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Intro to FP > Education Planning > Flashcards

Education Planning Flashcards

1
Q

how to figure out College funding TVM questions

A

Break it down.
First find how much a single year tuition
Then total the 4 years
Take that total and break it down to a present value

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2
Q

College costs $18,000 this year and will increase each year by 6% for 18 years

A

$18000 PV 18 N 6 I FV = $51,378

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3
Q

If someone is getting a 9% investment return but inflation increases 6% annually, how do you find that

A

(1.09/1.06) -1 x 100

2.83

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4
Q

College costs $51,378 (you’re paying this each year) a year and inflation is 6%. Your growth rate is 9%. What is the total cost over 4 years

A

51,378 PMT 4 N 2.83 I {(1.09/1.06) -1 x 100} PV

197,183

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5
Q

End of year payment needed to save $197,183 with a growth rate of 9% over 18 years

A

END $197,183 FV 18 N 9 I PMT $4774
ALWAYS LOOK IS IT BEG OR END

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6
Q

What doesn’t qualify for the American Opportunity Credit?

A

Room and board

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7
Q

Am. Opportunity Tax Credit

A

-Each CHILD for first 4 years
-Tuition, books, and fees NOT Room and Board
- Enrolled at least half time at Vocational, College or University

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8
Q

What is the max Am Oppo Tax credit?

A

$2,500 per CHILD

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9
Q

Am Oppo Tax Credit Calc

A

100% of the first $2,000 then 25% of the next $2000 for a total of $2500

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10
Q

Am oppo tax credit is phased out for who

A

single filers and families w/joint returns over the AGI threshold

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11
Q

Am Oppor Tax Credit doesn’t cover expenses paid by

A

529s and Coverdells

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12
Q

How many tax favored vehicles can a taxpayer use per child?

A

Only one per child per year. Can’t combine American oppo with Lifetime Learning Credit or deduction for tuition expenses

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13
Q

Lifetime Learning Credit limit per family

A

$2000 annually
20% of the first $10,000

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14
Q

Lifetime Learning Credit pays for what

A

qualified tuition and expenses for undergraduate or graduate degree courses enrolled at least 1/2 time

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15
Q

What can Lifetime learning credit also be used for

A

improve job skills at an eligible institution if enrolled less than 1/2 time

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16
Q

Who can use lifetime learning credit

A

Single filers and families filing joint w/income BELOW annual income limits

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17
Q

Can a Taxpayer claim the Am Oppo credit and Lifetime Learning Credit in the same year?

A

Yes - but can’t use both credits on the same child.

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18
Q

Lifetime Learning credit is a per WHO credit?

A

per TAXPAYER not per student - so a taxpayer can claim LLC and AM Oppo in the same year just not on the same child.

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19
Q

If a parent pays w/Coverdell can they use lifetime learning credit on that?

A

No - not on the same expenses

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20
Q

How does a parent qualify to use the lifetime learning credit

A

child must be a dependent and parent must pay the tuition

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21
Q

What is the student loan interest deduction max?

A

$2,500 per year as a for AGI deduction, regardless of if they itemize

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22
Q

Which deduction has the widest options for use?

A

student loan interest - can be used for transportation, room and board, supplies, fees and tuition

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23
Q

What are some college funding strategies you may not think of right away

A

home equity loan or line of credit, borrowing from qualified pension plan or life insurance policy

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24
Q

what are some standard college funding strategies

A

regular savings, 529, coverdell, govt savings bonds, UTMA or UGMA

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25
Q

What did they add to 529 coverage in 2018

A

K-12 public private or religious schools up to $10,000

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26
Q

What is the primary school limit per year on a 529?

A

$10,000

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27
Q

2 types of 529

A

Prepaid tuition
529 savings plan

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28
Q

total funding for 4 years of college is what type of calculation?

A

Present value of an annuity due

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29
Q

Prepaid tuition covers costs if they increase?

A

Yes. If costs go up the prepaid tuition is guaranteed to pay for tuition for in state public schools and may be transferred to private or out of state

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30
Q

Are 529 contributions tax deductible?

A

Not federally but sometimes state

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31
Q

How many years worth can you put into a 529 at the start

A

5 years “forward funding”

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32
Q

Can owner’s control a 529’s investments?

A

No. But you can typically change investments once a year or if a new beneficiary is named

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33
Q

Is there a contributor income limit on 529?

A

No. Contributions can be made regardless of the contributors income

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34
Q

What can a 529 savings plan pay for?

A

“Qualified higher education expenses” tuition, books and fees are tax-free unless they exceed qualified expense

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35
Q

What is the penalty if the 529 money is not used to qualified education expenses and what does it apply to?

