Building Bridges with College Funding

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Building Bridges with College Funding Beyond 529
Plans Advanced College Funding Strategies
Rick Darvis, CPA, CCPS 1-800-765-2031 rdarvis_at_sol
utionsforcollege.com www.solutionsforcollege.com
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Agenda

• The College Funding Opportunity
• College Funding vs. Retirement
• Education Tax Strategies

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Building Bridgeswith College Funding

• Bridge to existing and prospective clients
• Product has lost its sizzle
• Added Value is the key
• College funding will provide a niche
• College funding is HOT and recession proof
• Ultimate door-opener to premium clients

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College is EXPENSIVE!
45,000
40,000
48,000
35,000
30,000
32,000
25,000
20,000
15,000
16,000
10,000
5,000
Average Public University
Elite Private College
Average Private College
Source of college costs is from the College
Board.
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If You Havent Saved for College You May Have A
Retirement Issue!
?
?
How are you going to fund your own retirement
after paying for college?
How old will you be when your last
child graduates from college?
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College Dollars Spent Equals Retirement Dollars
Lost
Years Until Retirement
Public 80,000
Private 160,000
Elite 240,000
15 20
166,320 212,240
332,640 424,480
498,960 636,720
Assumes 5 investment rate, one child in
college, after-tax dollars
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Solving the Dilemma
Education Funding
Retirement Funding
How can I determine the most efficient way to
fund college and retirement without going broke?
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College is Paid with After-Tax Dollars
Assumes additional 5 state and local tax and
only ONE childs college expenses
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Education Tax Strategies
Using the IRS to Help Fund College

• A new-found tax benefit is the same as a tax
  scholarship
• The higher the income tax bracket, the greater
  the benefit
• of any tax strategy
• All tax strategies MUST be reviewed with a tax
  advisor

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Introduction to Tax Capacity

• Opportunities in the childs tax return
• Childs tax capacity definition
• Income shifting to utilize tax capacity

Age 0-13 1,600 Age 14-HS
34,700 College 37,900 HC/LC
The term Tax Capacity is from Practitioners
Publishing Company
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Example College Years
Wages IRA Withdrawal Capital Gain Personal
Exemption Standard Deduction Taxable Income Tax
Rate Tax Hope Tax Credit Childs Tax Liability
5,000 12,000 10,000 (3,100) (4,850)
19,050 X 5/15 1,508 (1,500) 8
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Case Study 1 Facts

• Income 145,000
• Assets 140,000 (outside of retirement)
• Medical expense of 9,000 per year
• Ineligible for aid at
• 35,000/year college
• Pay undergraduate
• graduate school

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Case Study 1 Strategies

• 1) Sole Proprietor
• Employ Mother in the business
• Establish SIMPLE IRA (Mother Father)
• Employ the two children in the business

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Case Study 1 Strategies

• 1) Sole Proprietor
• Employ Mother in the business
• Establish SIMPLE IRA (Mother Father)
• Employ the two children in the business

• 2) Tax Strategy
• Medical reimbursement plan
• First year depreciation election

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Case Study 1 Strategies

• 1) Sole Proprietor
• Employ Mother in the business
• Establish SIMPLE IRA (Mother Father)
• Employ the two children in the business

• 2) Tax Strategy
• Medical reimbursement plan
• First year depreciation election

• 3) Junior Year
• Employer Education Assistance
• Gift and leaseback of equipment
• Gifts of appreciated securities
• Life Insurance or Federal PLUS Loans

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Case Study 1 Added Value

• Eligible for 43,240 of financial aid
• Tax Scholarships of 36,125
• IRC 105 SIMPLE IRA tax benefit of 73,850
• IRC 127 tax benefit of 9,870
• Tuition Deduction tax benefit of 2,880

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Case Study 2 Facts

• Income - 624,000/year
• Assets - 4,017,000
• Newborn child
• Save and pay for K-12 private college
• Grandparents have
• desire to help

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Case Study 2 Strategies

• 1) Birth
• Grandparents fund Coverdell ESA and 529 Plan
• Fund UTMA with municipal bond fund

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Case Study 2 Strategies

• 1) Birth
• Grandparents fund Coverdell ESA and 529 Plan
• Fund UTMA with municipal bond fund

• 2) Teenager
• Employ child and invest wages in IRA (age 10)
• Gift and leaseback of equipment (age 14)

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Case Study 2 Strategies

• 1) Birth
• Grandparents fund Coverdell ESA and 529 Plan
• Fund UTMA with municipal bond fund

• 2) Teenager
• Employ child and invest wages in IRA (age 10)
• Gift and leaseback of equipment (age 14)

• 3) College
• Employer Education Assistance (age 21)
• Grandparents contribute to CRT
• Gifts of appreciated assets as needed

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Case Study 2 Added Value

• Tax scholarships of 98,601
• IRC 127 tax benefit of 4,515
• Grandparents
• Avoid tax on income of 123,005 from the 529
  Plan CESA
• Remove 226,000 from estate
• Receive a charitable tax deduction of 78,791
• Avoid tax on 80,000 of appreciation

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Review

• The College Funding Opportunity
• - Added value is the key
• - Network with other professionals
• - Attract premium clients, including
  grandparents
• College Funding vs. Retirement
• - Paying for college is a retirement problem
• - College dollars saved are retirement dollars
  gained
• Education Tax Strategies
• - Use tax capacity to add value and
  increase
• cash flow for investing
• - Unique opportunities for business owners
• - Employees also have opportunities

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The Next Steps
Building Bridges with College Funding
The College Funding Opportunity - How to
maximize financial aid eligibility - How to
maximize the education tax incentives - Methods
and investments to fund college
retirement - A roadmap to meet financial goals