Planning for a Child’s Education Jerome Brooks David Sevy Tobi Vincent

The approximate future cost to fully fund four years of college expenses for a newborn at a private university!

Why we chose this topic… We all have children ages 18 months or less Whatever principle of intelligence we attain unto in this life, it will rise with us in the resurrection. D&C 130:18

Understanding the costs Key factors to consider Key factors to consider What type of school your children will be attending – public or private What type of school your children will be attending – public or private What percentage of the funding will you supply as a parent What percentage of the funding will you supply as a parent How many children you will be sending to college How many children you will be sending to college How many years until your children reach college age How many years until your children reach college age

Education costs continue to rise 5.8%5.3%9.6% Average annual increase in education costs

Education Funding Options Qualified Tuition Program Qualified Tuition Program ESA – Coverdell Education Savings Account ESA – Coverdell Education Savings Account UGMA – Uniform Gift to Minors Act UGMA – Uniform Gift to Minors Act UTMA – Uniform Transfer to Minors Act UTMA – Uniform Transfer to Minors Act U.S. Savings Bonds U.S. Savings Bonds IRA IRA Hope Scholarship Credit Hope Scholarship Credit Lifetime Learning Credit Lifetime Learning Credit

Qualified Tuition Programs College Savings Plan College Savings Plan Maximum contribution above $100,000 Maximum contribution above $100,000 Anyone can contribute Anyone can contribute May be state or local tax deductible May be state or local tax deductible Grows tax deferred Grows tax deferred Tax-free distributions for qualified purposes Tax-free distributions for qualified purposes Prepaid Tuition Plan Prepaid Tuition Plan Guaranteed to rise at the same rate as tuition Guaranteed to rise at the same rate as tuition Best if used for in-state, public institutions Best if used for in-state, public institutions Can be used only for tuition Can be used only for tuition Can be transferred to other family members Can be transferred to other family members

ESAs Coverdall Education Savings Account Coverdall Education Savings Account Supplement for other education savings Supplement for other education savings Maximum contribution $2000 annual Maximum contribution $2000 annual For Children under 18 For Children under 18 Multiple people can contribute Multiple people can contribute Contribution are non-deductible Contribution are non-deductible Tax benefits Tax benefits Assets grow tax deferred Assets grow tax deferred Usually state tax deductible Usually state tax deductible Withdrawn tax-free for K-12 and college Withdrawn tax-free for K-12 and college

What is a custodial account? An account set up by a “custodian” for the benefit of a third party UGMA UGMA Uniform Gift to Minors Uniform Gift to Minors UTMA UTMA Uniform Transfer to Minors Uniform Transfer to Minors Savings fund is placed in the name of the child Savings fund is placed in the name of the child

Why use an UGMA/UTMA? Using your name Using your name Advantages Advantages Complete control Complete control Funds can be used for other goals Funds can be used for other goals Disadvantages Disadvantages Doesn’t use child’s tax rate Doesn’t use child’s tax rate Reduced contribution to personal retirement plans Reduced contribution to personal retirement plans Using your child’s name Advantages Lower taxes for earnings No contribution limits Disadvantages Child may not pursue education Assets are irrevocable Child takes full control at age of minority May limit child’s opportunity for financial aid

Tax credits and deductions Hope Scholarship Tax Credit Hope Scholarship Tax Credit $1,500 tax credit per year per student $1,500 tax credit per year per student First two years of college First two years of college Modified AGI $80,000 to $100,000 jointly Modified AGI $80,000 to $100,000 jointly Lifetime Learning Credit Lifetime Learning Credit $2,000 maximum per return $2,000 maximum per return Unlimited number of years Unlimited number of years Modified AGI $83,000 jointly Modified AGI $83,000 jointly

Financial Aid Approximately 55% of students rely on some type of financial aid Approximately 55% of students rely on some type of financial aid Options Options Grants Grants Subsidized loans Subsidized loans Merit based scholarships Merit based scholarships Work-study programs Work-study programs

In Conclusion To fully fund the education of a newborn, you will need approximately $286,000! To fully fund the education of a newborn, you will need approximately $286,000! Start planning early to ensure… Start planning early to ensure… A secure future for your child A secure future for your child Peace of mind for yourself Peace of mind for yourself Financial rewards for both of you Financial rewards for both of you Social benefits for everyone Social benefits for everyone

Where can I learn more? E*trade E*trade Fidelity Investments Fidelity Investments Salomon Smith Barney Salomon Smith Barney Firstrade Firstrade Your bank Your bank Your personal investment planner Your personal investment planner