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529 101 Overview: Abacus Wealth Partners October 2015 Paul Curley, CFA Director of College Savings Research [email protected] @PaulCurleyBC 617-399-5621 (office) 857-222-3730 (cell)

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  • 529 101 Overview: Abacus Wealth Partners

    October 2015

    Paul Curley, CFADirector of College Savings [email protected]@PaulCurleyBC617-399-5621 (office)857-222-3730 (cell)

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  • Introduction529 101ResourcesNext Steps

    529s: The Most Efficient Way to Save for CollegeOverview

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  • Emory University Chartered Financial Analyst (CFA) CharterholderBoston College (MBA) Admissions AmbassadorStudent Government (2 years)Director of College Savings Research since 2010Strategic Insight, an Asset International CompanyTrusted Business Intelligence for the Mutual Fund IndustryCFA Exam Trainer, Boston Security & Analyst Society (2005-2013)

    Specialize in 529s Since 2008Introduction - Paul Curley, CFA

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  • Market DataResearchConferenceMedia/Publishing

    AudienceMarket Data/Research/Conference Product Providers, Broker-Dealer Home office, State Agencies, Administrative Firms to Industry, Investment Consultants, LawyersQuoted over 70 times in press since 2011Media/Publishing Advisors, Accountants & Estate Planners

    Product AgnosticIntroduction - Practice Overview

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  • Quick Definition529 101Definition: A plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary, such as a child or grandchild. Source: IRS, 529 Plans: Questions and Answers http://www.irs.gov/uac/529-Plans:-Questions-and-AnswersSource: IRS

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  • 529s: Efficient for Tax529 101: ContributionsTax-Deferred GrowthTax-Exempt Distributions if used for Qualified Higher Education Expenses (QHEE) of beneficiary Control: Account owner maintains control of accountAccount Beneficiary: Family MemberNo Age or Income LimitsAnnual Contribution Limits: Up to Federal Gift Tax Limit of $14,000Married Couple: $28,000High Lifetime Contribution Limits: Can contribute up to high maximum set by state (e.g. Wisconsin at $425,000)Not Restricted to In-State Plans But Note: There also may be state tax incentives to residents who invest in their home state's 529 plan.2 Reallocations Allowed per YearSource: IRS Publication 970

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  • Distributions: Dedicated Account for Higher Education529 101: DistributionsQHEE: Tuition, fees, books, supplies and equipment Room & board if enrolled at least half-time Eligible Institutions: Any school eligible to participate in federal student loans, including those in U.S. and abroad529 savings plans Not limited to colleges in your state529 prepaid plans Read plan disclosure statementDistributions: Payment to Student, Parent or CollegeRollover/Changing 529 Plans: 2 changed allowed per yearBeneficiary Changes: Change to Another Family Member 10% Penalty: Non-Qualified DistributionsThere are exceptions to the penalty - http://www.irs.gov/pub/irs-pdf/p970.pdfSource: IRS

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  • 529s: Efficient for Financial Aid529 101: Financial Aid ImpactSource: U.S. Department of EducationAssets & IncomeStudents50% of income above protected amount of $6,26020% of assets in bank accounts, CDs, UGMAs/UTMAs and other savings vehiclesParents22%-47% of Adjusted Gross Income above the protected amount5.64% (or less) of non-retirement assets above protected amount, including 529s, investments and savingsGrandparents0% of income and assets. However, withdrawals for college by grandparents and others may be considered student income and must be reported on the following years financial aid forms. Such income can reduce the amount of aid by 50%.Distributions from parents retirement accounts are treated the same.

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  • 529s Improve Custodial Accounts529 101: Custodial accountsSource: IRSTaxes: A trust can be subject to taxes on earnings year-over-yearAssets in a trust can be used to buy a custodial 529 accountCustodial 529 accounts can grow tax-free, and can be distributed tax-free if used for qualified expenses Note: Contributions into 529 may require a capital gain on liquidation of assets to put the assets into a 529; Ask you financial advisorOther Estate Planning Features5-Year gifting to remove assets from estate while maintaining control

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  • 529s: Efficient for Estate Planning529: Estate Planning5 year forward gifting feature: Client can make 5 years of gifting in 1 yearFor example, one parent can make a lump-sum contribution to a 529 plan for $70,000($70,000 = 5 x $14,000) $14,000 is federal gift tax maximum$140,000 could be made by the married parents ($70,000 x 2 parents)No other gifts are allowed to be made to the same beneficiary during 5-yearsAssets are removed from contributors taxable estate. Some plans have a claw back provision if contributor passes away in less than 5-yearsSource: IRS

