10 Commandments of College Savings

8/6/2019 10 Commandments of College Savings

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New Amsterdam Life, Inc. Copyright 2011 All Rights Reserved



Did You Know?

• Since 1978, the price of tuition at UScolleges has increased over 900%

• The 10-year average annual tuition

increase is approximately 6% – In 2028, the cost of a 4 year private college

would be $340,800 – In 2028, the cost of a 4 year public

university would be $95,000• These numbers do not include room andboard, books, supplies, equipment ortransportation!



Did You Know?



Did You Know?

•

Total U.S. student loan debt will top $1trillion in 2011 – more than total U.S.credit card debt

•

•



Did You Know?

•

Under federal law, student loans usuallyCANNOT be discharged in a bankruptcy

• Within 3 years of graduation, more than 1out of 8 students have DEFAULTED on

their student loans!•

•

•



Know Your Options

2 9 P la n s-re Pa id Tu itio n P la n s

o v e rd e ll P la n s

,e w a rd s R e b a te Pro g ra m s,a v in g s B o n d s C D s

/a n k B ro ke ra g e A cco u n ts

o m e E q u ity

e tire m e n t S a v in g s

v e n ile Life In su ra n ce



What is a 529 Plan?• A 529 plan is a tax-advantaged savings

plan designed to encourage saving forfuture college costs.

• There are two types of 529 plans: – Prepaid Tuition Plans

– 529 College Savings Plans



Advantages of Pre-Paid TuitionPlans

• Lock in tuition at current rates

• Better rate of return than bank

savings accounts or CDs• No risk to principal, guaranteed by

the state

• Anybody can contribute, includinggrandparents and friends of thefamily



• Weak return on investment

• Non-qualified withdrawals are taxed asordinary income, plus a 10% tax penalty.

• Lacking creditor protections (forowner/beneficiary)

• Account owner/beneficiary must be a stateresident

• Lower maximum contributions

• Limited to tuition and fees (not room andboard)

• Tax benefits typically limited to in-state

D isa d v a n ta g e s o f Pre p a id

Tu itio n P la n s



Advantages of 529 CollegeSavings Plans

•

Tax-deferred growth and tax-freewithdrawals

• State income tax deductions in many

states (e.g., NY)• Favorable estate and gift tax

treatment

•

Low impact on financial aid eligibility• High cumulative contribution limits

• No restrictions on choice of college

•

Flexible investment options



Disadvantages of 529 CollegeSavings Plans

• No lock on tuition rates

• Restricted use of funds for qualifiedexpenses

• Only for qualified institutions• Non-qualified withdrawals are taxed as

ordinary income, plus a 10% tax penalty.

•

Lacking creditor protections (forowner/beneficiary)

• No guarantees

• Market risk

• High expenses and sales charges



What are Coverdell Accounts?

• Coverdell accounts are trusts createdexclusively for the purpose of paying thequalified education expenses of the

designated beneficiary of the trust. Theyare exempt from federal taxation.

•

• Contributions are phased out for incomes

between $95,000 and $110,000 (singlefilers) or $190,000 and $220,000(married filing jointly).



Advantages of CoverdellPlans

• No investment limitations/restrictions

• Includes primary, secondary, and

postsecondary education expensesplus tuition, room and board,transportation and computers.



Disadvantages of CoverdellAccounts

•

• Contribution limit of $2000 per child, peryear

• Money must be used by the time the child

reaches age 30 or the earnings will betaxed as ordinary income plus a 10%penalty

• Contributions are not deductible on federalor state income tax, but earningsaccumulate tax-free.

• Contribution limits drop to $500 in 2013

•



Ten Commandments of CollegeSavings

. !ta rt N o w

. !a ke a B u d g e t

. e w a rd Y o u rse lf

. P la n fo r S ch o la rsh ip s

. P la n Fo r F in a n cial A id

. It Is C h e a p e r to S a ve T h an to B o rro w

. (It Is B e tte r to G iv e T h a n R e ce iv e a t

)e a st u n til 2 0 1 3. P lay It S afe

. ’D o n t P u t A ll Yo u r E g g s in O n e B a ske t

. !0 It Is N e ve r To o La te



The First CommandmentStart Now!

• The sooner you start, the less you'llneed to save each year in order toreach your goal.

