Fixed income overview part 2 Flashcards
Prepaid tuition unit plans
sold per unit basis owners purchase units each year that represent a fixed percentage of a years tuition. No limit on the number of units that can be purchased each year
Prepaid Tuition Contract Plans
allow a purchaser to buy a contract which covers a specified number of years of tuition. payments may be installments or lump sum and differ based on the age of the future student.
Prepaid tuition and inflation
A prepaid tuition plan provides a hedge against inflation.
Prepaid tuition and out of state schools
Typically the plan will pay to the out of state school what would have been paid to an in state school.
EGTRA
The economic growth and tax relief act of 2001. allows private colleges to issue prepaid tuition plans.
Prepaid tuition plan residence
Either the beneficiary or owner can be a state resident. doesn’t require that both be.
529 Plans
Holdings
They invest in everything including stocks
529 Plans
Investment risk strategies
Many plans offer conservative, moderate and aggressive funds. As the child ages people tend to move from aggressive to moderate. some plans shift automatically
College savings plans contribution limits
Most states limit contribution to the cost of providing seven years of post secondary education.
account owner
college savings plans vs. 529 plans
The contributor establishing the account is the owner of a 529.
The child is the owner of a college savings plan
529 plans
state residence
State residency is not a requirement
funds can be used to attend any state college regardless of the state the 529 plan was opened in.
529 plans
Contributions and taxation
some states may offer deductions of contributions.
Federally the contributions are taxed.
529 Plan Contribution types
only cash may be contributed to a 529
529 Plans and tuition assistance
College savings plans assets don’t reduce financial aid.
529 plan usage
While the funds can be used to pay for qualified education expenses they can also be used to purchase prepaid tuition units….
529 plan
treatment of non qualified withdrawals
it’s a ratio. The percentage returned as principal is non taxable. The percentage deemed not principal is subject to taxes and a 10% penalty
529 plan 10% penalty waivers
- death
- disability
- receipt of a scholarship payment or allowance…..
529 Plan state taxes
Out of state plans
earnings from out of state programs are usually taxable..
529 plan room and board
- living at home = the costs are defined as the amount determined by the institution
- residing in student housing =standard allowance based on most of the schools residents normally charged. If the actual exceeds this calc the actual amount is allowed
- all other students = those expenses reasonably incurred
529 distributions reporting
must be sent by 1/31
529 plan beneficiary death
- distribution to the deceased bene’s estate
- distribution to the contributor
- a new beneficiary that is related to the decedant….
No exemption from estate taxes if paid to the beneficiaries estate
529 plan rollover limits
plan to plan rollovers are limited to one per 12 months.
rollovers changing beneficiaries have no limit.
coverdell
2000 contribution limit, education from k thru secondary.
If not used by age thirty it must be distributed and is subject to penalty…
college education tax credit
4000
