

Prepared for the Northshore School District PTSA Council
Brook Anderson

Mission: Providing comprehensive service
that enables clients to achieve goals,
develop resources, and implement plans.
o Retirement and life event planning
o Portfolio design and management
o Insurance, estate planning, employee benefits,
etc.
o Life-long financial coaching

Contact:
o 425-321-5801
o brook@kaizenfa.com
Brook Anderson, MBA, CPA • www.KaizenFA.com • Small Steps, Real Results
Laurie Klein

Mission: Providing comprehensive service
that enables clients to achieve goals, develop
resources, and implement plans.
o CFP®, ChFC®
o 2012 – 2015 FIVE STAR Wealth Manager, Best in
Client Satisfaction
o Fare Start Investment Committee Member
o Financial Planning Association – Puget Sound
Chapter Board Member

Contact:
o 425-321-5802
o laurie@kaizenfa.com
Laurie Klein, CFP®, ChFC® • www.KaizenFA.com • Small Steps, Real Results
College Planning
Retirement Planning
College savings decisions
should be in alignment with
your overall financial plan
Benefit Strategies
Holistic
Financial
Management
Insurance/Asset
Protection
Investments/Asset
Allocation
Estate Planning
Part I:
Part 2:
Part 3:
Part 4:
Part 5:
The Cost of College
Short Primer on Financial Aid
College Saving Vehicles
WA GET Program
529 Plans
Wrap-up with Q&A
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Washington State and US averages
Tuition inflation
Need for savings plan
Photo Credit: collegeconfidential.com
Average Estimated Full-Time Undergraduate Expenses
$16,325
$23,410
$37,229
$46,272
SOURCE: The College Board, Trends in College Pricing 2014, Figure 1
If you attended a public college in the mid
80’s…today’s college education (inflation
adjusted) is now more then 3 times as expensive!
SOURCE: The College Board, Trends in College Pricing 2014, Figure 6
15/16 Published Costs:
Tuition and Fees
$11,839
44%
$10,916 41%
Room and Board
$11,310
40%
$11,356 42%
Books and Supplies
$1,206
4%
Other
$2,679
10%
Cost of Attendance
Source: School Web Sites
$27,034
$960
4%
$3,542 13%
$26,774
Education Cost Inflation =
3.0%
3.0%
Current Bal =
0
15,000
Invest Growth Rate =
5.5%
5.5%
Grad Yr School Yr 4yr Cost Mo Save Mo Save
2016
Sr
108,343
8,803
7,517
2017
Jr
110,054
4,349
3,689
2018
So
113,356
2,903
2,452
2019
Fr
116,757
2,180
1,833
2020
8th
120,259
1,746
1,461
2021
7th
123,867
1,456
1,213
2022
6th
127,583
1,249
1,035
2023
5th
131,411
1,093
901
2024
4th
135,353
971
797
2025
3rd
139,413
874
713
2026
2nd
143,596
794
645
2027
1st
147,904
727
587
2028
Kind
152,341
671
538
2029
4yrs
156,911
622
496
2030
3yrs
161,618
580
460
2031
2yrs
166,467
543
427
2032
1yrs
171,461
510
399
2033
0yrs
176,605
480
373
Photo Credit: Learnvest.com
Key take away…Start early
Source: Wall Street Journal

Signed July 6, 2015

UW & WSU tuition…
down 5% in 2015-16 yr and
down 10% in 2016-17 yr

CWU, EWU, WWU and The Evergreen State College tuition…
down 20% over next 2 yrs.

WA community and technical college tuition…
down 5% in 2015-16 yr

Beginning in 2017-18 yr, tuition not to exceed BLS avg annual
growth rate in WA median wage.
Photo Credit: Seattle Times

Running Start / AP credits

Consider community college

Live at home / off campus

Seek private scholarships

Stay on track, graduate on time/early

“Bunching” to max financial aid

American Opportunity Tax credit

Summer courses can be less expensive

Take maximum # of credits tuition covers

Shop for reasonable COA (cost of attendance), incl. generous merit schools
Photo Credit: Linkedin.com
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

