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College Funding Options
Section 529 College Savings Plans, Education Savings Accounts, Taxable Investments
Which ones are right for you?

How will they affect your college financial aid eligibility?

What combination of these investments will have the greatest impact in reducing your
tax bill as a result of the new tax law?

Which state's 529 Savings Plan is most advantageous?

Will you be able to use the education tax credit and the new above-the-line deduction
if you have a 529 Plan or an Education Savings Account (ESA)?

Is your income too high or do you have too much in assets to qualify for college
financial aid?
 
Expert Advice

A financial advisor who understands these various college funding options, their tax benefits, and their affect on financial aid, can answer these questions and help you choose which of these options are right for you.

Lifetime Fi
nancial Planning, managed by Dean Knepper, CPA, CFP®, Registered Investment Advisor Representative and member of The National Financial Aid Practitioners Alliance, has the experience and expertise to guide you though the planning process.

Dean's name has appeared frequently in the media giving advise on college planning including:

 

Loudoun Family Magazine

December, 2003

FAMILY FINANCE: Saving for College

How families can plan for their children’s higher education.

By Kevin Self, Editor

Sending children to college can be one of the most financially challenging times for a family. Parents want the best for their children, but the cost of living—let alone higher education—is not getting cheaper. For a child born today, a four-year, Virginia state college education is estimated to cost over $40,000 per year. Loudoun Family Magazine spoke with Dean Knepper, a local financial expert and the founding principal of Lifetime Financial Planning, based in Leesburg. Knepper, a CERTIFIED PUBLIC ACCOUNTANT and CERTIFIED FINANCIAL PLANNER™ professional, answers questions concerning the best ways for families to save money for college and gives practical advice on how to get started now on your children’s college fund.

 

U.S. News & World Report

September 8, 2003

Save Now So You Can Pay Later

By Paul J. Lim and James M. Pethokoukis

As tuitions escalate, parents are finding themselves more and more stretched to pay for their children's college educations. Luckily, there are a number of terrific savings vehicles to help. (It should go without saying, of course, that the earlier you begin to stash your cash, the easier the task will be.) U.S. News consulted financial experts to get the skinny on the plan best suited for your situation:

...COVERDELL EDUCATION SAVINGS ACCOUNT

Parents can contribute up to $2,000 a year to a Coverdell ESA. Earnings grow free of federal income tax and can be used to pay for qualified education-related expenses--including items like computers--from kindergarten through college.

Who benefits: "A couple whose child is likely to go to college and who is expected to be ineligible for financial aid," says Dean Knepper of Lifetime Financial Planning a fee only financial planner in Leesburg, Virginia. Contributions can be made by married taxpayers with adjusted gross incomes as high as $220,000 and by single taxpayers with incomes as high as $110,000. Parents also retain [some] control over the assets [until the child is 30 years old]. For example, the parents can change the beneficiary to another family member if they wish.

...ROTH IRA

First introduced in 1998, Roth IRAs have been a favorite of savers, thanks to the tax-free growth of earnings. Like traditional IRAs, contributions are currently limited to $3,000 per year ($3,500 if you're age 50 or older). However, there is no mandatory withdrawal age.

Who benefits: Parents who establish individual Roth IRAs for themselves will benefit the most since the money is held in their personal account. If the money is not needed for college expenses or the child skips college, a parent can use the money for retirement. "So Roths are most beneficial to someone who would not otherwise contribute to a Roth except to save for college," says Knepper. "For anyone saving for retirement, I would recommend using the Roth for that purpose and use a 529 plan, which has the same tax-free advantage, to save for college."

 

Child Magazine

August, 2003

Three Families, Three Smart Ways to Save for College

It's never too early - or too late - to begin saving for your child's education. Financial experts show three families, at three different stages of life, how to make the most of their assets.

By Walecia Konrad

...The family: Mike, 37 a financial executive, Jean, 39, a stay-at-home mom, Mickey, 10, Kathleen, 6, and Maggie, 2. They live in New Jersey. The financial picture: Household income: between $120,000 and $130,000 a year, depending on Mike's bonus. ...Retirement savings: Mike contributes 7% to 8% of his salary to his company's 401(k). Looking ahead: ...Once the youngest child is in school full-time, Jean may return to work part-time.

What they've done so far: Until two years ago , the sum total of their college fund was about $1,000. ...Home renovations, family visits and presents ...and the general expenses of raising kids had easily consumed the bulk of Mike's paychecks until he landed his current position. "It seemed like we never had any extra money," says Jean. The birth of their youngest child was the wake-up call. "Suddenly Mike and I knew we had to get serious if we were ever going to put three kids through college," she says.

The couple has saved $10,000 from Mike's bonuses and tax refunds over the past couple of years in an account earmarked for college investing. Mike and Jean would like to put that money into a 529 savings plan, but the rocky market over the past two years has stopped them form taking the plunge.

What the experts suggest: First things first. "Mike should contribute the maximum allowed to his 401(k) account, which is $12,000 this year," says Dean Knepper, a Leesburg, Virginia - based CERTIFIED PUBLIC ACCOUNTANT and fee-only CERTIFIED FINANCIAL PLANNER™ professional specializing in college planning. "You should always contribute the most to your retirement fund first because you can borrow for college tuition later. If your retirement funds do well, you can help your children down the road." What's more, retirement accounts are not considered part of the parents' assets when they apply for financial aid, so maxing out a 401(k) account serves as a shelter of sorts. In addition, ... both Mike and Jean should also consider opening a Roth IRA account and each contributing the $3,000 maximum.