A

10% and it applies to the earnings not the principal

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36
Q

If a 529 withdrawal is not used for qualified education expenses, how is it taxed?

A

As ordinary income although some plans allow to transfer to a beneficiary in a lower tax bracket

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37
Q

Who is the Coverdell designed for?

A

Low and middle income taxpayers

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38
Q

Are contributions to Coverdells tax deductible?

A

No. (Sometimes 529 are state tax deductible but not federal)

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39
Q

Who can contribute to a Coverdell?

A

Anyone can contribute to an account for the same child. As long as it doesn’t exceed $2,000

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40
Q

How are the contributions to a Coverdell treated re: the beneficiary?

A

As non taxable gifts to the beneficiary

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41
Q

Coverdell funds are taxed how when used for qualified education expenses?

A

Tax free

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42
Q

Who owns the Coverdell?

A

The child

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43
Q

Can you transfer a Coverdell to a 529?

A

Yes - without triggering a tax. But, since Coverdell is owned by child should NOT if the 529 is owned by the parent.

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44
Q

Distributions of Coverdell’s are part what and what

A

part principal and part earnings. If they aren’t used for qualified edu. expenses there’s a 10% tax.

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45
Q

Which is more flexible UTMA or UGMA

A

UTMA - can hold real estate and partnerships in addition to cash, stocks, bonds, mutual funds

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46
Q

UGMA age of maturity

A

18

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47
Q

UTMA age of maturity

A

21 or 25 depending on the state

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48
Q

Drawback of UTMA or UGMA for a minor

A

they are taxed on unearned income that is distributed or held in the account

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49
Q

Most UTMA and UGMAs can be converted into a what

A

529 - but the securities in the UTMA or UGMA must be sold first which could result in capital gains

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50
Q

Withdrawals from UTMA or UGMA must be used for whom?

A

the minor

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51
Q

A series EE bonds price is what relative to its face value

A

Price is 1/2 face value. Face value as low as $50

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52
Q

How does interest accrue for EE bonds

A

it accrues until they are worth their face value at maturity

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53
Q

Series EE interest rate

A

90% of the AVG 5 year treasury rate over the prir 6 months

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54
Q

EE bonds are safe and liquid although cashing in before maturity results in what

A

A reduced yield

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55
Q

How can EE bonds be exempt from Federal taxes?

A

Used for college tuition and fees

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56
Q

If you transfer EE bonds to a 529 is there tax?

A

No but the qualifications for income limits must be met in the year they’re redeemed. There are phase outs for this exclusion if they make too much $

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57
Q

Expected Family Contribution Amount

A

a percentage of parents and students assets they are expected to contribute toward the cost of college each year

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58
Q

Whos income and assets are included to find EFC?

A

Parents and students

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59
Q

For the most part, all Parents assets counts toward EFC except what

A

Retirement assets and home equity

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60
Q

Federal Govt expects a smaller contribution of whos assets towards college

A

Parents

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61
Q

Accounts owned by who are excluded from EFC?

A

Grandparents

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62
Q

Assets owned by whom result in greater reduction of financial aid?

A

The student

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63
Q

Which accounts will have the greatest negative effect on student financial aid?

A

UTMA or UGMA

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64
Q

ASSET contributions for financial aid include what percent of the parents net worth

A

5.64%

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65
Q

Parents contribution amount is what plus what

A

Adjusted income + assets = parents contribution amount

66
Q

Parents adjusted income based on AGI minus what

A

an allowance for taxes and basic living expenses

67
Q

Do dependent students have to contribute assets and income?

A

Yes

68
Q

Student percentage for assets

A

20% of net worth then add that to income amount

69
Q

Student income amount calculation

A

50% of students income after subtracting income protection allowance then add that to asset amount

70
Q

Factors for Asset Protection Allowance

A

family’s income, family size, number of family members in college and age of oldest parent

71
Q

Assets excluded from EFC

A

-home equity in primary residence
- retirement plans
- cash value life insurance
- annuities
- val of small business owned by family

72
Q

Coverdell and 529s count toward EFC if who owns them?

A

the Parents

73
Q

Strategy around Asset Protection for college funding

A

Invest in countable assets up to protection limits then invest in non-countable assets

74
Q

If you use IRA or 401k to pay for college what happens

A

No penalties but the principal and earnings count as earned income on the following years Aid application

75
Q

Are 529 and Coverdell withdrawals counted as income on next years aid application?

A

No - retirement plans are

76
Q

Do pell grants have to be repaid?

A

No it’s a grant

77
Q

Who are Pell grants awarded to generally

A

-vocational or undergraduate students who don’t have a bachelors
- lower income families

78
Q

How many Pell grants per year

A

Only one

79
Q

Can you receive a Pell grant for more than 1 school at the same time?