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  • IRS Internal Revenue Servicehttp://www.irs.gov/uac/529-Plans:-Questions-and-AnswersPublication 970: http://www.irs.gov/pub/irs-pdf/p970.pdf

    SEC U.S. Securities and Exchange Commissionhttp://www.sec.gov/investor/pubs/intro529.htm

    FINRA Financial Industry Regulatory Authorityhttp://apps.finra.org/investor_Information/Smart/529/000100.asp

    MSRB Municipal Securities Rulemaking Boardhttp://www.msrb.org/EducationCenter/Municipal-Market/529-Plans/Resources/Related-Resources-529-Plans.aspx

    FAFSA Free Application for Federal Student Aidhttps://fafsa.ed.gov/fotw1415/pdf/PdfFafsa14-15.pdf

    IFAP Information for Financial Aid Professionalshttp://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf

    529 Dash e-Newsletter http://www.529conference.com/subscribe.aspxSavingforCollege.com529 Product ProvidersResourcesResources & Sources

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  • Next: Topics for Lunch & LearnsAccumulation: Tax Free GrowthDistributionsFinancial Aid ImpactEstate Planning/Custodial 529s

    Questions?Next Steps

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  • Copyright 2015 Strategic Insight, an Asset International company, and when referenced or sourced Access Data, a Broadridge company, Morningstar Inc. and Lipper Inc. All rights reserved. The information, data, analyses and opinions contained herein (a) include confidential and proprietary information of the aforementioned companies, (b) are provided solely for information purposes, and (c) are not warranted or represented to be correct, complete, accurate, or timely. Past performance is no guarantee of future results. The aforementioned companies are not affiliated with each other. This report has been prepared using information and sources we believe to be reliable; however, we make no representation as to its accuracy, adequacy or completeness, nor do we assume responsibility for any errors or omissions or for any results obtained from the use of this report, including any action taken with respect to securities referred to in this report. Our employees may from time to time acquire, hold or sell a position in securities mentioned herein. We may from time to time perform services for any company mentioned in this report. This report is not a prospectus or representation intended to use in the purchase or sale of any securities mentioned in this report. Strategic Insight is available by subscription and by single copy upon request to the publisher.

  • Top-5 529 Myths

    Paul Curley, CFADirector of College Savings [email protected]@PaulCurleyBC617-399-5621 (office)857-222-3730 (cell)

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  • You do not need a plan to save for college or higher education.They can just take loans, or get a scholarship.Retirement assets are not included in financial aid calculations.If they do not go to college, then I did not need to save.I already have a trust set up for them.Top-5 529 MythsOverview of Top-5 529 Myths

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  • Myth #1: You Do Not Need a Plan to Save for College or Higher EducationSource: College Board, Strategic Insight 529 Industry Analysis 2015You Need a Plan: Tuition Inflation Continues to Outpace Wage Increase and CPI

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  • Myth #1: You Do Not Need a Plan to Save for College or Higher EducationSource: Strategic Insight4 Years Cost of Private Institution in 18 Years: $429,407; College Savings Not Small Ticket*Cost includes Tuition, Fees and Room and Board

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  • Majority of Parents are Not Saving, or Saving EfficientlySource: Strategic Insight 529 Consumer Survey 2015Myth #1: You Do Not Need a Plan to Save for College or Higher Education

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  • Failure to Plan Leaves Clients with Get LoansSource: FRBNY Consumer Credit Panel/EquifaxMyth #1: You Do Not Need a Plan to Save for College or Higher Education

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  • Tuition Inflation Drives Student Loan Growth; Small Percentage Receive ScholarshipsMyth #2: They Can Take Loans, or Get a ScholarshipSource: New York Fed Consumer Credit Panel/Equifax

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  • Assets & IncomeStudents50% of income above protected amount of $6,26020% of assets in bank accounts, CDs, UGMAs/UTMAs and other savings vehiclesParents22%-47% of Adjusted Gross Income above the protected amount5.64% (or less) of non-retirement assets above protected amount, including 529s, investments and savingsGrandparents0% of income and assets. However, withdrawals for college by grandparents and others may be considered student income and must be reported on the following years financial aid forms. Such income can reduce the amount of aid by 50%.Distributions from parents retirement accounts are treated the same.

