Education Planning Options

College is an investment in your children or grandchildren for a lifetime. It can open the door to a world of opportunity. With the cost of a college education continuing to increase, saving, even a little at a time, can make a big difference. The key is to save what you can, and to invest early and often.

As you develop your education funding strategy, your local Farm Bureau agent can work with you. Our agents can offer you their expertise and knowledge to help you meet your long-term goals.

We can also help you with investments and retirement funding.


Click on a topic below to learn more about education funding and your options.
The Rising Cost of Education
A College Education Pays

Education Funding Options:

529 Plan
Coverdell Education Savings Account
UTMA
Education Funding Comparison Chart
Small Amounts Can Add Up
Save Early and Often
Maximize Funding with Tax Deferral
Increase Available Assets with Tax Free Withdrawals

The Rising Cost of Education

As you may know, college costs are rising significantly each year. Assuming a 5% inflation rate on current college costs, it will cost a person who is a newborn now, $190,092 to attend a public school or $387,840 to attend a private institution for 4 years beginning in 2027.
However, saving for college no matter how much, can help with the increasing cost and help you to be financially prepared when your children or grandchildren are ready for college.

(Based Upon 2008 average costs from College Board, "Trends in College Pricing" 2008)
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A College Education Pays
Saving for your child's college education is an investment in their future. The income gap between high school and college graduates has increased significantly over time. According to the US Bureau of Labor Statistics, in 2008, the median earnings for a person with a college degree were $50,856. However, the median earnings for a high school graduates was $30,732. In addition to this, college grads receive many non monetary benefits, such as access to employer sponsored health insurance and retirement plans. In the end, a college degree typically pays back more than it costs.

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Education Funding Options:529 Plan

There are several different types of accounts that can be used to save for college education expenses. One that is growing in popularity is the 529 plan. A 529 plan is a tax advantaged education savings plan in which the account owner selects investment options to invest in. These assets can then be used to pay for qualified education expenses at any eligible educational institution.

Some of the benefits of a 529 plan are:
A 529 Plan offers the account owner tax-deferred growth. In addition, this growth is federally tax free if used to pay for qualified education expenses. Many states also offer tax deductions or credits for contributions. (Check with your state for rules regarding credits/deductibility).

What's more, 529 plans may be opened for anyone; children, grandchildren, relatives, even friends. There are no income limitations on the account owner, so anyone can establish an account regardless of their income level. The account owner has control of this account and maintains control. It is never transferred to the beneficiary. The account owner also has the ability to change beneficiaries at any time.

There is no annual limit to the amount that can be contributed to a 529 plan. However, each plan will have its own limit. These are typically high dollar amounts, often in excess of $200,000. 529 plans also have fees and expenses that vary from plan to plan.

Although there is no annual limit, you may want to be aware of gift tax limits. The gift tax is a federal tax applied to an individual giving anything of value to another person. However, there is an annual amount ($13,000 in 2009) that you can give to as many people as you want each year. Therefore, if your gift is under this amount, the gift tax will not apply.

529 plans give you accelerated gift tax treatment. You are allowed to gift up to 5 times the federal gift tax limit ($65,000 in 2009) to a 529 plan and treat it as though you made 5 gifts over a 5 year period.

To learn more about 529 plans, contact me today.

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Education Funding Options: Coverdell Education Savings Account (ESA)

Another type of account that can be used to fund college education expenses is the Coverdell Education Savings Account. If your modified adjusted gross income is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to pay for the qualified education expenses of a designated beneficiary. These do not just apply to higher education expenses, but to secondary and elementary expenses as well.


Coverdell ESAs offers the account owner tax-deferred growth. In addition, this growth is federally tax free if used to pay for qualified education expenses. Contributions, however, are not deductible. Total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established.

The account owner has control of this account and maintains control. It is never transferred to the beneficiary. The account owner also has a limited ability to change beneficiaries at any time.

To learn more about Coverdell ESAs, contact me today.

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Education Funding Options: UTMA A Uniform Transfer to Minor's Act (UTMA) account is a common way to provide assets and/or securities for the benefit of a minor.