How EFC (Expected Financial Contribution) calculation works
How college savings options impact EFC
Should you consider Financial Aid in your planning
Photo Credit: NCSASports.org


Two forms FAFSA and CSS Profile (depends on the school)
Every school asks for the FAFSA
o It’s Free
o Less information than CSS


About 300 select private schools also ask for CSS profile
CSS administered by the College Board and imposes a
nominal fee per school
Source: Washington GET web page
Federal Methodology (FAFSA)
Institutional Methodology
(CSS/Financial Aid PROFILE)
Ignored
Capped, usually at 2-3 times income
Yes
No
Ignored
Counted
No
Yes
Paper Losses (Depreciation, capital losses, business/farm
losses, net operating loss carry-forwards)
Counted
Ignored
Non-Custodial Parent Income/Assets
Ignored
Counted
Assets Owned by a Sibling
Ignored
Counted, if sibling is under age 19 and
not yet in college
Allowance for College Savings
None
Subtracted from assets
Allowance for Emergency Reserve
None
Subtracted from assets
January 1
October 1
No
Yes
20%
25%
Equal split of parent contribution
Smaller reduction in parent contribution
1
100%
100%
2
50%
60%
3
33%
45%
4
25%
35%
Financial Aid Formula Components
Net Worth of Family Home
Simplified Needs Test
Net Worth of Small Family Businesses
Minimum Student Contribution or Summer Work Expectation
Start of Application Season
Adjustment for Regional Cost of Living Differences
Assessment of Student Assets
Number of Children in College (see below)
Source: https://www.edvisors.com/media/files/tip-sheets/fafsa-vs-css-profile-tip-sheet.pdf

Expected Family Contribution (EFC) calc is complicated
Primarily based on income and assets

Simplified EFC calculation…

o EFC = (1) Income Contribution + (2) Asset Contribution
o (1) Income Contrib. = up to 47% of After-tax AGI less $15k to $37k
plus 50% of student income in excess of $6.3k
o (2) Asset Contrib. = up to 5.64% Non-retirement assets less $6k-
49k plus 20% of student assets
NOTE: If income <=$24k, EFC is zero (eligible for max financial aid)
Financial Need = Cost of Attendance – EFC
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


Cost of attendance (COA) provided by school (UW is $27k)
If COA is <= EFC, than no financial aid
Not all schools provide aid equal to Financial Need
Adjustments to consider…
o Living off campus reduces COA
o Scholarships reduce COA
Calculator: https://fafsa.ed.gov  “FAFSA4caster” (lower right)
Example
Contribution for Income
Adjusted Gross Income (AGI)
Less State and Fed Taxes
Less Payroll Taxes
Less Income Allowance
Available Income
Contribution from Assets
Cash and savings accts
Non‐Retirement Investments
Educational savings
Net worth of business
1Less Asset Allowance
Discretionary Net Worth
x Asset multiplier
Contributions from assets
Table A3
X
120,000
‐21,300
‐9,180
‐27,000
62,520
12%
Y
5,000
100,000
40,000
0
‐28,800
116,200
12%
13,944
Avail Inc + Contrib form Assets (AAI)
X+Y
76,464
EFC from Table A6
EFC
29,613
Table A5
2
3
4
5
6
1
17.6k
21.9k
27.0k
31.9k
37.3k
Table A3: Income Protection Allowance
# of College students in houshold
2
3
4
5
14.6k
18.9k
15.9k
24.0k
21.0k
18.0k
28.9k
25.9k
22.9k
19.9k
34.3k
31.3k
28.3k
25.3k
Table A6: Parents Contribution from AAI
If parents’ AAI is—
The parents' contribution
Less than ‐$3,409
($750)
‐$3,409 t o $15,700
22% of AAI
$15,701 to $19,700 $3,454 + 25% of AAI over $15,700
$19,701 to $23,700 $4,454 + 29% of AAI over $19,700
$23,701 to $27,700 $5,614 + 34% of AAI over $23,700
$27,701 to $31,700 $6,974 + 40% of AAI over $27,700
$31,701 or more
$8,574 + 47% of AAI over $31,700
1Note:
from table A5, based on age and # of parents
Financial aid generally comes three forms…
1. Grants - cash gift to the student (57% of all aid)
2. Loans - funds that must be paid back, but have federally
established interest rates and certain beneficial features
(34% of all aid)
3. Work study - on campus employment, allowing the student
to earn and pay for a portion of their education cost




