How to Save for the Rising Costs of College

Transcription

1 How to Save for the Rising Costs of College

2 Today s Topics Understand the importance and value of saving for college Learn about different ways to save for college Explore the benefits of a 529 plan like Bright Start Get answers to frequently asked questions Explore creative ways to save Learn how to start saving for college today 2

3 3 College Costs are Rising

4 4 Education is an Investment for a Lifetime

5 Saving for College

6 Here are Some of the Most Common Ways to Save for College Coverdell Education Savings Account UGMA / UTMA Account Personal Savings Accounts (mutual funds or bank savings) 529 College Savings Account 6

7 7 College Savings Comparison

8 College Savings Comparison 1 The combined maximum account balance limit for limit for the Bright Start Direct-Sold College Savings Program and all other Section 529 programs established and maintained by the State of Illinois for a particular beneficiary cannot exceed $400,000. Although account balances can grow beyond that amount, no additional contributions can be made once the balance reaches $400, An individual who files an individual Illinois state income tax return will be able to deduct up to $10,000 per tax year (up to $20,000 for married taxpayers filing a joint Illinois state income tax return) for their total, combined contributions to the Bright Start Direct-Sold College Savings Program, the Bright Direction Advisor- Guided 529 College Savings Program, the Bright Start Advisor-Sold College Savings Program, and CollegeIllinois! during that tax year. The $10,000 (individual) and $20,000 (joint) limit on deductions will apply to total contributions made without regard to whether the contributions are made to a single account or more than one account. The amount of any deduction previously taken for Illinois income tax purposes is added back to Illinois taxable income in the event an Account Owner takes a Nonqualified Withdrawal from an Account or if such assets are rolled over to a non-illinois 529 plan. If Illinois tax rates have increased since the original contribution, the additional tax liability may exceed the tax savings from the deduction. 3 Contributions can be made for a beneficiary from birth to age 18. The account may remain open until the beneficiary reaches age 30, with certain limitations. 4 Custodianship typically terminates when a minor reaches age 18 or ESA eligibility phases out at $95,000 $110,000 adjusted gross income ($190,000 $220,000 for joint filers). Please check with your tax advisor for details and information regarding your specific situation. 8

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10 Welcome to Bright Start Bright Start is a Gold-rated 529 college savings plan dedicated to helping families in Illinois, and all over the country, save for college. No matter how you want to save, or where your child dreams of going to school, there s a path for you with one of the nation s best college savings programs.

11 Bright Start Overview Tax advantaged way to save for college Investments grow tax free Tax -free withdrawals for qualified college expenses Can be used at qualified colleges in Illinois and across the nation Contributions are Illinois state income tax deductible Morningstar Gold-rated program

12 Bright Start Overview Each account has one account owner and one beneficiary Account owner: owns and controls the account Beneficiary: is the future student (can be any age) Successor account owner: becomes owner in the event of the death of the account owner

13 Bright Start Tax Advantages Attractive Illinois state income tax benefits Illinois state income tax deduction for contributions up to: $10,000 for an individual filer $20,000 if married filing a joint return Tax -deferred growth on any earnings (federal and Illinois) Tax -free withdrawals for qualified higher education expenses 13

14 Tax-Free vs. Taxable Investment 40,000 Tax-Deferred Growth and Tax-Free Withdrawals $7,519 difference 30,000 20,000 10,000-5 years 10 years 15 years 18 years Taxable Tax-Free 14 *These scenarios are hypothetical. The example illustrates the accumulation potential with a $75 monthly contribution, an 8% projected average annual return, and a 30% combined federal and state tax rate. The above example is based on projections and does not reflect your actual investment in the Bright Start Direct-Sold College Savings Program. If fees were included, the returns would be lower. Your actual results may be more or less.

15 What is a qualified college expense? Qualified higher education expenses include: Tuition and fees Room & board (if enrolled at least half-time) Books, supplies and equipment required for enrollment Computer, related peripheral equipment, certain computer software, internet access Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible educational institution NOTE: K-12 expenses were added January 2018 at the federal level. States (including Illinois) are reviewing from a State law perspective. 15

16 Where can the funds be used? Public and private colleges and universities Vocational, trade, technical, and professional institutions And, even some foreign schools are eligible They need only meet the accreditation criteria and be eligible to participate in Federal Student Aid programs Visit BrightStartSavings.com and visit our FAQ page and click on Which schools are eligible institutions? to see if a specific school is covered 16

17 Bright Start Investments

18 18 Bright Start Fund Family

19 How to Invest With Bright Start Age-Based Options 6 Target Portfolios 14 Individual Fund Portfolios 19

20 Bright Start Age-Based Portfolios Age-Based Portfolios adjust how assets are invested as the child gets closer to college age Age-Based options: Aggressive Moderate Conservative Tracks Index Portfolios with Vanguard mutual funds Multi-Firm Portfolios that invest in multiple fund families 20

