Bound for College. kysaves.com Enrollment Materials. With help from the Kentucky Education Savings Plan Trust

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1 Bound for College With help from the Kentucky Education Savings Plan Trust kysaves.com Enrollment Materials

2 A Future Full of Potential Table of Contents Why save for college?... 1 How it works Tax advantages can help your money go further Kentucky resident benefits Investment options Your questions answered Get started today!... 7 Earn more money. A person who goes to college usually earns more money in a year than a person who does not. High School Diploma Some College or Associate Degree $34,736 $39,527 Bachelor s Degree $57,252 Bachelor s Degree & Higher $62,036 Advanced Degree $72,072 $0 $20,000 $40,000 $60,000 $80,000 $100,000 * This information is based on the Bureau of Labor Statistics 2014 median earnings report for full-time workers of at least 25 years old. bls.gov kysaves.com

3 Why save for college? A college degree can help provide your child, grandchild or other loved one with expanded career opportunities and greater earning potential compared to having only a high school diploma. Paying for college, however, can require a significant financial commitment so it s best to plan ahead. When it comes to helping fund a higher education for your loved ones, it s important to develop a strategy, take advantage of savings incentives and start early. This is where the Kentucky Education Savings Plan Trust can be your college savings partner. What is the Kentucky Education Savings Plan Trust? Established in 1988 by the Kentucky General Assembly, the Kentucky Education Savings Plan Trust (KESPT) is the Commonwealth s state-sponsored 529 college savings plan. It is designed to help parents, grandparents, relatives and even friends invest in a loved one s future. Administered by the Kentucky Higher Education Assistance Authority (KHEAA), KESPT gives families an easy, affordable way to start a college savings plan. What you might need to pay for college. This chart illustrates average college costs including one year of tuition, fees, room and board, as reported by The College Board. TUITION, FEES, ROOM & BOARD, $32,762 $18,943 $42,419 Public Four-Year In-State Public Four-Year Out-of-State Private Nonprofit Four-Year *Source: 2014 Trends in College Pricing,

4 How it works. Less taxing on your savings. Assets invested in KESPT may grow faster than comparable taxable accounts because any earnings are free of federal and state income tax. You can withdraw the money tax free too, if it s used to pay for qualified higher education expenses. $66, Account $55,092 Taxable Account This hypothetical example illustrates the growth of an annual investment of $2,000 made at the beginning of each year for 18 years. It assumes there are no withdrawals of contributions and earnings. It also assumes a 30% combined federal, state and local income tax rate and an annual investment return of 6%. It is presented for illustrative purposes only to show the effect of compounding and tax deferral and does not represent the actual performance or predict the future results of KESPT or any investment portfolio in KESPT and does not reflect any reduction in expenses. Families want to save for college on their own terms, so there are many flexible features built into KESPT -- plus tax advantages to help ensure more of your money goes toward higher education expenses. It s affordable: You can open an account with as little as $25 (or $15 per pay period if your employer offers payroll deduction). You can make additional $25 contributions at any time or sign up for an automatic contribution plan to put your savings on auto-pilot. It s for anyone: A parent, grandparent, friend or relative can open an account for anyone else, even yourself. There are no restrictions on your income, and you don t need to be a Kentucky resident to open a KESPT account. Tax advantages: All 529 college savings plans are funded with after-tax dollars, but once invested, your contributions are not federal or state taxable as long as the account is used for qualified education expenses. Control: As the account owner, you name a beneficiary (future student) for the account and you control the account for as long as it exists. You also have the option to name a contingent owner to assume control of the account should something happen to you. In addition, you may choose to change the account owner to someone other than yourself at any time. It s transferable: If your student doesn t use all of the money or receives a scholarship, you can change the beneficiary to another eligible member of the family, such as a sibling, cousin, parent or child of the original beneficiary. (See the Disclosure Booklet for details.) Choice of schools: Funds in your account may be used at any accredited college, university or technical school in the United States and some abroad. It s not just for institutions in Kentucky. Use it for more than tuition: Funds in your account may be applied toward tuition as well as certain room and board expenses, fees and the cost of books. Supplies and equipment required for attendance are also covered. A range of investment options: Choose from six different investment options to help meet your savings objectives. Access to the money: If you need to use the money for something other than qualified education expenses, only the earnings portion is subject to federal and state income taxes and a 10% federal penalty. Experienced plan management: TIAA-CREF Tuition Financing, Inc. (TFI) serves as plan manager of KESPT. TIAA-CREF Tuition Financing Inc. is an affiliate of TIAA-CREF, a financial services organization with nearly a century of investment experience. 2 kysaves.com