    529s: Efficient for Financial AidMyth #3: Retirement Assets are Not Included in Financial Aid CalculationsSource: FAFSA

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  • Families Use Retirement Vehicles to Save for CollegeSource: Strategic Insight 529 Consumer Survey 2012-2015Myth #3: Retirement Assets are Not Included in Financial Aid Calculations

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  • Some Advisor Use Retirement Vehicles to Save for College AlsoSource: Strategic Insight 529 Advisor Survey 2014Myth #3: Retirement Assets are Not Included in Financial Aid Calculations

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  • IRS Change Beneficiary to another family memberQ.Can I change the beneficiary of a 529 plan I have set up?A. Yes. There are no tax consequences if you change the designated beneficiary to another member of the family. Also, any funds distributed from a 529 plan are not taxable if rolled over to another plan for the benefit of the same beneficiary or for the benefit of a member of the beneficiarys family. So, for example, you canroll funds from the 529 for one of your children into a siblings plan without penalty.Keep for later in beneficiarys life (mid-career training)Keep for next generation, grandchildren or great grandchildrenContinues to accrue tax differedIf beneficiary pass away, no 10% penalty if distributedPay 10% penalty, plus taxes on gains

    Options on Unused 529 AssetsMyth #4: If They Do Not Go to College, Then I Did Not Need to SaveSource: IRS Publication 970, IRS 529 Plans: Questions and Answers

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  • Members of the beneficiarys family

    1. Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them.2. Brother, sister, stepbrother, or stepsister.3. Father or mother or ancestor of either.4. Stepfather or stepmother.5. Son or daughter of a brother or sister.6. Brother or sister of father or mother.7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.8. The spouse of any individual listed above.9. First cousin.Rollover Assets to Family MembersMyth #4: If They Do Not Go to College, Then I Did Not Need to SaveSource: IRS Publication 970

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  • Assets in a trust can be used to buy a custodial 529 accountCustodial 529 accounts can grow tax-free, and can be distributed tax-free if used for qualified expenses A trust can be subject to taxes on earnings year-over-yearNote: Contributions into 529 may require a capital gain on liquidation of assets to put the assets into a 529; Ask you financial advisorOther Estate Planning Features5-Year gifting to remove assets from estate while maintaining control

    Speak with your Advisor on ImplicationsMyth #5: I Already Have a Trust Set Up for them

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  • You do not need a plan to save for college or higher education.They can just take loans, or get a scholarship.Retirement assets are not included in financial aid calculations.If they do not go to college, then I did not need to save.I already have a trust set up for them.

    Thank youOverview of Top-5 Myths

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  • IRS Internal Revenue Servicehttp://www.irs.gov/uac/529-Plans:-Questions-and-AnswersPublication 970: http://www.irs.gov/pub/irs-pdf/p970.pdf

    SEC U.S. Securities and Exchange Commissionhttp://www.sec.gov/investor/pubs/intro529.htm

    FINRA Financial Industry Regulatory Authorityhttp://apps.finra.org/investor_Information/Smart/529/000100.asp

    MSRB Municipal Securities Rulemaking Boardhttp://www.msrb.org/EducationCenter/Municipal-Market/529-Plans/Resources/Related-Resources-529-Plans.aspx

    FAFSA Free Application for Federal Student Aidhttps://fafsa.ed.gov/fotw1415/pdf/PdfFafsa14-15.pdf

    IFAP Information for Financial Aid Professionalshttp://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf

    529 Dash e-Newsletter http://www.529conference.com/subscribe.aspxSavingforCollege.com529 Product ProvidersResourcesResources & Sources

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  • Copyright 2015 Strategic Insight, an Asset International company, and when referenced or sourced Access Data, a Broadridge company, Morningstar Inc. and Lipper Inc. All rights reserved. The information, data, analyses and opinions contained herein (a) include confidential and proprietary information of the aforementioned companies, (b) are provided solely for information purposes, and (c) are not warranted or represented to be correct, complete, accurate, or timely. Past performance is no guarantee of future results. The aforementioned companies are not affiliated with each other. This report has been prepared using information and sources we believe to be reliable; however, we make no representation as to its accuracy, adequacy or completeness, nor do we assume responsibility for any errors or omissions or for any results obtained from the use of this report, including any action taken with respect to securities referred to in this report. Our employees may from time to time acquire, hold or sell a position in securities mentioned herein. We may from time to time perform services for any company mentioned in this report. This report is not a prospectus or representation intended to use in the purchase or sale of any securities mentioned in this report. Strategic Insight is available by subscription and by single copy upon request to the publisher.

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