21 21 Moderate Age-Based Portfolios

22 Bright Start Target Portfolios Assets in a Target Portfolio stay fixed as the child gets closer to college age Select From: Equity Portfolio Balanced Portfolio Fixed Income Portfolio Index Portfolios with Vanguard mutual funds Multi-Firm Portfolios that invest in multiple fund families 22

23 23 Target Portfolios

24 Bright Start Individual Fund Portfolios Bright Start offers 14 Individual Fund Portfolios For investors that want to be more hands on An investor has the ability to create an investment strategy from our 14 Individual Fund Portfolios 24

25 14 Individual Fund Portfolios Money Market Vanguard Federal Money Market 529 Portfolio* Fixed Income Baird Short-Term Bond 529 Portfolio Vanguard Short-Term Inflation-Protected Securities Index 529 Portfolio Vanguard Total Bond Market Index 529 Portfolio Dodge & Cox Income 529 Portfolio Vanguard Total International Bond Index 529 Portfolio Real Estate Vanguard REIT Index 529 Portfolio U.S. Equity Vanguard 500 Index 529 Portfolio T. Rowe Price Large-Cap Growth 529 Portfolio Ariel 529 Portfolio DFA U.S. Targeted Value 529 Portfolio Vanguard Explorer 529 Portfolio International Equity Vanguard Total International Stock Index 529 Portfolio DFA International Small Company 529 Portfolio 25

26 Bright Start College Savings Program * You could lose money by investing in this investment option. Although the money market fund in which your investment option invests (the underlying fund ) seeks to preserve its value at $1.00 per share, the underlying fund cannot guarantee it will do so. An investment in this investment option is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The underlying fund s sponsor has no legal obligation to provide financial support to the underlying fund, and you should not expect that the sponsor will provide financial support to the underlying fund at any time. A Word About Risk: Keep in mind that you can lose money by investing in a portfolio. Each of the Age-Based, Target, and Individual Fund Portfolios involves investment risks, which are described in the underlying mutual fund prospectuses and the Program Disclosure Statement and should be considered before investing. For example, international investing, especially in emerging markets, has additional risks such as currency fluctuation, economic and political risks, and market volatility. Investing in small, medium, and international companies may increase the risk of fluctuations in the value of your investment and involves greater risks than investing in more established companies. Portfolios that invest in specific industries or sectors, such as real estate, have industry concentration risk. As an example, the portfolios that invest in real estate may perform poorly during a downturn in the real estate industry. Portfolios that invest in bonds are subject to risks such as interest rate risk, credit risk, and inflation risk. In particular, as interest rates rise, the prices of bonds will generally fall, which can impact performance. It is important to note that the value of your account will fluctuate with market conditions. When you withdraw funds, you may have more or less than your actual investment. For more information on the portfolios and the underlying funds in which they invest, see the underlying mutual fund prospectuses and Program Disclosure Statement. 26

27 FAQs Who is the account owner? Can I name more than one beneficiary? Does it matter where my child goes to college? What is the Illinois tax deduction? What if I have a 529 in another state? What if my student doesn t go to college or doesn t use all the funds? Are their ways to contribute other than sending a check? 27

28 Who is the account owner? Typically the parent or grandparent is named as the account owner. The account owner controls how the account is invested, names the beneficiary, determines when funds are distributed and to whom. The beneficiary (student) does not have control of the funds. The IRS allows one account owner per plan. We encourage the account owner to name a successor when establishing a plan. The successor would step in as the new account owner in a life-changing event. 28

29 Can I name more than one beneficiary? An account can only have one beneficiary, but you can open separate accounts for each of your children. Bright Start does not charge an account fee. The IRS also allows you to change the beneficiary to another member of the family. 29

30 Does it matter where my child goes to college? Bright Start is very flexible. Your student can go to college in Illinois, outside the state, and even some foreign schools qualify. You can check if a college is an eligible educational institution on our website: BrightStartSavings.com FAQs Which schools are eligible institutions? 30

31 What is the Illinois tax deduction? Contributions to Bright Start are deductible from your Illinois taxable income up to: $10,000 $20,000 if married filing jointly Make sure to contribute by December 31 st for current year benefits 31

32 What if I have a 529 in another state? Bright Start allows rollovers from another 529 plan. Make sure the out-of-state 529 plan does not have surrender or other penalty charges to move to Bright Start. As an added benefit: Illinois provides that the amount contributed to the out-of-state 529 plan is deductible when rolled over to Bright Start. 32

33 What if my student doesn t go to college or doesn t use all the funds? You can change beneficiary to a member of the family (i.e. brother, sister, mother, father, niece, nephew, first cousin see Program Disclosure Statement for complete listing) Leave the funds in the program, and name a new beneficiary at a later date Take the funds back if not used for college, considered a non-qualified withdrawal (earnings would be taxable and subject to an IRS 10% penalty) If the money is used for other purposes (i.e.: non-qualified withdrawal), the earnings portion is subject to federal and state income tax and a 10% federal penalty tax. Non-qualified withdrawals are subject to recapture of any previously claimed Illinois tax deductions. 33

