Fundamentals Lesson 7 Flashcards
Expected Family Contribution:
Developed by:
Based on:
Formula:
Congress
Size of family, number of family in college at the same time, income, assets, unusual financial burdens
Financial need = tuition/cost of attendance - EFC
A student is considered independent if:
23 Married Masters or doctorate Legal dependents Veteran of US armed forces
Federal Pell Grant:
Needs based, dependent on EFC, only for undergrad
Stanford Loan (Federal Direct Loan):
Primary type of financial aid US dept of education Repayment after 6 month grace period Subsidized: need based Unsubsidized: not need based
Subsidized vs Unsubsidized
Subsidized interest paid by govt while undergrad in school
Unsubsidized interest accrues when funds are dispersed
Parent Loans for Undergraduate Students (PLUS)
For parents
Not need based
Unsubsidized
Grad PLUS for Graduate Students (PLUS Direct)
Dependent on student credit score
Max is cost-other financial assistance
6 month grace period
Unsubsidized
Federal Perkins Loan Program
Expired September 2017
Exceptionally low EFC (need based)
Federal Supplemental Education Opportunity Grant (FSEOG)
Very lord EFC
Income Based Repayment
10-15% discretionary income
Forgiveness after 25 years (taxable)
For Stafford & most federal loans
Pay As You Earn (PAYE)
For high debt-to-income ratio
10% discretionary income
Remaining forgiven after 20 years
Only Stafford & PLUS to Grad Students
Revised Pay As You Earn (REPAYE)
10%
Remaining forgiven after 20 years
Only Stafford & PLUS to Grad Students
Graduated Repayment
10 years
Start lower, increase every 2 years
More interest that standard
Extended Repayment
Loan balance over $30,000
Fixed or graduated
Payable over 25 years
Income Contingent Repayment
20% discretionary income or fixed over 12 years
Loan balances forgiven after 25 years
Prepaid tuition: Asset of \_\_? In-state at \_\_? Advantage? Disadvantages?
Parent
Today’s cost
Lock in cost at today’s dollars
Return only equal to inflation, May receive scholarships & not use tuition credits
529 Savings Plan: Asset of \_\_? Appreciation is \_\_? Proratable over 5 years. Amount? Advantages? Disadvantages?
Parent
Tax free
$80k/$160k if gift split
State income tax deduction, no phase out, owner controls assets/bene, removes from gross estate, can take $10k for loan payment
10% penalty on earnings & earnings in gross income if not qualified expenses (unless death, disability, or scholarship)
529A ABLE Account
Persons with disabilities
Only 1 per bene
Bene must be entitled to benefits under SSDI or SSI
$16,000 limit per year
Rollover from 529 considered contribution
Not counted to determine eligibility for financial aid
Coverdell Education Savings Account (ESA)
Asset of __?
Contribution limit?
Phase out?
Must be used by age __ of Bene?
Cannot make contributions beyond bene’s age of __?
Parent $2,000 annually $95-110k Single/$190-220k MFJ 30 18
Example Exam Question:
Fund education for 4 year old. College in 14 years. Use part to pay for private secondary as well as post-secondary. AGI of $70k. Make use of any tax-advantaged savings plans. Which do you suggest?
A. 529 B. Prepaid tuition C. Zero coupon bonds in UTMA D. Coverdell Education Savings Account E. Roth IRA
A or D
Roth IRA
10% penalty waived but earnings included in gross income
Series EE Savings Bond: Sold at? $\_\_ minimum/maximum Non marketable/non transferable Redeemable after \_\_ with 3 month interest penalty if redeemed in less than \_\_?
Face value
$25 minimum, $10,000 maximum
1 year
Less than 5 years
UGMA/UTMA: Asset of \_\_? Taxation of unearned income may be subject to \_\_? Primary risk? UTMA May include \_\_?
Child
Kiddie tax
Use for something other than education
Real estate
Example Exam Question:
Children are 2&4. Need $5,000 per child per year to fund education. Which do you recommend?
A. High yield corporate bonds in UGMA
B. Highly appreciating rental property on UTMA
C. Well diversified portfolio of common stocks in UGMA
D. EE savings bonds in children’s names
C
Interest on student loans is deductible __? Limited to $__?
Above the line (before AGI)
$2,500
Lifetime Learning Credit:
__% of up to $__ in qualified expenses each year
Maximum per family per year is $__?
Claimed for __ years?
20% up to $10,000
$2,000 max per family per year
Unlimited years
American Opportunity Tax Credit: Applies to tuition & fees for \_\_ years education? \_\_% of first $\_\_ \_\_% of second $\_\_ Max per student is $\_\_ per year
4 years
100% of first $2,000
25% of second $2,000
Max per student per year is $2,500
May claim both LLC or AOTC in same year as 529 plan distribution if?
Not used for same dollars/expenses
Example Exam Question:
Which is correct?
A. Lifetime Learning Credit is equal to 100% of qualified educational expenses up to a certain limit
B. American Opportunity Tax Credit s available first 4 years of post secondary education
C. Parent who claims child as dependent entitled to take AOTC for educational expenses of the child
D. Contribution limit for Coverdell Education Savings Accounts is applied per year per donor
B & C
Employer Education Assistance:
Benefit/Reimbursement not included in income up to $__?
$5,250
Example Exam Question:
AGI of $125,000. Nothing saved for college. Kids ages 18&17. Pay $20k/yr/child. Which is most appropriate to recommend?
A. 529
B. PLUS Loan
C. Pell Grant
D. Coverdell ESA
B
Lesson 7 Review:
Contemplating contribution to grandkid’s education fund. Both retired. Significant amount of discretionary income. Concerned about estate taxes. Which do you recommend?
A. Prepaid tuition
B. Coverdell ESA
C. UGMA or UTMA
D. 529
D
Lesson 7 Review:
What is max contribution to 529 plan to avoid taxable gift if gift splitting?
A. $16,000
B. $32,000
C. $80,000
D. $160,000
D
Lesson 7 Review:
All of the follow are true except?
A. AOTC available first 4 years of post-secondary education
B. LLC only available first 2 years of post-secondary education
C. AOTC awarded on per student basis
D. LLC awarded on per family basis
B
Lesson 7 Review:
Which is not need based?
A. Pell Grant
B. PLUS Loan
C. Perkins Loan
D. Subsidized Stafford Loan
B
Lesson 7 Review:
Awarded to low EFC, funds guaranteed available if student qualifies?
A. Pell Grant
B. PLUS Loan
C. Work Study
D. Stafford Loan
A
Lesson 7 Review:
Will, freshman tuition $4,000. Sydney, junior tuition $25,000. Max tax credit parents can take?
A. $2,000
B. $3,800
C. $3,650
D. None of the above
D
Lesson 7 Review:
Primary difference between Coverdell ESA & 529?
A. Coverdell can be used for private elementary, middle, or high school
B. Coverdell does not have phase out limit
C. 529 has phase out limit
D. 529 allows for 5 year proration of contributions
D
Lesson 7 Review:
Son, 18 freshman tuition $30,000/yr. AGI is $45,000. $25,000 withdrawal from 529. Pays remaining $10,000 out of checking. Which do you recommend?
A. LLC of $2,000
B. AOTC of $2,500
C. Cannot take LLC of AORC because 529 distribution
D. Take AOTC & LLC totaling $4,500
B
