - federal & state Control and flexibility- account owner drives all the decisions from naming or changing the beneficiary (which has no age limit, and can be changed at any time 2 ) to deciding how to invest and distribute the assets Possible state tax deduction- varies depending on state No maximum income limitations No growth potential limitations Creditor protection- May exist for federal and state 3 1. Qualified higher education expenses are defined to include tuition, fees, and the costs of books, supplies and equipment required. 2. You can change the designated beneficiary of the account, but in order to avoid federal income tax consequences the new designated beneficiary must be a member of the family of the prior designated beneficiary, as that term is defined in the disclosure statement and participation agreement. 3. Funds contributed to an account at least 365 days prior to a bankruptcy filing will be excluded from the debtor s bankruptcy estate and may be protected from creditor claims if the beneficiary was a child, stepchild, grandchild, or step-grandchild of the debtor for the year of contribution. 8

9 Tax Law Considerations Investment changes- are limited to 2x per calendar year Rollovers of accounts- while keeping the same beneficiary is limited to only 1x per 12 months Changing beneficiary- allowed at any time (investments may also then be changed) Gift tax limits- funding each account is subject to an annual $14,000 gift tax exclusion ($28,000 for joint filers) Tax-free gift laws- allows you to use five years of annual exclusions at once of up to $70,000 ($140,000 for joint filers) per beneficiary Gifted contributions- are removed from the contributors taxable estate (Withdrawals made to account owner may result in assets returning to their estate) Not permitted to be a security for a loan 1. However, if the Donor dies before the first day of the fifth calendar year, the portion of the contribution must be added back to the Donor s estate for tax purposes. 9

10 Benefits of 529 Savings/Investment Plans Myths Account is in custody for child/future student Beneficiary decides how account is to be used Account can only be used for college of such child If beneficiary does not use assets from the account, assets are forfeited Reality Account ALWAYS belongs to, and is under control of the account owner Owner determines how the account is to be invested Owner determines when and whether to withdraw from or to close the account 1 Owner may change beneficiary at any time 2 1. Account closing could result in the obligation to pay tax and a 10% penalty on earnings withdrawn to the extent funds are not applied toward qualified expenses during the same tax period. 2. You can change the designated beneficiary of the account, but in order to avoid federal income tax consequences the new designated beneficiary must be a member of the family of the prior designated beneficiary, as that term is defined in the disclosure statement and participation agreement. 10

11 How Do 529 Plans Affect Needs-based Financial Aid Opportunities? Federal Student Aid Formula Used Nationwide: Parental Income and Assets Student Income and Assets EFC 44% (of Adj. Gross Income) 6% (of Non-retirement Assets) 50% (of Income over $3,000) 20% (of All Assets) Expected Family Contribution Note: Expected Family Contributions for grandparents, aunts and uncles=0%. Source: U.S. Department of Education. 11

12 What If the Assets Are NOT Used for Higher Education Expenses? Owner may change the beneficiary to other sibling(s) or family member Take a non-qualified withdrawal and pay income taxes and penalty (10%) on earnings portion withdrawn Allow the account to grow on tax-deferred status Remember, the account owner never loses control of the asset 12

13 Federal Tax Treatment of Withdrawals Withdrawals are on a pro-rata basis based upon account value Only the earnings portion of a non-qualified withdrawal is subject to income tax and 10% penalty The earnings portion of a non-qualified withdrawal is subject to the tax rate of the individual the funds are distributed to (Account owner or beneficiary) Account will grow tax-deferred until time of withdrawal Note that the investment return and principal value of an investment in a 529 Plan investment portfolio will fluctuate and an investor s units, when redeemed, may be worth more or less than their original cost. 13

14 Taxation of Non-Qualified Withdrawal For example, assume an initial contribution of $100,000 that has grown to $200,000. The account owner would like to execute a distribution of $15,000 paid out to the beneficiary. $100,000 $200,000 $15,000 $7,500 ROP $7,500 is taxed at ordinary income (10% assumed) and a 10% penalty $7,500 x.20 = $1,500 total taxes due for this non-qualified withdrawal for the beneficiary Remember, a non-qualified withdrawal from a 529 plan is taxed at the recipient s tax level. If a partial withdrawal is made, it is calculated by using a Return-Of-Principal (ROP) calculation. Taxes and tax rates are based on the 2014 tax year. These figures do not reflect any tax deductions or credits which could reduce the taxes due. 14