A

No

80
Q

What factors into Pell grant

A

EFC, your cost of attendance, full time or part time, did you go the full academic year

81
Q

Perkins Loans

A

Don’t exist anymore
Are available to be forgiven based on occupation

82
Q

What was the rate, grace period, and repayment term on a Perkins loan

A

5% fixed, 9 month grace period, 10 year repayment term

83
Q

Perkins Loan forgiveness took place over a what period

A

5 year

84
Q

What is the Dept of Education major form of financial aid?

A

Federal Direct Loan (stafford loan)

85
Q

What were Federal Direct Loans formerly called?

A

Stafford loan

86
Q

Subsidized Direct loan is based on what

A

student financial need. Gov pays interest while student is in school

87
Q

What does repayment of a Subsidized direct loan start

A

6 months after graduation

88
Q

Direct Unsubsidized loan

A

NOT based on financial need
can delay paying interest until you leave school

89
Q

When is interest expected to be repaid on a Direct Unsubsidized loan?

A

Within 60 days from the funds dispersal to the time the principal is paid off

90
Q

Direct Unsubsidized have what type of rate?

A

Fixed rate for the life of the loan

91
Q

Federal PLUS Loan is for who?

A

Parents who have a kid enrolled at least 1/2 the time

92
Q

Are PLUS loans need based?

A

No - based on total cost of college minus any other fin. aid grants and scholarships

93
Q

Can graduate students use a PLUS loan?

A

Yes

94
Q

Max interest rate on a PLUS loan (this is important)

A

9% - can change once a year

95
Q

When does interest start on a PLUS loan?

A

As soon as the first disbursement and until the loan is repaid

96
Q

How many installments on a PLUS loan

A

2 installments first installment never greater than 1/2 the loan amount

97
Q

Max Pell Grant this is important

A

$6,895

98
Q

How many pell Grants can you get per year?

A

1

99
Q

How is a Pell Grant pro rated based on your credits?

A

If full time is 20 credits and you’re taking 15 credits you would get 75% of the grant

100
Q

Max interest rate on a Stafford Loan? (subsidize or unsibsidized) this is important

A

8.25%

101
Q

A subsidized loan does not accrue interest until after the deferment period which is (3 things)

A

6 months after graduation, leaving school, going below 1/2 time status

102
Q

When does an unsubsidized loan start accruing interest?

A

as soon as the funds are disbursed

103
Q

How can you get extra deferment?

A

-Going 1/2 time to grad school
-in an approved fellowship program
-training program for the disabled
-can’t get work for 3 years
- economic hardship for 3 years

104
Q

What does a PLUS loan have that other loans don’t? (bad)

A

An origination fee, typically 4%

105
Q

2 Campus based Financial Aid Options

A
  1. Federal Supplemental Education Opportunity Grant
  2. Federal Work Study Program
106
Q

FSEOG gives priority to people who have received

A

Pell grants

107
Q

FSEOG range is from (what amount can you receive)

A

$100 to $4,000

108
Q

Perkins loan max rate (this is important)

A

5%

109
Q

Who is the lender on a Perkins loan?

A

The school itself, even though its federal money

110
Q

What is the deferrment on Perkins loan?

A

9 months - remember subsidized loan has 6 months

111
Q

Another name for a Qualified State Tuition Plan

A

529

112
Q

If you make a gift of 85k into a 529 this year and live 1 second into next year, how much is still included on your estate?

A

3 years - you get 1 year for the year you made the gift and since you lived at least 1 second into the next year you get that year also so you gifted a total of 35k

113
Q

When would you have to pay tax on funds from a coverdell?

A

If they’re not used for qualified education expenses

114
Q

Who owns the coverdell the parents or the kid?

A

The kid

115
Q

Max annual coverdell contribution?

A

2k

116
Q

Age max for fund use on coverdell vs 529

A

30 years on coverdell, no age limit on 529

117
Q

AGI for single and families on a Coverdell (this is important)

A

If you’re in the middle of these you can only do half so for example if you make $102,500 you can only put $1,000 into the account

118
Q

One Drawback of Coverdell (relative to other funding methods)

A

precludes the American Opp Credit or the Lifetime Learning Credit

119
Q

Say you owe 30k education expenses, how could you pay using a 529 and Coverdell?

A

Pay 20k of the expenses with a 529 and then pay 10k from a diff type of account and then use the coverdell for $2000 of that

120
Q

529 pays for 10k of elementary school ed but Coverdell pays for how much?

A

Unlimited

121
Q

How to calculate Phase out on a Covedell Contribution

A

(UPPER AGI Limit - ACTUAL AGI) / (Upper AGI - Lower AGI) * Contribution limit (say $4,000 for 2 kids) then divide the answer by each child

122
Q

Can an 18 year old receive coverdell contributions?