34 Creative Ways to Save for College 1. MAKE IT ROUTINE Set up automatic monthly contributions directly from your bank account and yearly calendar reminders to increase your contribution SAVE WHENEVER YOU SHOP Earn 1.529% rewards on everyday purchases with the Bright Start 529 Visa Rewards card GIVE A GIFT THAT LASTS FOREVER Make your holiday shopping simple: give your student the gift of college savings with our GiftED program. 4. TURN A TAX REFUND INTO COLLEGE SAVINGS Bright Start can create attractive tax savings put that money back to work in your Bright Start Account. 5. SEND THEM TO SCHOOL TWICE When your little one heads off to kindergarten, redirect your daycare budget right into your 529 account. 34

35 Starting Early - assumed annual return at 5% 35 *This hypothetical example illustrates the accumulation potential with a $2,500 initial investment and a monthly contribution plan at a 5% projected average annual return. The above example is based on projections and does not reflect your actual investment in the Bright Start College Savings Program. If fees were included, the returns would be lower. Your actual results may be more or less. Dollar cost averaging cannot assure a profit or protect against loss in a declining market. Dollar cost averaging involves continuous investment regardless of price levels, investors should consider their ability to continue purchases through periods of low price levels.

36 Opening a Bright Start 529 Account

37 What you ll need to start your 529 account 1. Basic information Your Social Security or taxpayer identification number, date of birth, and address Social Security or taxpayer identification number, date of birth, and address for the beneficiary 2. Investment selection You can select one of our Age-Based Options Or you can select your own investment strategy with our Target and Individual Fund Portfolios 37

38 Ready to Start Saving? 1. Enroll online at BrightStartSavings.com 2. Or, request an Enrollment Packet 3. Contact us with questions: If you work with a financial advisor, ask them about the highly-rated Illinois Bright Directions Advisor-Guided 529 Program 38

39 Bright Directions State of Illinois advisor-guided 529 Available through investment professionals. For individuals looking for guidance and assistance from a financial professional Highest rating from Morningstar 3 years straight 39

40 Questions? Thank you!

41 The Morningstar Analyst Rating TM is not a credit or risk rating. It is a subjective evaluation performed by Morningstar s manager research group, which consists of various Morningstar, Inc. subsidiaries ( Manager Research Group ). In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission. The Manager Research Group evaluates funds based on five key pillars, which are process, performance, people, parent, and price. The Manager Research Group uses this five pillar evaluation to determine how they believe funds are likely to perform relative to a benchmark, or in the case of exchangetraded funds and index mutual funds, a relevant peer group, over the long term on a risk-adjusted basis. They consider quantitative and qualitative factors in their research, and the weight of each pillar may vary. The Analyst Rating scale is Gold, Silver, Bronze, Neutral, and Negative. A Morningstar Analyst Rating of Gold, Silver, or Bronze reflects the Manager Research Group s conviction in a fund s prospects for outperformance. Analyst Ratings ultimately reflect the Manager Research Group s overall assessment, are overseen by an Analyst Rating Committee, and are continuously monitored and reevaluated at least every 14 months. For more detailed information about Morningstar s Analyst Rating, including its methodology, please go to global.morningstar.com/managerdisclosures/ The Morningstar Analyst Rating (i) should not be used as the sole basis in evaluating a fund, (ii) involves unknown risks and uncertainties which may cause Analyst expectations not to occur or to differ significantly from what they expected, and (iii) should not be considered an offer or solicitation to buy or sell the fund Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. 41

42 Bright Start College Savings Program The Bright Start Direct-Sold College Savings Program is part of the Illinois Savings Pool and is designed to qualify as a qualified tuition program under the provisions of Section 529 of the Internal Revenue Code. The Bright Start Direct-Sold College Savings Program is sponsored by the State of Illinois and administered by the Illinois State Treasurer, as Trustee. Union Bank & Trust Company serves as Program Manager. Investments in the Bright Start Direct-Sold College Savings Program are not guaranteed or insured by the State of Illinois, the Illinois State Treasurer, Union Bank & Trust Company, the Federal Deposit Insurance Corporation, or any other entity. An investor should consider the investment objectives, risks, and charges and expenses associated with municipal fund securities before investing. This, and other important information, is contained in the fund prospectuses and the Bright Start Direct-Sold College Savings Program Disclosure Statement (issuer s official statement), which can be obtained at BrightStartSavings.com and should be ready carefully before investing. You can lose money by investing in a Portfolio. Each of the Portfolios involves investment risks, which are described in the Program Disclosure Statement. Before you invest, consider whether your or the beneficiary s home state offers any state tax or other benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state s 529 plan. Not FDIC Insured / No Bank Guarantee / May Lose Value 42