15 Transfers You can fund a 529 savings plan with the proceeds from an UGMA/UTMA (custodial) account. Caveats: Capital gains tax may apply in calendar year of liquidation; speak with your tax advisor The beneficiary of a 529 plan account funded with proceeds from a custodial account cannot be changed. Conversion to beneficiary s ownership at age of majority, based on the originating state s laws and regulations. 15

16 03 MI 529 Advisor Plan 16

17 Access to premier fund families MI 529 Advisor plan offers a robust investment menu four different investment management firms, including: Certain investment management firms that manage underlying mutual funds in the Program NFJ Investment Group and PIMCO are affiliated with the Program Manager. 17

18 Investment Options Offers three different types of investment options With 529s, you can reallocate existing assets in your account twice every calendar year, or whenever you change the account s designated beneficiary. Investment products are subject to various risks as described in the Plan Disclosure Statement under Risk Factors. Please read the Statement carefully before you invest or send money. 18

19 Investment Options Ages 0-8 Aggressive Growth Option 1. Age-Based Investment Portfolios Ages 9-11 Growth Ages Growth and Income Ages Balanced Ages Income Ages 19+ Capital Preservation Investment products are subject to various risks as described in the Plan Disclosure Statement under Risk Factors. Please read the Statement carefully before you invest or send money. 19

20 Investment Options Option 1. Age-Based Investment Portfolios Start with a portfolio allocated according to the child s age. As the child gets older, the account is automatically reallocated with a progressively heavier weighting toward bond and money market funds, positioning your account for income and capital preservation at the time you need to pay for college costs. Asset Allocation Models by Allianz Global Investors U.S. LLC. Investment products are subject to various risks as described in the Plan Disclosure Statement under Risk Factors. Please read the Statement carefully before you invest or send money. 20

21 Investment Options Option 2. Static Investment Portfolios Select from two fund of fund portfolios that allow you and your financial advisor to tailor your account to suit your personal risk tolerance. Each of these portfolios are centered on a particular asset allocation strategy that does not change with the age of the beneficiary. Asset Allocation Models by Allianz Global Investors U.S. LLC. Investment products are subject to various risks as described in the Plan Disclosure Statement under Risk Factors. Please read the Statement carefully before you invest or send money. 21

22 Investment Options If you and your financial advisor prefer to construct your own asset allocation, or supplement other options, you may select among the funds below. Available in a variety of asset categories Option 3. Individual Investment Portfolios May pick one or more Portfolios May be used alone or to supplement either Static and/or Age-Based Portfolios Please consult your financial advisor for a more detailed description of any specific offering. *TIAA-CREF Money Market Fund is not insured or guaranteed by the FDIC or any other government agency, and although these funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in money market funds. Asset Allocation Models by Allianz Global Investors U.S. LLC. Investment products are subject to various risks as described in the Plan Disclosure Statement under Risk Factors. Please read the Statement carefully before you invest or send money. 22

23 Learn More Get more details about the Plan online including: Monthly performance data for all portfolios Once established, account information can be accessed online Additional marketing materials and support from Allianz Global Investors 23

24 Disclosure Read the Plan Disclosure Statement Investors should consider the investment objectives, risks, charges and expenses of the Plan before investing. This and other information is contained in the current Plan Disclosure Statement. Before investing, investors should read the Plan Disclosure Statement carefully, and consider whether their state of residency or their intended Designated Beneficiary s state of residency offers any benefit, such as a state tax deduction, or any other benefits that are only available for investments in that state s 529 savings program Please note that 529 plans may have certain fees and expenses including but not limited to annual maintenance fees, sales charges, deferred sales charges, administration and management fees, and underlying fund expenses. Please consider these fees as well as the investment risks when investing in a 529 plan. Issuer/ Program Manager / Administer and Distributor The MI 529 Advisor Plan is issued by the State of Michigan, is managed by TIAA-CREF Tuition Financing, Inc., and administered and distributed by Allianz Global Investors Distributors LLC. State Tax Benefits and Limitations Before investing, an individual should consider whether their state of residency -- or their intended Designated Beneficiary s state of residency -- offers a benefit such as a state tax deduction, or any other benefits, that are available for investments only in that state's 529 savings program. This presentation does not constitute tax advice and investors should consult their tax advisors prior to making contributions to a 529 plan. Copyright Allianz Global Investors

25 Give a child the freedom to dream with MI 529 Advisor Copyright Allianz Global Investors 2015 MI-Pres-1115 AGI