Invest in their future

Transcription

1 Putnam 529 for America Invest in their future DAVID KEELY, Financial Advisor VALIC AIG

2 College costs rising at a pace faster than inflation Tuition 60% CPI 41% Source: Trends in College Pricing Data, The College Board, Tuition is represented by the average cost of private non-profit four year tuition and public non-profit four-year tuition. 2

3 The first step in planning is knowing how much you may need Four years of tuition and fees (including room and board) TODAY $39,880 $141,040 $39, YEARS $141,040 $184,000 $303,000 4 in 10 adults under the age of 30 have student loan debt (37%) Average monthly student loan payment (for borrowers ages 20 to 30 years): $351 Public college (in-state) Private college Sources: The College Board, 2017, and CNBC,

4 Attending college still offers life-long benefits Higher median after-tax earnings Full-time year-round workers age > 25, by education level, Lower unemployment 2 High School Diploma $29,200 High School Diploma 4.00% Bachelor's Degree $46,900 Bachelor's Degree or Higher 2.10% More civic Involvement % individuals who perform unpaid volunteer activities, among adults age >25 in Healthy lifestyle Among adults age 25 to 34 who reported exercising vigorously at least once a week in High School Diploma 16% High School Diploma 45% Bachelor's Degree 39% Bachelor's Degree 69% Sources: (1) College Board Education Pays 2016; U.S. Census Bureau, Income, Poverty, and Health Insurance in the United States, 2015, Table PINC-03; Internal Revenue Service, 2014; Davis et al, 2015 (2) U.S. Census Bureau, Basic Monthly Current Population Survey, January through December, 2005, 2010, and 2015; calculations by the authors. (3) Bureau of Labor Statistics, Volunteering in the United States 2015 (4) NCHS, National Health Interview Survey, 2014; calculations by the authors 4

5 How are families actually paying for college? Many sources exist to help fund expenses How the typical family pays for college, funding source share, year over year Student borrowing 35% 19% 8% Parent borrowing Parent income and savings Student income and savings 4% 11% 23% Before taking loans, consider options like savings, current income, scholarships, grants, gifts, and tax credits to help reach your goal. The amount families paid for college in is similar to , but the proportion of funding drawn from each source type shifted. Combined student income, savings, and borrowing contributions increased to nearly the share contributed by parents. Source: SallieMae,

6 Make the most of your investments

7 $500 monthly contributions at a hypothetical 6% annual growth rate Your savings accumulate faster because the account is not taxed $193,677 Hypothetical 529 account value $81,940 $163,477 Hypothetical taxable account value $34,885 $33,446 $75,007 5 YEARS 10 YEARS 18 YEARS This example assumes contributions of $500 per month, a hypothetical 6% nominal rate of return compounded monthly with an effective return of 6.17%, and a 28% tax bracket for the taxable account. Performance shown is for illustrative purposes and is not related to an actual investment. Regular investing does not ensure a profit or protect against loss in a declining market. Capital gains, exemptions, deductions, and local taxes are not reflected. Certain returns in a taxable account are subject to capital gains tax, which is generally a lower rate than ordinary income tax rates and would make the investment return for the taxable investment more favorable than reflected on the chart. Investors should consider their personal investment horizon and income tax brackets, both current and anticipated, when making an investment decision. These may further impact the results of the comparison. 7

8 Start early, contribute often The Jones family starts saving today, contributing $340 every month $73,440 Total contribution $89,714 Earnings $163,154 Account value after 18 years The Smith family waits 10 years to start saving, contributing $1,219 every month $117,024 Total contribution $46,130 Earnings $163,154 Account value after 8 years This chart is for illustrative purposes only and is not intended to be representative of past or future performance. The Jones family saves $340 monthly for 18 years. The Smith family saves $1,219 monthly for 8 years. Assumes a hypothetical 8% annual return compounded monthly. 8

9 Let the whole family contribute The Jones grandfather makes an initial contribution of $15,000 $63,816 Total contribution The Jones parents contribute $226 every month $107,692 Earnings $171,508 Account value after 18 years This chart is for illustrative purposes only and is not intended to be representative of past or future performance. The Jones grandfather makes a lump-sum contribution of $15,000 today. The Jones parents contribute $226 each month. Assumes a hypothetical 8% annual return compounded monthly. 9

10 Comparing the traditional ways to save for college No limitations on income 529 savings plan UGMA/UTMA Coverdell Roth IRA You can change the beneficiary Control of withdrawals will not shift to child Can be used for any eligible institution of higher education You can decrease your taxable estate and retain control over the assets 10

