CFP Education Planning Flashcards
FAFSA
Free Application for Federal Student Aid
Students are considered independent if they are
-Over 23
-Married
-Working on a Masters or a Doctorate
-Legal dependents other than a spouse
-Veteran of the US Armed Forces
Federal Pell Grant
Strictly needs based
Only students that have not earned a bachelors or professional degree qualify
Stafford Loan / Federal Direct Loans
Primary type of financial aid provided by the US Dept of Education
Student loan
6 month grace period after leaving school or falling below PT
Subsidized (paid for while student is in school) NEEDS BASED
Unsubsidized NOT NEEDS BASED
Parent Loans for Undergraduate Students (PLUS)
Is a loan for parents to pay for their children’s undergraduate studies
NOT needs based
NOT subsidized
Grad PLUS loan (PLUS Direct)
a graduate or professional student enrolled at least half-time
must be in a program leading to degree/certificate
dependent on credit score
begin making pymts 6 months after you graduate
Federal Perkins Loan Program
Expired on 9/30/2017
Exceptionally low EFC amounts
Needs Based
Campus-Based Financial Aid:
Federal Supplemental Education Opportunity Grant (FSEOG)
Awarded to students with very low EFC
FSEOG is NEEDS based
Federal Work Study
On or off campus employment to help pay education expenses
Income Based Repayment (IBR)
Monthly student loan repayment of 10-15% of discretionary income with
remaining debt forgiveness after 25 years
Stafford Loans and most other Federal loans are eligible for IBR
PLUS loans are not eligible
Pay as You Earn Repayment (PAYE)
Available if the borrower has a high debt-income ratio
monthly payment 10% discretionary
remaining debt forgiveness after 20 years
Only Direct Federal loans and PLUS loans to graduate student are eligible
Graduated Repayment
Loan paid over 10 years
Starting off lower than the Standard Repayment Plan
Increase every 2 years
More interest, but advantageous for entry -level job
Extended Repayment
Available when the loan balance is over $30,000
Can be either fixed or graduated, are are payable over 25 years
Income Contingent Repayment
Similar to Pay As You Earn
Except 20% of discretionary income or payment amount on a fixed payment over 12 years
Loan balances after 25 years will be forgiven
Qualified State Tuition Plans
Prepaid tuition
Savings plans (529)
529A ABLE Accounts
Coverdell Education Savings Accounts
Asset of the parent
Limited to $2,000 per year / per beneficiary
Phase Out MFJ $190-220K
Phase Out Single $95-110
Grow tax-deferred
Private education OK elementary/secondary
No contributions beyond age 18
Must be used by age 30
Roth IRA
Limited to $6,500 per year
Limited to $7,500 if age 50 or over
NOT tax deductible
Grow TAX DEFERRED
59.5 years
Contributions can be withdrawn without tax consequences
Series EE Savings Bonds
Sold at face value
$25 minimum purchase
$10,000 annual maximum
Treasury Direct online
Bond slowly increases in value over 30 years based on fixed rate
Redeemable after one year with 3 month interest penalty if redeemed in less than 5 yrs
No FED tax on interest until redeemed
TAX free if redeemed for education
TUITION ONLY
Uniform Gift to Minor’s Act
Asset of the CHILD!
Interest/Dividends/Cap Gains –> Kiddie tax
Child < 19, unearned income, parent’s tax brackets
Child > 19, child’s tax bracket (unless student)
Prepaid tuition
In-state college at today’s cost
PRO: lock-in
CON: Only earn a return equal to tuition inflation
Scholarship, not use credits
State school only
NO room and board
529 Plan
Appreciation is tax-free
$85,000 per year with no gift tax consequences (170k couple)
State income tax deduction
No AGi limits
Can change beneficiary at any time
CON: 10% penalty if not used for qualified education
EXCEPTIONS: death, disability, scholarship for beneficiary
Provisions added to 529 plans after SECURE Act
-$10,000 may be distributed to pay student loans
-Qualified distributions can be made for apprenticeships that are registered and certified with the Secretary of Labor
529A ABLE Accounts
-Achieving a Better Life Experience
assist persons with disabilities (SS disability or SSI)
Contributions may not exceed $17,000 in total per year
Rollovers from 529 are eligible to be rolled to a 529A
UTMA may contain
Real Estate
Stocks
Mutual Funds
Bonds
UGMA
Stocks
Mutual Funds
Bonds
Student Loan Interest deduction is limited to
Limited to $2,500
Tuition/Room/Board/Supplies
Tuition deduction repealed as of
For tax years beginning AFTER 2020
Lifetime Learning Credit
20% of up to $10,000 in qualified expenses per year
Max per family is $2,000 per year
American Opportunity Credit
2011 and after
100% of the first $2000
25% of the next $2000
For a max of $2500
PER STUDENT
Must be paid DIRECTLY to the university
Can someone claim both the AOTC and the LLC for the same child in the same year?
NO
Can someone claim both the AOTC or the LLC for the same expense paid by a qualified tuition program?
NO
Employee education deductibility
Up to $5,250
Both the AOTC and the LLC only qualify if fees are paid
Directly to a University
ROOM AND BOARD DOES NOT COUNT
How are distributions for education from an IRA handled?
Taxable
BUT
not subject to 10% penalty