5 Tax advantages help your money go further. In addition to tax-free treatment on any earnings and withdrawals, your KESPT account offers estate and gift tax benefits. Federal Estate and Gift Tax Benefits: Contributions to KESPT may reduce the taxable value of your estate. For example, money placed in a grandchild s KESPT account, together with all the other gifts you give that grandchild in one year, may qualify for a federal gift tax exclusion of up to $14,000 each year. Plus, you can take advantage of five years worth of tax-free gifts at one time. For example, couples filing jointly may contribute up to $140,000 per child in one year and single filers may contribute up to $70,000 for one child in one year. Completed gifts are removed from your estate for tax purposes, so more of your investment goes toward a child s education, not taxes. Consult your tax advisor about your own situation. It s Cheaper to Save than to Borrow. SAVE $32, BORROW $32, Calculate your college savings goals at kysaves.com. Check out the College Savings Planner at kysaves.com. The calculator enables you to run college cost scenarios based on variables provided by you, such as your child s timeframe and tuition costs at various schools. The calculator can estimate how much you need to meet those costs. The Planner includes a college cost database with approximately 3,800 colleges. Total out of pocket $24,000 $200/month Total out of pocket $43,884 $365.70/month This is a hypothetical example with a 6% assumed rate of return and 6% loan interest cost, compounded annually for 10 years. It is not intended to predict future performance of any specific investment. Source:

6 Kentucky resident benefits. How others can help. With KESPT s egifting feature, you can invite family and friends to make a secure contribution with just a few clicks when you log into your account online. Gift contributions can be made electronically or by mailing a check to the Plan using a special invitation sent by you. It s safe, secure and convenient. Besides all the standard features of a 529 college savings plan, KESPT offers some additional benefits that are unique to Kentucky residents: Qualify for In-State Tuition Rates If your account beneficiary moves to another state, he or she may still qualify for Kentucky in-state tuition rates. As long as there was a net contribution amount of $2,400 in the account at the end of a continuous 8-year period during which the beneficiary lived in Kentucky, in-state tuition rates would apply (with possible restrictions). See the Disclosure Booklet for additional information. Student Aid Eligibility KESPT accounts are not included when determining Kentucky need-based aid for a beneficiary. Other school or federal financial aid programs may consider KESPT assets in determining financial aid so be sure to contact the institution for details. 4 kysaves.com

7 Investment options. You can direct your contributions to any one or a combination of KESPT s six investment options. The investments vary in objective, strategy and degree of risk, enabling you to choose one or a combination of options that s suitable for you. Managed Allocation Option This investment option seeks to match up the investment objective and level of risk to the time horizon of your student by taking into account the age and the number of years before your beneficiary turns 18 and is expected to enter college. Underlying investments include mutual funds that invest in equities, both domestic and international, bonds amd real estate securities. Aggressive Active Equity Option This investment option seeks to provide a favorable long-term total return, mainly through capital appreciation, by investing in a combination of actively-managed equity mutual funds that invest in domestic and international equities, small and large cap stocks, and growth and value stocks. Equity Index Option This investment option seeks to provide a favorable long-term total return, mainly from capital appreciation, by investing in passively-managed domestic and international equity index mutual funds. Moderate Balanced Option This investment option seeks to provide favorable returns that reflect the broad investment performance of the financial markets through capital appreciation and investment income by investing in a balanced combination of fixed-income and domestic and international equity mutual funds. Conservative Fixed Income Option This investment option seeks to provide preservation of capital along with a moderate rate of return by allocating assets to mutual funds that invest in a diversified mix of fixed-income securities. Each investment has its own risks. Investments in growth stocks may be more volatile than other securities. Fixed income investing poses credit and interest risks; when interest rates rise, bond prices generally fall and an underlying fund s value can fall. Investment returns could be lower than tuition inflation. International investing involves special risks, such as currency, political, social and economic. As is the case with any investment in the market, the value of your account will fluctuate in different market conditions. Assess your risk tolerance. You can take a simple risk tolerance quiz at kysaves.com to help select one or a combination of investment options to help address your risk/return objectives. Guaranteed Option This investment option, as the name suggests, seeks to preserve capital and guarantee a return. The interest rate is reset every year on July 1 and is guaranteed for 12 months through June 30. Visit kysaves.com for the most current annual interest rate. This option may be appropriate for you if you have a short investment horizon and are looking for a conservative investment with a low level of risk. * The assets in this investment option are allocated to a Funding Agreement issued by TIAA-CREF Life to the Trust, which is the policyholder under the agreement. The Funding Agreement provides for a return of principal plus a guaranteed rate of interest and allows for the possibility that additional interest may be credited as declared periodically by TIAA-CREF Life. The interest rate guarantee is made to the Trust only. The rate of any additional interest is declared in advance for a period of up to 12 months and is not guaranteed for any future periods