Introduce the most common
How do they work
Some pros/cons
What to consider when choosing
Remember, time is your greatest asset…
Photo Credit: http://blog.quizzle.com/2010/11/money-for-college-choosing-the-right-529-plan/
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Pre-paid tuition plans (e.g. WA GET)
State sponsored 529 Plan accounts
Coverdell savings accounts
Qualifying US savings bonds
Roth and Traditional IRAs
UGMA accounts
Taxable investment accounts
(e.g. a brokerage acct)
Photo Credit: yoursmartmoneymoves.com
Federal Income Tax
WA GET
529 Plan
Coverdell Savings Accounts
Non‐deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses
Non‐deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses
Non‐deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses and qualified K‐12 expenses also excluded
Qualifying U.S. Savings Bonds
Roth IRA
Traditional IRA
UGMA/UTMA
Investment Account
Non‐deductible contributions; Earnings and gains taxed to minor; first Deductible or non‐deductible withdrawn earnings excluded from Tax‐deferred for federal; tax‐free for $1050 of unearned income is tax Earnings and gains taxed in year realized; contributions; withdrawals in excess of state; certain post‐1989 EE and I bonds income after age 59 1/2 – and five years; special lower tax rates for certain basis subject to tax; 10% penalty on early exempt; unearned income over $2,100 may be redeemed federal tax‐free for 10% penalty on early withdrawals waived dividends and capital gains
withdrawals waived if used for qualified for certain children through age 23 is if used for qualified higher education qualified higher education expenses
higher education expenses
taxed at parents rate
expenses
Contributions treated as completed gifts; Federal Gift Tax Contributions treated as completed gifts; Contributions treated as completed gifts; No gift as qualifying bonds must be apply $14,000 annual exclusion, or up to apply $14,000 annual exclusion, or up to apply $14,000 annual exclusion
owned by the parent
$70,000 with 5‐year election
$70,000 with 5‐year election
Treatment
Value removed from donor's gross Value removed from donor's gross Federal Estate estate; partial inclusion for death during Value included in bond owner's gross estate; partial inclusion for death during Value removed from donor's gross estate
estate
a 5‐year election period
a 5‐year election period
Tax Treatment
Limited to 500 Units. A unit is priced Maximum based on the tuition and manditory fees Established by the program; many in $2,000 per beneficiary per year $10,000 face value per year, per owner, excess of $300,000 per beneficiary
combined from all sources
per type of bond
of UW/WSU
Investment
No gift involved
No gift involved
Transfers treated as completed gift; apply $14,000 annual gift exclusion
No gift involved; direct payments of tuition not considered gifts
Value included in the owner's gross estate
Value included in the owner's gross estate
Value removed from donor's gross estate unless donor remains as custodian
Value included in the owner's gross estate
No limit
No limit
$5,500($6,500 for taxpayers age 50 and $5,500($6,500 for taxpayers age 50 and over)
over)
Qualified Expenses
Tuition, fees, books, supplies, equipment, special needs; room and board for minimum half‐time students
Tuition, fees, books, supplies, equipment, special needs; room and board for minimum half‐time students
Tuition, fees, books, supplies, equipment, special needs; room and board for minimum half‐time students; additional categories of K‐12 expenses
Tuition and fees
Same as 529 plan
Same as 529 plan
No restrictions
No restrictions
Able to Change Beneficiary
Yes, to another member of the beneficiary's family
Yes, to another member of the beneficiary's family
Yes, to another member of the beneficiary's family
Not applicable
Not applicable
Not applicable
No; represents an irrevocable gift to the child
Not applicable
Time/Age Restrictions
10yrs from date of eligibility if not transfer to another benificiary???
None unless imposed by the program
Income Restrictions
None
None
Ability to contribute phases out for incomes between $190,000 and $220,000 (joint filers) or $95,000 and $110,000 (single)
Counted as asset of parent if owner is parent or dependent student
Counted as asset of parent if owner is parent or dependent student
Federal Financial Counted as asset of parent if owner is parent or dependent student
Aid
Investments
Fixed benefit plan. Designed to return the cost of tuition inflation less fees.
Menu of investment strategies as developed by the program
Use for Nonqualifying Expenses
Withdrawn earnings subject to federal tax and 10% penalty
Withdrawn earnings subject to federal tax and 10% penalty
Custodianship terminates when minor Contributions before beneficiary reaches Bond purchaser must be at least 24 years Withdraw earnings tax‐free only after Withdraw without penalty only after age reaches age established under state law age 18; use of account by age 30
old at time of bond issuance
five years and age 59 1/2
59 1/2
(generally 18 or 21)
Must have taxable compensation; Must have taxable compensation; Interest exclusion phases out for amount deductible reduced or contribution limit phases out for incomes incomes between $115,750 and eliminated for taxpayers who participate between $183,000 and $193,000 (joint $145,750 (joint filers) or $77,200 and in an employer retirement plan and have filers) or $116,000 and $131,000 (single)
$92,200 (single)
income above certain limits
None
None
None
Not counted as asset; withdrawals of principal and interest counted as financial aid income
Not counted as asset; withdrawals of principal and interest counted as financial aid income
Counted as student's asset
Counted as asset of the owner
Broad range of securities and certain Interest‐earning bond backed by full faith Broad range of securities and certain other investments
and credit of U.S. government
other investments
Broad range of securities and certain other investments
As permitted under state laws
Broad range of securities
Taxable portion of withdrawal prior to age 59 1/2 also subject to 10% early withdrawal penalty
Taxable portion of withdrawal prior to age 59 1/2 also subject to 10% early withdrawal penalty
Funds must be used for benefit of the minor
No restrictions
Counted as asset of bond owner
Withdrawn earnings subject to federal No penalty; interest on redeemed bonds tax and 10% penalty
included in federal income
Coverdell Qualifying WA 529 Roth Trad UGMA/ Invest Savings US Savings GET Plan
IRA IRA UTMA Acct Acct
Accts
Bonds
Federal Income Tax
Fed Gift Tax Treatment
Fed Estate Tax Treatment
Maximum Investment
Qualified Expenses
Beneficiary Changes Time/Age Restrictions
Income Restrictions
Federal Financial Aid
Investments Options
Nonqualifying Expenses
 What
is the Washington GET and how it works
 Current status of the GET
 Options for current and future GET participants
 What to consider when making choices

