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Ri CFP > General Principles Chapter 6 > Flashcards

General Principles Chapter 6 Flashcards

Education Planning

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1
Q

Needs Analysis Steps

A
  1. determine cost of college first year (fv)
    pv - current cost of 1 yr college
    n - how many years until starting college
    i/yr - rate that college cost grows at
    fv solve
  2. determine 4 year cost of college (lump sum amt future value)
    pmt = fv from above
    n= 4 (yrs of college)
    i/yr = real rate of return (use parents required ror and rate that college cost grows at
    pv solve

determine savings amt

  1. find lump sum needed today (how much to invest today)
    fv = pv from previous step
    n = years until college
    i/yr = after tax return (we already accounted for inflation so just need to know parents ror)
    pv solve
  2. find pmt amounts today to save every year (either beginning or end)
    fv = pv from step 2
    n = years until college
    i/yr = after tax return
    pmt solve
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2
Q

4 Funding Strategies

A

UTMA/UGMA
EE Edu Bonds
Coverdell Savings
529 Plans

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3
Q

Grants & Loans - Wealthy

A

wealthy parents are a plus
parent plus loans

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4
Q

Grants & Loans - PooriSh

A

70k < income
pell grants
supp education opp grant
subsidized stafford loans

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5
Q

American Opportunity Credit

A

first 4 years of college only
magi phase outs given on exam
2k + 25% of next 2k expenses (max 2500 credit)
at least a half time student
expenses paid w/ grants or schollys dont count
expenses for room n board dont count
expenses include tuition, fees, course material
cannot combine credit w anything else for the same child

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6
Q

Lifetime Learning Credit

A

all higher ed - undergrad & grad
2k max
20% of first 10k expenses
claim for unlimited period of time as long as qualifying expenses are incurred
magi phaseouts give on exam
cannot combine credit w anything else for the same child

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7
Q

Coverdell Withdrawal

A

use before student is 30
magi phaseouts on tax sheet

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8
Q

529 Distribution

A

no phaseouts

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9
Q

Grad Year Options

A

fulbright scholarship, stafford loan, 529 dist or coverdell withdrawal

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10
Q

Gifts of Present Interest

A

UTMA/UGMA, 529, Coverdell

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11
Q

Not a Complete Gift

A

ee edu bonds if parent owns the bond

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12
Q

529 Plan types

A

prepaid edu or college savings

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13
Q

Investment Return for 2 Types 529

A

CS: market based performance
PT: tracks tuition inflation

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14
Q

Risk Tolerance for 2 Types 529

A

CS: risk tolerant
PT: risk averse

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15
Q

Effect on Fin Aid for 2 Types 529

A

both: considered parents assets
greatly reduces students eligibility in needs based financial aid

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16
Q

Enrollment for 2 Types 529

A

CS: open enrollment
PT: limited

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17
Q

Covered Edu for 2 Types 529

A

CS: undergrad & grad
PT: MAY be undergrad only

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18
Q

Use Restrictions for 2 Types 529

A

CS: can include room & board
PT: generally limited to tuition and mantatory fees

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19
Q

Coverage by State for 2 Types 529

A

CS: avail in whatever state
PT: may restrict out of state cost

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20
Q

School Choice for 2 Types 529

A

CS: does not impact investment
PT: impacts investment return

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21
Q

Refunds for 2 Types 529

A

CS: return of investment, all earnings subject to 10% penalty
PT: investment + low rate of interest

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22
Q

Gifting

A

18k without gift tax filing (per estate tax law) per donor
OR
use up to 5 years of exemption at once and do not gift anymore during that period 18k x 5 = 90k

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23
Q

Gifting Through Trust

A

5 year averaging not available

24
Q

Rollover Rules

A

not considered a distribution but only one transfer to a different institution every 12 months

25
Q

529 Control of Assets

A

beneficiaries do not gain control over assets

26
Q

529 Bene Change

A

in same family in same generation = no taxable gift
generation below = taxable gift

27
Q

k-12 529 Withdrawals

A

under TCJA, can withdraw up to 10k from 529, which is new and may eliminate the need for coverdell ESA

28
Q

Student Loan 529 Withdrawals

A

may allow to pay for student loans up to $10k lifetime limit

29
Q

Coverdell ESA Contribution Info

A

2k per STUDENT not per donors (anyone can contribute)
not deductible
contribute up to tax filing due date
phase out

30
Q

Coverdell ESA Use Info

A

may be used for elementary/secondary education\
tuition, fees, tutoring, books, special needs stuff, room and board, uniforms, transfportation, after school programs, computer/equipment needed

31
Q

Coverdell ESA Age Limit

A

all funds must be used before student reaches 30, unused contributions remain in the pln

32
Q

Can you maintain a coverdell esa & 529

A

YES

33
Q

UGMA Investments

A

cash type: ee bonds, stocks , mutual funds, CDs savings accts
(remember: UGMA = ugly = no beautiful real estate)

34
Q

UTMA Investments

A

UGMA investment types + real estate and LPs

35
Q

UGMA Transferred to Child

A

at age of maturity (depending on state) 18 or 21
(remember: UGMA = ugly = younger kids are ugly)

36
Q

UTMA Transferred to Child

A

up to age 25

37
Q

UGMA/UTMA Gift Tax

A

gift of present interest 18k exclusion

38
Q

UGMA/UTMA Taxation

A

subject to kiddie tax

39
Q

UGMA/UTMA Fin Aid

A

assets count as owned by child

40
Q

Purpose of Kiddie Tax

A

discourage shifting income to kids (who are in a lower bracket) as a tax avoidance technique

41
Q

When does kiddie tax apply for kids with unearned income

A

when kids unearned income (i.e. interest income) is greater than $2600 w/ one living parent

42
Q

Kiddie Tax Calculation

A

if it applies:
1. 1300 standard deduction - i.e. no tax applied to first 1300 of income
2. next 1300 taxed at childs rate 10% ($130)
3. anything over 2600 taxed at parents rates

if child has earned income: step one deduction is earned income + 450

43
Q

UGMA/UTMA Transfers

A

some states allow transfers from ugma/utma to 529s
CHILD STAYS OWNER
BENE CANNOT BE CHANGED

44
Q

EE Bonds Features

A

purchased in parents names
redeemed in year that parent pays higher edu expenses
NO ROOM AND BOARD
interest is fully exempt from fed taxes

45
Q

Coordinate Tax Credits w/ Coverdell

A

cannot claim tax credit on the same dollars, can claim one of them if thre are sufficient expenses to cover both

46
Q

Coordinate Tax Credits with 529

A

claim credit for expenses in addition to wha distribution from 529 was for

47
Q

Student Loan Interest Deductions

A

above the line eduction for interest on qualified education loans
max 2500
phaseouts on exam

48
Q

Pell Grants

A

7k max
undergrad only
formula: cost of attendance - expected fam contribution
efc 6600

49
Q

Subsidized Stafford Loans

A

for students who show financial need after efc & pell grant

50
Q

Supplemental Edu Opp Grants

A

for pell grant recipients and up to 4k a year

51
Q

Public Service Loan Forgiveness

A

government and nonprofit employees forgiven after 120 payments , or 10 years as a firefighter, teacher, military, govt nursing

52
Q

Total and Permanent Disability Discharge

A

if you cannot work due to total and permanent disability, balance may be canceled

53
Q

Teacher Loan Forgiveness Program

A

5k-17.5 in loans forgiven (drect subsidized and unsubsidized, not plus) - elementary/secondary or low income agencies

54
Q

Income-Driven Repayment Plans

A

based on income

55
Q
A

Ri CFP (18 decks)

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