8 Your questions answered. For employers. You can give your employees an added benefit, at virtually no cost to your company, by offering your employees the convenience of contributing to KESPT through payroll deduction. It s easy for you to administer and flexible for your employees. Call the Plan at for details or visit kysaves.com Who can open an account? Anyone can open an account regardless of income and state of residence. This includes parents, grandparents, friends or relatives. An account owner must be a United States citizen or resident alien of legal age with a valid Social Security Number or federal Taxpayer Identification Number. Who can be an account beneficiary? As the owner of the account, you can designate anyone as beneficiary even yourself. The beneficiary must have a valid Social Security Number or federal Taxpayer Identification Number. Only one person may be listed as beneficiary for each account. Can more than one person contribute to the account? Anyone can contribute to an account as long as the account balance does not exceed $350,000 per beneficiary. The account owner has sole control over the assets and decides when to withdraw them. 6 kysaves.com 4 Can I change the beneficiary? You can change your beneficiary at any time or transfer a portion of your investment to a different beneficiary. To avoid tax consequences, the new beneficiary must be an eligible member of the previous beneficiary s family a sibling, for example. See the Disclosure Booklet for more information.

9 What if my child or loved one decides not to attend college? In this case, you have three choices: Keep the funds in the account. The investments will be available in future years if the beneficiary changes his or her mind about school. Change the beneficiary to an eligible family member such as a child, parent, sibling or cousin. Make a non-qualified withdrawal. Only the earnings (if any) portion of your account will be subject to federal and state income tax, as well as an additional 10% federal tax. Will a KESPT account hurt my child s or loved one s chances for financial aid? If the parent is the account owner, the account assets will be treated as belonging to the parent for federal financial aid purposes. The amount of assets in your account considered is capped at 5.6%. If a dependent child is the account owner or the beneficiary of an account holding UGMA/UTMA assets, account assets are also treated as a parent asset for financial aid purposes. Financial aid policies vary across post-secondary institutions, so check with the institution directly for more information. What if my child or loved one receives a full or partial scholarship? If the student receives a scholarship that covers the cost of qualified higher education expenses, you can withdraw up to the scholarship amount free of the 10% additional federal tax. However, the earnings portion of the withdrawal is subject to federal and state income tax, assuming there are earnings. If I move out of state, what will happen to my account? If you move to another state you can still keep your money invested in your KESPT account, and you can continue contributing to it. Remember, before investing in another 529 college savings plan, consider whether the state in which you or your designated beneficiary resides has a 529 college savings plan that offers favorable state income tax or other benefits that are available only if you invest in that state s 529 college savings plan. Can I roll over funds from another 529 college savings plan into KESPT? Yes. You can transfer funds for the same beneficiary from another 529 plan once per calendar year without triggering federal or state income tax. Keep in mind that the 529 college savings plan from which you transfer funds may be subject to differences in features, costs and surrender charges. Consult your tax advisor or the other 529 college savings plan provider before requesting a rollover. Understanding non-qualified withdrawals. The earnings portion of a Taxable Withdrawal due to death, disability or receipt of scholarship or attendance at a Military Academy by the designated beneficiary is subject to only federal and state income tax. The earnings portion of a Non-Qualified Withdrawal, that is, a withdrawal not due to death, disability or receipt of scholarship or attendance at a Military Academy is subject to applicable federal and state income tax, plus a 10% federal tax. Of course, earnings are not guaranteed. 10 How do I make withdrawals? It s easy to withdraw funds when your beneficiary is ready for college. Withdrawals can be processed online, from your smartphone or by completing and submitting a Withdrawal Request Form. You can arrange to send the money directly to the school, to your bank account or to your beneficiary

10 Read the enclosed KESPT Disclosure Booklet prior to opening an account. Get started on your college savings strategy today! kysaves.com Enroll online at kysaves.com 1 Click Open An Account. Or you can enroll by mail Follow the prompts. Fill out and sign the enclosed application. Please fill out one application per student. Additional forms can be printed online or are available by request. Decide how to make your contributions. You can contribute by check, electronic funds transfer, rollover from another qualified tuition program or payroll deduction. You may also sign up for the automatic contribution plan. Mail your completed and signed application in the envelope provided. Once your information is received, your account will be opened and you will receive a confirmation of your investment. Questions? Call toll-free

11 Parents Get real answers about saving for college. Grandparents, Family & Friends Help your loved one have a brighter future. Employers and Financial Professionals Helping your employees and clients save for college helps you, too.

12 Consider the investment objectives, risks, charges and expenses before investing in the Kentucky Education Savings Plan Trust. Please visit kysaves.com for a Plan Disclosure Booklet, with this and more information. Read it carefully. Investments in the plan are neither insured nor guaranteed, and there is the risk of investment loss. Before investing in a 529 plan, consider whether the state in which you or your designated beneficiary reside has a 529 plan that offers favorable state income tax or other benefits that are only available if you invest in that state s 529 plan. The tax information contained herein is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax penalties. Taxpayers should seek tax advice from an independent tax advisor based on their own particular circumstances. Non-qualified withdrawals may be subject to federal and state taxes, and an additional 10% federal tax. TIAA-CREF Tuition Financing, Inc. is the Plan Manager C25676 A /15