GET = “Guaranteed Education Tuition”

Pre-paid tuition savings program

100 GET units = one year undergraduate tuition and fees at
the most expensive WA public university.

Purchase up to 500 units per child.

Purchase all at once, or over time

The State guarantees 100 units = one year of tuition
regardless of future tuition levels.

Backed by the full faith and credit of the State of Washington.
Source: Washington GET web page

Temporary closed to new sales, can continue payments on
Custom Monthly Plans established prior to July 1, 2015

Conducting feasibility study

Unit purchase price fixed at $151 (adj), Payout at $117

GET Committee required to ensure accounts are not
decreased or diluted as a result of lower tuition.
o May include refunds, additional units, alt min payout value, etc.

Current owners will not get less than purchase value
Source: Washington GET web page
For GET units purchased in the past 4 years (>= $163 per unit)

We believe it probably makes sense to cash out.

Participants who bought units for $163 or more, will likely
experience zero growth for multiple years, when alternative
vehicles can offer better growth potential.

For units purchased at $163 or more, there will be no
penalties if cashed out.

Participants have until December 2016 to decide whether to
cash out, but the longer you wait the greater opportunity cost
High school age and bought units at low prices year’s ago…

Wise to stay with relatively low risk. GET offers almost no
prospect for future growth, but that could be OK.

Switching can introduce hassle and potential startup fees.
Need to fully understand alternatives.

If you need/desire more growth potential, a conservative 529
savings plan may be appropriate. Depends on multiple factors.
Elementary age students…
 Longer timeframe, likely want to move out the GET and into a
529 plan as the GET could be stagnant for years.
 Consider diversifying/augmenting GET with 529. Remember
college could cost more than your maximum GET credits.