• Investing a fixed amount of money atregular intervals (e.g., once a week,once a month) gets you the benefit

of dollar cost averaging• Assuming a 7% return on investment,

saving $200 a month from birth

would yield almost $80,000 by age



The Second CommandmentMake a Budget!

• Create a monthly budget that reflectsyour actual spending habits

• Try to identify living expenses youcan cut

• Any time you cut your expenses, usethe money toward savings

• Set a goal and track your progress



The Third CommandmentReward Yourself!

• BabyCenter

• UPromise

•

BabyMint• Cash Back Reward Credit Cards

• SAGE Tuition Rewards Program



The Fourth CommandmentPlan for Scholarships

• Create a scholarship folder of all academic andextracurricular accomplishments

• Speak to guidance counselor

• Check with employer, fraternal and religiousorganizations, military, schooladmissions/financial aid, scholarships.com

• Hope Scholarship Credit

– Federal income tax credit of up to $2,500

– Income limits apply

• Lifetime Learning tax credit

– Federal income tax credit of up to $2,000

–

Income limits apply



The Fifth CommandmentPlan for Financial Aid

• 2/3 of all full-time undergraduate studentsreceive some kind of financial aid. Evenif you think you won’t qualify, apply!

Visit fafsa.com• Average aid for a full-time undergraduate

student was about $11,500, including$6,000+ in grants that don’t have to be

repaid.• Types of Financial Aid:

– Scholarships and grants

– Student loans

– Federal Work-Study aid

The Sixth Commandment



The Sixth CommandmentIt is Cheaper to Save Than to

Borrow• When you save, the money earns interest;when you borrow, you're the one payingthe interest

•Borrow only what you need

• Shop Around

• If you must borrow, remember you candeduct up to $2,500 in interest – even if you don’t itemize

•

h h d



The Seventh CommandmentIt’s Better to Give Than Receive (Until

2013)• You can give up to $13,000 ($26,000 for a

married couple) per person per yearwithout incurring a gift tax or needing to

report the gift on a tax return• In 2011-2012, $5 million of assets can be

transferred out of an individual’s estatewithout any gift tax – dropping to $1

million in 2013• For 529 plans, you can give up to $65,000

per person in a single year ($130,000 fora married couple through gift-splitting)

without triggering a gift tax

T e E g t Comman ment



T e E g t Comman ment Don’t Put All Your Eggs in One

Basket• Diversify, Diversify, Diversify!

– Asset Class

– Asset Manager

• Very few managed funds outperform stockmarket indexes on a long-term basis

• Make a list of all your savings/investments

– Set reasonable financial goals

– Track performance

– Hold your financial professionalsaccountable



The Ninth CommandmentPlay It Safe!

• Begin with an aggressive strategy,and switch to a more conservativestrategy with new money when

college comes closer• Review/Rebalance your asset

allocation every year – don’t’ time

the market• You'll need to earn at least 7% to 8%

after taxes in order to keep up with

increases in college costs



The 10th CommandmentIt Is Never Too Late!

• It is never too late (and it is nevertoo early) to start saving for college– every dollar you save is a dollar

less you have to borrow• Don’t get caught up with school

rankings – your kids can get a

quality education without incurringa lifetime of debt



What is Juvenile LifeInsurance?

• Juvenile life insurance is a flexiblefinancial product that insures thelife of a child.

• Juvenile life insurance provides cashvalue accumulation, tax-advantaged growth and guaranteed

insurance for life.



Why Juvenile Life InsuranceFor College?

Huge tax advantages

Performance guarantees

Flexible contributions

Cash available at any time for any

purpose Less volatility

Does not impact federal financialaid

Anyone can contribute Creditor protections

Guaranteed insurance and lifetimesavings



New Amsterdam Life CollegeFirstSM Plan

•

$5 a day can grow to $51,634*• $10 a day can grow to $107,665*

• Provided by Penn Mutual (A+ rating)

• Families choose the College FirstSM Plan because

of: – Flexible payments

– Tax advantages

– Insurance for life

– Options

– Equity Exposure + PerformanceGuarantees

* Assuming 8% average annual returns





Questions? MoreInformation? ames Garfinkel

- - -866 881 6202.ames@newamsterdamlife com

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10 Commandments of College Savings