11 529 plans are powerful for college savings Allow for tax-free growth and withdrawals No federal income taxes on earnings while the account is invested No federal income taxes when the money is withdrawn to pay for qualified expenses Non-qualified withdrawals subject to income taxes and 10% penalty on earnings Contributions made after-tax Tax cuts and Jobs Act of 2018 broadened use of funds Proceeds from an account can be used at any accredited college to pay for tuition, fees, room and board, books, and other qualified expenses After December 31, 2017, up to $10,000 per year per student may be used to pay for tuition at elementary or secondary public, private, or religious schools Other 529 benefits Control of the account will not shift to the child as with custodial accounts Can change the beneficiary at any time 529 plans receive favorable treatment for federal financial aid No age or income limits May contribute regardless of income level and age of beneficiary Annual contribution limit $15K single/$30k married filing joint Special exclusion allows for five years of gifts to be contributed at once 11

12 Additional 529 plan benefits offer the flexibility you need Rollovers from one 529 plan to another are allowed once every 12 months or upon change of a beneficiary UGMAs may be rolled into a 529 plan for tax-free growth of assets Still considered a irrevocable account beneficiary will become owner at age of majority Taxes on UGMA account must be paid on earnings prior to rollover Options are available if the child does not attend college Change beneficiary to another member of the family Change beneficiary to your self to continue education Withdraw the funds and pay taxes on earnings portion plus 10% penalty Investment changes allowed twice per calendar year or when the beneficiary is changed on an account. 12

13 How is Putnam s 529 different? Sponsored and administered by the State of Nevada since 2010 Putnam has experience as a program manager of 529 plans since 2000, and our customer service has been recognized with DALBAR awards for 28 consecutive years. Maximum account contribution limit of $370,000 No minimum initial contribution (currently being waived) No enrollment fee 13

14 A wide range of investment choices Age-based portfolios Goal-based portfolios Individual fund options from Putnam and other firms Putnam Absolute Return Funds 14

15 AGE-BASED ASSET ALLOCATION Age-based portfolios Actively managed and adjust over time; designed to be more conservative as the child approaches college age 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% AGE Stocks Bonds Cash Asset allocations shown are target allocations. Actual allocations may vary. The age-based and goal-based options invest across four broad asset categories: short-term investments, fixed-income investments, U.S. equity investments, and non-u.s. equity investments. Within these categories, investments are spread over a range of asset allocation portfolios that concentrate on different asset classes or reflect different styles. Each age-based option has a different target date, which is based on the year in which the beneficiary of an account was born. The principal value of the funds is not guaranteed at any time, including age-based options closest to the college age. 15

16 Goal-based portfolios Actively managed and keep the same allocation mix, regardless of the child s age 6% 15% 34% 60% 85% 100% Balanced Option Growth Option Aggressive Growth Option Stocks Bonds Cash Putnam 529 GAA Growth Portfolio Putnam 529 Balanced Portfolio Putnam 529 GAA Growth Portfolio Putnam 529 All Equity Portfolio Invests in the Putnam 529 GAA All Equity Portfolio Putnam 529 Money Market Portfolio Allocations shown are target allocations; actual allocations may vary. See the offering statement for details. 16

17 Individual investment options allow you to build a custom portfolio with a broad range of choices Stocks Putnam Equity Income Fund Option Putnam Growth Opportunities Fund Option Putnam Small Cap Value Fund Option MFS Institutional International Equity Fund Option Principal MidCap Fund Option SSGA S&P 500 Index Fund Option Bonds Putnam High Yield Investment Option Putnam Income Fund Option Federated U.S. Government Securities Fund: 2 5 years Option Cash Capital preservation money market: Putnam Government Money Market Fund Option* * Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund. Money market funds are not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other governmental agency. The plan involves investment risk, including the loss of principal. 17