Overview of 529 Plans
The pros/cons of 529s
What to consider when choosing/evaluating a 529 plan
Photo credit: ABC News

Education savings plan operated by a State or Ed Institution.

Either prepaid or savings, some states have both.

You can buy any state’s plan (except pre-paid tuition plans)

Provides tax benefits

It's up to each state to decide whether it will offer a 529
plan (or possibly more than one), and whether it will offer
state income tax relief.
Source: http://www.savingforcollege.com/intro_to_529s/
Source: https://www.ici.org/research/stats/529s/529s_14_q4/
Pros
Cons
No Fed tax on income or gains
Reduces financial aid…parent asset
High contribution limits
Gains subject to penalty if not used
for qualified expenses
Transferable
Plan administration fees
Excluded from donor's gross estate;
Plan selection important…the good,
partial inclusion for death during a
the bad, and the ugly
5-year election period
Diverse investment options
No income limitations
No age or time limitations
Parental
Source: control of assets
Allowed only 2 trades per year
Assets
 529 plans in student’s name or parent’s name count as a
“parent asset”
 Includes the sum of all your 529 plans
Income
 Withdrawals for qualified expenses not counted as income
Avoid Grandparent Trap…
 Accounts owned by a grandparent do not count as an asset,
but withdrawals count as student income the following year
(50% reduction after allowance).
 Could have grandparent pay only senior year
All 529 plans charge fees and expenses. These costs not
only vary among 529 plans but also can vary within a
single 529 plan. Fees may include:
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
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

enrollment charges
annual maintenance fees
sales loads
deferred sales charges paid when
investors withdraw their money
administration and management
fees and underlying fund
expenses.
Source: NASAA website, Photo credit: http://studentaccounts.wvu.edu/payments/60_40_payment_plan
Morningstar Analyst rates 529 plans on five factors…

Process: Did the plan hire an experienced asset allocator to
design a thoughtful, well-diversified glide path for the age-based
portfolios? What suite of investment options is offered?

People: What is Morningstar’s assessment of the underlying
money managers’ talent, tenure, and resources?

Parent: Is the program manager a good caretaker of college
savers' capital? Is the state managing the plan professionally?

Performance: Have the plan’s options earned their keep with
solid risk-adjusted returns over relevant time periods? How is the
plan expected to perform going forward?

Price: Are the investment
options a good value?
Highest Rated 529 Plans
Utah Educational Savings Plan (UESP) T. Rowe Price College Savings Plan
College Savings Plans of Maryland ‐ College Investment Plan
The Vanguard 529 Savings Plan
The ScholarShare College Savings Plan
New York's 529 College Savings Program ‐‐ Direct Plan
Ohio CollegeAdvantage 529 Savings Plan Bright Directions College Savings Program
Michigan Education Savings Program
CollegeAmerica
Virginia529 inVEST
Source: www.MorningStar.com, wwwsavingforcollege.com
State
Direct/Advisor
MorningStar Rating
Utah
Alaska
Maryland
Nevada
California
New York
Ohio
Illinois
Michigan
Virginia
Virginia
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Advisor
Direct
Advisor
Direct
Gold
Gold
Gold
Gold
Silver
Silver
Silver
Silver
Silver
Silver
Silver
SavingforCollege Non‐Resident Rating (1 to 5)
5
4.5
4.5
4.5
5
5
5
4.5
4.5
4.5
4.5

Understand how college savings fits within your broader
financial plan and alternative uses

Finding and select a plan that best fits your needs

Selecting appropriate investments within the plan critical.
o Time horizon
o Risk/reward tradeoff, personal risk
tolerance
o Total cost of ownership
o Consider age-based portfolios

Seek counsel if needed
Photo Credit: Columbia University

Prioritize…you can finance an education, not your retirement

Start early and save aggressively…it requires sacrifice

For most, a 529 is the preferred savings vehicle

Understand and optimize your financial aid

Minimize educational expenses
where you can and when reasonable

Avoid excessive debt
Photo Credit: www.clipartpanda.com
Thank You!
www.kaizenfa.com
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