Education Planning Flashcards
1
Q
2503(c) Trust Features and Taxation
A
- Holds gifts to a minor up to annual exclusion of all kinds of assets.
- Assets belong to the trust until distributed.
- For the benefit of one beneficiary, cannot be changed.
- Beneficiary may withdraw all funds at age 21.
- Retained income taxed to trust, distributed income taxed to beneficiary.
2
Q
UTMA / UGMA Features and Taxation
A
- Holds gifts to a minor up to annual exclusion of all kinds of assets.
- Assets immediately belong to the beneficiary.
- For the benefit of one beneficiary, cannot be changed.
- UTMA’s hold a wider variety of assets to include intellectual property.
- UGMAs hold standard investment securities.
- Income is taxed to the beneficiary. The first $1,100 is tax free, the second $1,100 is taxed at 10%. Any more is taxed at the parent’s rate.
3
Q
Series EE Bonds’ Rules
A
- Government zero-coupon bonds.
- Interest tax exclusion if used for higher education expenses.
- Must be 24 at time of purchase to take exclusion at redemption.
- Income assessed at time of redemption.
- Single phase out $73k - $88k
- MFJ phase out $110k - $140k
4
Q
Coverdell ESA Rules
A
- Opened for students under age 18.
- Must be withdrawn by age 30.
- Non-taxable gifts, grows tax deferred.
- K-12 and higher education expenses tax free.
- Covers all school related expenses.
- $2,000/year limit per beneficiary.
- Unused funds can be rolled to another beneficiary.
- Funds not used for education will be taxed to beneficiary and a 10% penalty may apply.
- Single phase out $95k - $110k
- MFJ phase out $190k - $220k
5
Q
FAFSA Definition and Aid Programs
A
Free Application for Federal Student Aid (FAFSA)
- Pell Grants
- WD Ford Federal Direct Loans
- Federal Supplemental Educational Opportunity Grants (FSEOGs)
- Federal Work / Study Programs (FWS)
6
Q
FAFSA Steps to Determine Eligibility
A
- Calculate Cost of Attendance (COA)
- Calculate Expected Family Contribution (EFC)*
- COA - EFC = Need Based Aid
- COA - Received Aid** = Non-need Based Aid
- Values based on amounts during senior year of high school.
- Distributions from 529s or Coverdells not included as income if used for qualifying education expenses.
7
Q
American Opportunity Tax Credit Rules
A
- Covers tuition, fees, and books.
- Must be enrolled half-time during the year.
- Bachelors degree or below.
- Covers 100% of first $2,000, 25% of next $2,000.
- Single phase-out: $80k - $90k
- MFJ phase-out: $160k - $180k
8
Q
Perkins Federal Student Loan Rules
A
- Funded by the Federal Gov’t.
- Awarded by the school.
- For all levels of higher education.
- Exceptionally low EFC.
- No origination fee.
- Term is 10 years.
- Discontinued in 2017.
9
Q
529 Superfunding Rules
A
- Up to 5 years of gift tax exclusions to a 529 plan.
- Single: $75k or MFJ: $150k
- File form 709 each year.
- If donor dies within the superfund period, the future portion is added back to their estate.
10
Q
Lifetime Learning Tax Credit Rules
A
- Must be enrolled in qualified higher-education during the year.
- Covers 20% of first $10,000.
- Single phase-out: $59k - $69k
- MFJ phase-out: $118k - $138k
11
Q
WD Ford Federal Direct Stafford Loans Rules
A
- Loans for undergraduate and graduate students.
- Variable interest rate, cannot exceed 8.25%
- Limits increase freshman and junior year.
- Higher limits for independent students.
- Same limits for subsidized undergraduate loans.
- Subsidized have no interest until graduation.
- Unsubsidized must pay interest immediately.
- Max 30 year term.
12
Q
WD Ford Federal Direct Parent / Grad PLUS Loans Rules
A
- Loans for graduate or professional certificate students.
- Parent PLUS for parents of students.
- Grad PLUS for students themselves.
- Fixed interest of 6.28%
- Requires credit check.
- Parent PLUS Cannot be transferred to student.
13
Q
What does “Thank God, Good Luck” mean?
A
Pneumonic for methods of paying for college with other people’s money:
- T - Tax Credits, Federal Aid
- G - Gifts (Friends / Relatives)
- G - Grants (Federal / Private)
- L - Loans (Federal / Private)
14
Q
Federal Pell Grants Rules
A
- Only for undergraduate degrees.
- Significant financial need students.
- Award amount based on EFC, COA, and course load.
- Max is ~$6.5k.
15
Q
Public Service Loan Forgiveness Program (PSLF)
A
- Have Federal Direct loans.
- Work full-time for a public entity.
- Income-driven repayment plan.
- Pay 120 payments (10 years).
- Allows economic hardship deferment.
- Remainder is forgiven.