18 Putnam Absolute Return Funds These funds are designed to help you meet your college savings goals with potentially lower volatility than more traditional mutual fund investments. Your financial advisor can help you choose the fund that suits your goal. Putnam Fixed Income Absolute Return Fund invests in a combination of fixed-income and cash securities for investors seeking a lower level of risk than traditional bond funds Putnam Multi-Asset Absolute Return Fund invests in a combination of stocks and fixedincome securities for investors seeking a lower level of risk than traditional equity funds The funds strategies are designed to be largely independent of market direction, and PPT110_529 the funds are 8/18not intended to outperform stocks and bonds during strong market rallies Consider these risks before investing: Our allocation of assets among permitted asset categories may hurt performance. The prices of stocks and bonds in the funds portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including both general financial market conditions and factors related to a specific issuer or industry. Our active trading strategy may lose money or not earn a return sufficient to cover associated trading and other costs. Our use of leverage obtained through derivatives increases these risks by increasing investment exposure. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Interest-rate risk is greater for longer-term bonds, and credit risk is greater for belowinvestment-grade bonds. Unlike bonds, funds that invest in bonds have ongoing fees and expenses. Lower-rated bonds may offer higher yields in return for more risk. Funds that invest in government securities are not guaranteed. Mortgage-backed securities are subject to prepayment risk. International investing involves certain risks, such as currency fluctuations, economic instability, and political developments. Additional risks may be associated with emerging market securities, including illiquidity and volatility. Our use of derivatives may increase these risks by increasing investment exposure (which may be considered leverage) or, in the case of many over-the-counter instruments, because of the potential inability to terminate or sell derivatives positions and the potential failure of the other party to the instrument to meet its obligations. The funds may not achieve their goal, and they are not intended to be a complete investment program. The funds effort to produce lower-volatility returns may not be successful and may make it more difficult at times for the funds to achieve their targeted return. In addition, under certain market conditions, the funds may accept greater volatility than would typically be the case, in order to seek their targeted return. For the Putnam Multi-Asset Absolute Return Fund, these risks also apply: REITs involve the risks of real estate investing, including declining property values. Commodities involve the risks of changes in market, 18 political, regulatory, and natural conditions. Additional risks are listed in the funds prospectus. You can lose money by investing in the funds.

19 Getting started is easy

20 Contribution overview How much can you contribute? No minimum investment Contributions can occur until the account value reaches $370,000* Contribute five years worth of gifts in a single year Many ways to contribute Invest a lump sum Establish a dollar cost averaging program Establish a systematic investment program from your bank Encourage contributions with gift certificates A gift of $75,000 in 2018 would constitute five years worth of gifts. Additional gifts made for the same beneficiary in the same five-year period would be subject to federal gift taxes. Election is made by filing a federal gift tax return. If the electing contributor dies during the 5-year period, amounts allocable to year after death are inducible in the contributor s gross estate. * Contribution limit as of 1/1/18. Subject to periodic review. 20

21 Withdrawals are easy When you re ready to withdraw your savings, simply fill out a single form, indicate how the check should be made out, and mail the form to Putnam. The money can then be sent to the account owner, to the beneficiary, or directly to the college or university the student is attending. Withdrawals of earnings not used to pay for qualified higher education expenses are subject to tax and a 10% penalty. State taxes may apply. 21

22 Stay up-to-date on 529 resources and news Visit our website for collegeplanning resources and to explore Putnam 529 for America. putnam.com/529 Go to our Wealth Management blog for insight on handling the rising costs of college. putnamwealthmanagement.com 22

23 Get started today Contact: David Keely, Financial Advisor Call:

24 This material is for informational and educational purposes only. It is not a recommendation of any specific investment product, strategy, or decision, and is not intended to suggest taking or refraining from any course of action. It is not intended to address the needs, circumstances, and objectives of any specific investor. Putnam, which earns fees when clients select its products and services, is not offering impartial advice in a fiduciary capacity in providing this sales and marketing material. This information is not meant as tax or legal advice. Investors should consult a professional advisor before making investment and financial decisions and for more information on tax rules and other laws, which are complex and subject to change. Putnam 529 for America is sponsored by the State of Nevada, acting through the Trustees of the College Savings Plans of Nevada and the Nevada College Savings Trust Fund. Anyone may invest in the plan and use the proceeds to attend school in any state. Before investing, consider whether your state's plan or that of your beneficiary offers state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that may not be available through Putnam 529 for America. If you withdraw money for something other than qualified higher education expenses, you will owe federal income tax and may face a 10% federal tax penalty on earnings. Consult a tax advisor. You should carefully consider the investment objectives, risks, charges, and expenses of the plan before investing. For an offering statement containing this and other information about Putnam 529 for America, call Putnam's dedicated 529 hotline at PUTNAM529. You should read the offering statement carefully before investing. Putnam Retail Management, principal underwriter and distributor. Putnam Investment Management, investment manager Putnam Retail Management, principal underwriter and distributor Putnam Investment Management, investment manager 24

25