A

No

123
Q

American Educational Opportunity credit has what tax feature for the student

A

If you have zero tax liability you can get $1,000 refund

124
Q

Who can use the American Educational Opp credit?

A

The taxpayer
the Spouse
The Dependent

125
Q

Max a household can claim on Lifetime Learning Credit

A

10k per household but you only get 20% of that

126
Q

What type of student (enrollment) can use the American Opp Credit?

A

at least half time

127
Q

Clue on lifetime learning?

A

It’s lifetime so more than likely you’re not going full time

128
Q

Can you contribute to a coverdell and 529 in the same year for the same beneficiary?

A

Yes as long as the contributor’s AGI isn’t over the limit

129
Q

Is paying a dependent’s college directly subject to gift taxes?

A

No - paying for college is an exempt gift and is not subject to gift taxes

130
Q

If you’re given coverdell as an answer choice you need to be aware of what?

A

The contribution limit. More than likely you can’t contribute enough to cover the whole cost of college

131
Q

If a question asks you to cover “all of the required costs of college” what would you most likely choose?

A

529 Savings plan - prepaid tuition only pays for tuition. Coverdell is probably not going to have enough to pay for everything due to cap.

132
Q

On FAFSA - is child support or IRA/401k contributions counted?

A

Yes - counted as income.

133
Q

Which of the following is paid for by a 529
books, room and board, tuition, supplies

A

All are paid for by a 529

134
Q

No matter who its coming from - how much can a student accumulate in their Coverdell?

A

NO MORE THAN 2K TOTAL
mom, dad, uncle, no matter who can’t accumulate more than 2k

135
Q

If Im a grad student can I get a pell grant?

A

No but you can use a PLUS loan

136
Q

If Im part time can I get a Pell grant?

A

Yes

137
Q

Full or part time - can you use a pell grant?

A

Yes you can use a pell grant for full or part time but undergrad only

138
Q

FSEOG able to be used for part time student?

A

Yes - FSEOG is available for part or full time

139
Q

If I’m part time can I use the American Education Opp Credit?

A

Yes you can for a total of 4 years

140
Q

Perkins loans characteristics

A

Repayment can be extended up to 10 years
Undergrad OR GRAD
Basis of Financial Need

141
Q

Could a grad student have used a Perkins loan?

A

Yes

142
Q

Perkins loans - undergrad and grad?

A

Yes

143
Q

Can a grad student use the Amer Edu Opp Credit?

A

No - you would need to use the Lifetime Learning, PLUS loan or Perkins loan

144
Q

American Opp Credit apply to half time student?

A

Yes you must be going at least half time

145
Q

What financing is available for undergrads?

A

Subsidized Stafford, Unsubsidized Stafford, Perkins Loan, FSEOG, Pell Grant

146
Q

Which of the following is able to be paid for by a coverdell
Computer/Laptop
Transportation
Books/supplies
Tuition, room & board

A

All. Coverdell coverALL INCLUDING transportation

147
Q

Who controls the 529 the beneficiary or the account holder?

A

Account holder

148
Q

Is a 529 included in your estate if you’re the owner?

A

No not included for estate tax purposes

149
Q

Fastest way to get the most money into a 529

A

Married couple both contributing 5 years worth - 170k total

150
Q

How often can you transfer beneficiaries on a 529

A

not more than once every 12 months

151
Q

When might someone be subject to a gift tax on a 529

A

if the new beneficiary is a generation lower than the first beneficiary- relevant amount should be subject to the gift tax exclusion

152
Q

How is the american opp credit received?

A

Its paid as a credit, not a deduction, so you will receive cash back most likely in the form of a tax refund

153
Q

What do you do with the american opp credit refunds year to year?

A

You save them up to contribute to future years costs. For example you keep first 3 years and in year 4 you have $7500 to put toward tuition

154
Q

For financial aid purposes, a 529 is an asset of whom?

A

The owner, not the beneficiary

155
Q

Pell grant factor in other aid student receives?

A

No

156
Q

FSEOG factor in other student aid?

A

Yes

157
Q

TEACH grant

A

For students who plan to pursue teaching $4000 a year

158
Q

How long must you teach after receiving TEACH grant?

A

4 years

159
Q

Who decided who got a perkins loan

A

The school

160
Q

Is EFC taken into account on an unsubsidized loan?

A

No - its not based on need

161
Q

Limit you can borrow on a PLUS loan

A

cost of attendance minus any other financial aid. If school costs 10k and you receive 6k financial aid the parent can borrow 4k

Intro to FP (14 decks)

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