Fundamentals/Education Planning Flashcards
Q1: Regarding Expected Family Contribution (EFC), when is a student considered to be independent?
Q2: What are the 5 types of financial aid programs?
A1: Over age 23, married, working on Masters or Doctorate, they have legal dependents (other than spouse), veteran of US Armed Forces
A2:
- Federal Pell Grant
- Stafford Loan
- Parent Loan for Undergrad Students (PLUS)
- GradPLUS Loan for Grad Students (Plus Direct)
- Federal Perkins Loan Program (expired 9/30/2017)
Q1: Describe the Federal Pell Grant:
Q2: Describe the Stafford Loan:
A1:
- NEED BASED on EFC amount
- only students who HAVE NOT earned a bachelors or professional degree qualify
A2:
- Primary type of financial aid by US Dept of Education
- Repayment starts 6 months after leaving school or falling below part-time status (6 hours)
- Two types:
- Subsidized: NEED BASED, interest paid by US Govt while student in school
- Unsubsidized: NOT need based; interest accrues when funds disbursed; not appropriate if parents intend to repay loans
Q1: Describe PLUS Loans
Q2: Describe PLUS Direct Loans
Q3: Desribe Federal Perkins Loan Program
A1:
- For parents to pay for child’s undergrad
- NOT need based, not subsidized
- appropriate for parents who can afford loan payment, but have not saved for education
A2:
- Graduate or professional student enrolled at least half-time at eligible school
- dependent on student credit score
- max to borrow is cost to attend less financial aid
- begin payments 6 months after graduation, leave school, or drop below half-time enrollment
- interest accrues as you go
A3: NEED BASED; expired 9/30/2017
What are the types of campus-based financial aid?
-
Federal Supplemental Education Opportunity Grant (FSEOG)
- Awarded to students with low EFC
- NEED BASED
- Federal Work Study
What are the types of student loan repayment?
-
Income Based Repayment (IBR)
- monthly, 15% of discretionary income, debt forgiven after 25 years
- Stafford and most other Federal loans are eligible
- PLUS (Except PLUS Graduate) loans not eligible
-
Pay as you earn Repayment
- 10% of discretionary income, 20 year forgiveness
- Only Direct Federal Loans (not Stafford) and PLUS Loans to grad students are eligible
-
Income Contingent Repayment
- similar to Pay as you Earn, except 20% of discretionary income with 25 year forgiveness
What are the tax-advantaged plans for education savings?
- Qualified State Tuition Plans
- Prepaid tuition
- Savings Plans (529 Plans)
- 529 ABLE accounts
- Coverdell Education Savings Accounts
- Roth IRA
- Series EE Savings Bonds
- UGMA
What is a 529 ABLE Account?
“Achieving a Better Life Experience”
- Assist persons with disabilities; like a 529
- beneficiaries must be entitled to benefits under Social Security or SSI, or have filed a disability certificate with the IRS
- Contributions can be made by anyone, not to exceed $15000 in total
- Rollovers from a 529 Plan allowed as long as ABLE beneficiary is same or is a family member of the original beneficiary; treated as contribution for that year
What are the characteristics of a Coverdell Education Savings Account?
- Considered asset of the parent
- $2000 contribution per year per beneficiary
- Phased out: MFJ $190-220K; Single $95-110K
- Parent/grandparent can contribute
- can be used for private elementary or secondary education
- must be used by age 30 of beneficiary
- 10% penalty on earnings and included in gross income if not used for qualified expense
- no contributions after 18th birthday
What are the characteristics of a Roth IRA?
- 2019: $6000+$1000 over age 50
- Qualified Distribution Rules:
- 5 year holding period AND one of;
- death, disability, age 59 1/2, first time home purchase up to 10k
- contributions/conversions can always be withdrawn
- Nonqualified distribution: earnings included in gross income and 10% penalty
- Education Benefit: 10% penalty waived if used for qualified expenses
What are the characteristics of a Series EE/E Savings Bonds?
- Sold at face value, $25 min, $10k annual max
- non-marketable, non-transferable
- do not pay interest, bond appreciates over 30 years based on fixed rate at time of purchase
- NOT subject to federal income tax until redeemed
- may qualify for tax-free treatment if used for education expense
- no state/local tax
What are the characteristics of a UGMA/UTMA?
- Considered assets of the child for financial aid
- Unearned income (interest, divs, cap gains) may be subject to “kiddie tax”
- If child < 19 taxed at child’s rate, unless a full-time student age 23 or less, then kiddie tax
- UTMA can hold real estate, UGMA cannot
Q1: Is student loan interest deductible?
Q2: What is the Lifetime Learning Tax Credit?
A1: Yes, if used for qualified expenses, deductible above-the-line (before AGI), limited to $2500
A2:
- Available for tuition and fees related to undergrad, grad and professional programs
- 20% of up to $10k of qualified expenses per year
- per family max is $2k/year
- can be claimed for unlimited number of years
- tuition, books, fees paid DIRECTLY to an eligible institution
Q1: What is the American Opportunity Tax Credit?
- Applies to tuition and fees for 4 years of post-secondary education
- 100% of first $2000 of qualified expenses
- 25% of second $2000
- Max credit per student is $2500/year
- based on the number of dependent students on family’s tax return
Q1: Can you claim AOTC or LLC in the same year as a 529 distribution?
Q2: Can you claim both AOTC and LLC for same child in the same year?
Q3: can you use AOTC and LLC for same expense paid by a qualified tuition program?
Q4: Can you ues AOTC an LLC in same year as a distribution from a qualified tuition program?
A1: yes, just not for same expense
A2: NO
A3: NO
A4: yes, just not for same expense