...Mike and Jean need to take the investing plunge now. They should consider putting their $10,000 college stash in a 529 account for their children, suggests Knepper. New Jersey's plan does not offer a tax break for residents, so Mike and Jean may want to choose another state's plan with lower fees and more options. ...As a result, Mike and Jean may want to look closely at the plan offered by Utah. It has low fees and a range of index funds that can work well for college savings, says Knepper. Balancing stock index funds with bond index funds will reduce risk and help build a portfolio that works well for all three of their children, despite their range in age.

How they can save more: With Mike's increased income, the couple should continue stashing his bonus money in their college accounts, says Knepper. In addition, they may want to return to the budget they lived on when Mike was making less and see if they can save the difference each month. And if Jean returns to work part-time in a few years, she can put her earnings into a college account.

 

Investment Choices for College Funding

LFP can provide specific investment recommendations to fund college costs taking into account your time horizon and risk tolerance, the investment's tax efficiency and management fees, and the possible impact the recommendations have on college financial aid eligibility.

 

Section 529 College Savings Plans

Starting in 2002 distribution of earnings from Section 529 Saving Plans, used for qualified education expenses, are exempt from federal taxation and are also exempt from taxation by most states, even if you use a plan outside of the state you live in. We can help you determine if, and which one of these state plans is right for you.

These various state plans offer investments in different mutual fund families and have different options in allocating contributed funds between stocks, bonds and cash. The determination of which state's plan best fits your needs requires an analysis of your risk tolerance, investment time horizon, other available investments and your tax situation.

 

Education Savings Accounts (Education IRAs)

Beginning in 2002, the annual contribution limit is increased to $2,000 and the money can be used for elementary and secondary schools. The phase-out limit has been increased to $190,000 - $220,000 of adjusted gross income for married filing joint ($95,000 - $110,000 for all other filers). The contributions can now be made up to April 15 of the following year, similar to regular IRAs. These IRAs can be used in combination with or instead of 529 Savings Plans, but contributions are not deductible from taxable state income as are some 529 Plan contributions.

 
Taxable Investments

Taxable investments offer more flexibility than the other funding options. If the child ends up not going to college there are no penalties and appreciation on the investments are taxed at the favorable capital gain rate. Funds are also available to cover unexpected costs that may arise prior to college.

 

Effective Tax Strategies for College Funding

LFP can analyze your tax situation to determine which funding options will provide the most after tax dollars to fund college costs. This is done in conjunction with any college financial aid that may be available. Some tax savings strategies, if not viewed in conjunction with financial aid may end up increasing the cost of college by making the student ineligible for financial aid.

 
Education Tax Credits and Deductions

The HOPE and Lifetime Learning Credits for qualified college expenses are still available under the new tax law. The same student can use the credits, 529 Savings Plans and Education Savings Accounts (Education IRA), but not for the same expense.

The new law allows an above-the-line deduction for education expenses. You do not have to itemize in order to take the deduction. To qualify, income cannot exceed $130,000 for married-joint filers and $65,000 for all other taxpayers. The deduction is $3,000 for 2002-2003 and $4,000 for 2004-2005. Also, for 2004-2005, taxpayers whose incomes exceed the limits, but do not exceed $80,000 ($160,000 for joint filers), may deduct up to $2,000.

 
College Financial Aid

LFP provides comprehensive college financial aid planning including…

A thorough analysis of the factors that impact your aid eligibility with
recommendations to ensure that the student is demonstrating as much financial need
as legally possible.

A calculation of your "Expected Family Contribution." Knowing how much your out-of-
pocket costs will be before you go through the application process could save you
considerable time, money and frustration.

An estimation of your income taxes. Waiting to file your financial aid form until after
you receive your tax return may cause you to miss aid deadlines.

Sound advice on how to effectively finance the portion of college costs not subsidized
by financial aid.

A historical aid profile of each school to which your child is applying.

Expert preparation of the necessary financial aid forms. Forms improperly completed
or sent in too late may disqualify, reduce or delay your aid.

Tips on evaluating and negotiating the financial aid packages offered.

Call us today at (703) 779-0515 or inquire to find out more about how an hourly fee-only college financial aid advisor at Lifetime Financial Planning can help you maximize your eligibility for financial aid.

 

Links to College Financial Information
 
College Financial Aid
Federal Student Financial Aid (Ed.gov)

The College Board-Financial Aid Services (CollegeBoard.com)

College Is Possible (CollegeisPossible.com)
 
College Financial Education
Vanguard Plain TalkŪ Library (Vanguard.com)

Section 529 College Savings Plans (SavingforCollege.com)

College Savings Plans Network (CollegeSavings.org)
 
Financial Calculators
Budgeting, Savings, Debt, Investments, Retirement, Insurance (ChoosetoSave.com)

Savings Bonds (PublicDebt.Treas.gov)

College Financial Aid (CollegeBoard.com)

Income Tax Estimator (Intuit.com)
 
 

Lifetime Financial Planning, Inc.

Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional

2201 Cooperative Way, Suite 600, Herndon, Virginia, 20171

208 South King Street, Suite 201, Leesburg, Virginia, 20175

Phone: (703) 779-0515 - Fax: (703) 779-7815 - E-mail: info@lifetimefp.net
 

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