There are no income limitations on contributors to UTMA accounts and no limit on the amount that can be contributed. (However, gift tax limits may apply). Anyone can contribute to a UTMA account for the benefit of the minor.

These funds can, but do not have to be, used for higher education expenses. They can be used for any benefit of the child. Please see the Education Funding Comparison Chart below for details.

To learn more about UTMA plans, contact me today.

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Education Funding Comparison Chart

To learn more about college funding options, contact me today.

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Small Amounts Can Add Up

Parents often put off college funding because they believe they simply won't be able to save enough to make an impact on their child's education costs. However, even small amounts can add up. By saving a set amount at set times, your money can grow as your child does.

When it comes to college saving, set your goals realistically. You may not be able to save enough to cover it all, but you could save enough to give your child the right start. If you're still unsure, start small and then consider increasing the amount you're saving each year. This will allow you to "test drive" how college savings fits into your budget. In addition, many college savings plans can be started with as little as $25 or $50 per month.

For more information, contact me today.

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Save Early and Often

It's never too early, or too late, to start saving for your child's future. Of course, the sooner you can start and the more you can invest, the better. However, you don't need to have a large amount of money or have a long time horizon to make an impact on your college savings goal.

Take a look at the numbers on the chart below and how an investment can grow over time. Even a small amount, such as a $100 per month, can turn into a significant amount. Even if you have a shorter time horizon, you can still amass some funds for college and potentially reduce the amount of loans that need to be taken.

This example is hypothetical in nature and used for illustrative purposes only. It should not be considered representative of any specific investment or product. No product fees or expenses were included. Fees and expenses will reduce performance and may vary between funding options.

For more information, contact me.

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Maximize Funding with Tax Deferral

Tax-deferral can make a big difference in your college savings.Take a look at the example below. It assumes that someone starts saving when a child is born and saves $200 per month through that child's 18th birthday. Assuming an 8% rate of return, a tax-deferred account would have a value of $93,370 at age 18.

On the other hand, if that person is in the 25% tax bracket and invests in an account WITHOUT tax-deferral that earns the same 8% rate of return it would only have a value of $76,561.95 at age 18.

This example is hypothetical in nature and used for illustrative purposes only. It should not be considered representative of any specific investment or product. No product fees or expenses were included. Fees and expenses will reduce performance and may vary between funding options.

To learn more about tax deferred investing, contact me today.

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Increase Available Assets with Tax-Free Withdrawals

Tax-deferred investing is important, but tax-free withdrawals can also have a significant impact on the amount of money available each year for college expenses.

In the example below, we assume that the parent invested $200 per month for 18 Years. We also assumed the money earned an 8% rate of return over this time period. Then the parent took withdrawals for 4 years to pay for education expenses.

If this was done in a taxable account and the parent is in the 25% tax bracket, he/she would be able to withdraw $22, 507 each year for a total of $90,005 over the four year period.

However, if a tax-deferred account was used and the client was in the same 25% tax bracket for withdrawals, they would be able to withdraw $24,064 each year for a total of $96,216 over the 4 year period.

Finally, if the parent invested in an account that grows tax-deferred and has tax-free withdrawals, they would be able to withdraw $28,299 each year for a total withdrawal of $113,196 over the 4 year period. Just by investing in an account that has tax-deferred growth and tax-free withdrawals, the account owner, in this situation, is able to withdraw $23,191 more than if they had used a taxable account and $16,980 more than an account that had tax-deferred growth, but taxable withdrawals.

Non-qualified withdrawals from a tax deferred account would be taxed at ordinary income tax rates. Withdrawals of capital gains and dividends from a taxable account may be subject to lower maximum tax rates. Thereby reducing the difference in performance of the accounts shown.
This example is hypothetical in nature and used for illustrative purposes only. It should not be considered representative of any specific investment or product. No product fees or expenses were included. Fees and expenses will reduce performance and may vary between funding options.

To learn more about these accounts, contact me today.

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