1 Education Funding Flashcards
Steps to calc. savings needed for college
1.84
- Calc cash needed on college day 0 for year 1
- Calc cash need on college day 0 for all 4 years: use BEG mode, PMT = amt from step 1, i = collegeinflation-adjusted return, n = 4, FV = 0, solve for PV
- Calc savings needed to make this happen (you already adjusted for inflation so you can just use investment return estimate as i, then FV = from step 2, solve for PMT or PV)
529s
- Contribs
- Distribs
Contribs:
- Non-deductible. Treated as completed gifts. Can super-fund 5 yrs (and more as exclusion increases)
- Max total contribs dependent on program, many over $400K
- No time/age restrictions like Coverdell ESAs
Distribs
- College tuition & equip (computers), room & board for min half-time students
- ≤ $10K/yr for private school
- ≤ $10K/yr for student loan pymts
- otherwise earnings get 10% penalty & tax (no penalty on basis.. already paid tax on that)
Can change bene. within family, counted as an asset for fed aid
Superfunding 529s
- $90K (5 yrs * $18K anual exclusion
- partially clawed back if die within 5-yrs pd
Coverdell ESAs
- contribs?
- distribs?
Contribs
- $2K/bene/yr before bene reaches age 18
- phaseout on TTs™!!
Distribs
- Must use acct or change bene by age 30
- College tuition & equip (computers), room & board for min half-time students (all the same as 529s!)
- add’l types of K-12 expenses, no cap like 529s
- otherwise withdrawn earnings subj. to fed tax & 10% penalty (no penalty on basis.. already paid tax on that)
Can change bene. within family, counted as an asset for fed aid. More flexible investments than 529s.
Taxation of UTMAs/UGMAs
See Kiddie Tax Rules
No contribution limits/restrictions.
Kiddie Tax
- First $1,300 (2024) of unearned income is tax-free (standard deduction).
- Next $1,300 (2024) is taxed at the child’s tax rate.
- Above $2,600 (2024), unearned income is taxed at the parent’s marginal tax rate instead of the child’s lower rate.
Series EE/I Bonds
- buying reqs?
- selling/transferring reqs?
Buying
- Series EE: $10K/yr/owner
- Series I: $10K digital, $5K paper / yr / owner (so $15K total) (remember I = dIgItal)
- must be ≥ 24 yrs old at time of issuance
- income limits, see TTs™
Selling/transferring
- 3 mo interest penalty if withdraw within 5 years
- can’t gift
How are these handled for EFC on FAFSA?
- 529s
- CESAs
- IRAs
- 529 ABLEs
- 529s - asset of parent if student is a dep (but if non-studen/parent/grand distribs then is income at up to 50%)
- CESAs - asset of student even if student is a dependent (if grandparent’s counted as income at up to 50%)
- IRAs - count distribs as income
- 529 ABLEs - only count non-qual distribs as income
Expected Family Contribution (EFC)
Rate at which student vs parent assets/income is counted?
- Student income counted at 50% of amt over “protected amount” ($9,410 for 2024-25)
- Assets exclude home equity & retirement accts
- 2-yr lookback!
529 ABLE Plan
- How to qualify?
Disabled < age 26 (although you can apply later) AND one of:
- Receiving Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI).
- Have a condition on the SSA’s “List of Compassionate Allowances” (e.g., Down syndrome, autism, cerebral palsy, blindness).
- Self-certify with a physician’s diagnosis of a severe disability that impairs daily functioning.
Direct Student Loans
- Subsidized
- Unsubsidized
- PLUS
- Subsidized - Need-based, for undergrads only, gov covers interest while you’re in school
- Unsubsidized - Not need-based, can also be for grad/PhD students, no help with interest
- PLUS (Parent PLUS, Grad PLUS) - Need a credit check
US Dep of Ed pays interest (a) while you’re in school at least half-time, (b) for the first 6 mos after leaving school “grace pd”, and (c) during a period of deferment (a postponement of loan pymts)
Pell Grants
Federal grant for undergrads with exceptional financial need
Reqs:
- undergrad
- no prior degree
FSEOG (Ed Grant)
Federal Supplemental Educational Opportunity Grant - for undergrads, prioritizes Pell Grant recips
(think of “supplemental” as being in addition to a Pell Grant)
Basic Formula for calculating financial need for higher ed
Financial Need = COA (Cost of Attendance) – EFC (Expected Family Contribution)
Series EE/I bond withdrawals interest first (LIFO), principal first (FIFO), or average cost?
Average cost
Max contrib to 529 ABLE?
- The total contributions from all sources cannot exceed the IRS annual ABLE contribution limit, which is $18,000 in 2024 (indexed for inflation).
- Even if multiple people contribute, the combined total for the year cannot exceed $18,000 (unless the beneficiary qualifies for additional contributions—see below).
Max ABLE accounts for 1 beneficiary?
1
Can you do deduct ed expenses for SE? if you’re doing AOC or LLC?
Because Jackie is claiming the Lifetime Learning Credit, she cannot also deduct her higher education expenses on Schedule C of her Form 1040. This is considered to be a double benefit, which is two or more education-related benefits.
