the abcs of education savings1504615d-5a18-40a7...speaker notes different kinds of educational...

i 2020

Helping Create a Plan That Makes the Grade

The ABCs of Education Savings

We believe that education savings presented in a simple, approachable way can reduce anxiety about saving for education and set the stage for productive discussions, whether between families or between advisors and their clients.

This program was designed to motivate good saving behavior and help to make the careful planning involved in crafting a plan less overwhelming. The chartbook is organized into three main categories:

Acquaint: Understanding the education savings landscape

Build: Considerations in building a plan that fits your needs

Care: How to care for the plan to maintain good saving habits

By categorizing the subject of education savings into these three themes, we’ve made it simple for you to work to tailor a plan that fits your specific situation.

Speaker Notes1

02 10 35AcquaintUnderstand the Education Savings Landscape

BuildConsiderations in Building a Plan That Fits Your Needs

CareHow to Care for the Plan and Help Maintain Consistent Saving

1

02 10 35AcquaintUnderstand the Education Savings Landscape

BuildConsiderations in Building a Plan That Fits Your Needs

CareHow to Care for the Plan and Help Maintain Consistent Saving

AcquaintUnderstand the Education Savings Landscape 02

Speaker Notes Different kinds of educational institutions carry different costs. Here are the average costs for attending different kinds of post-high school education:

+ Around $9,000 for vocational school.

+ Up to $53,980 for a private, four-year college/university.

Tuition:

+ The cost of enrollment in classes.

+ Your clients also need to account for fees, room and board, books, transportation and other education-related expenses.

As you can see from the above, there’s a lot to plan for, so working with your clients to familiarize them with the education cost landscape is critical. Starting early will help alleviate some stress and can help put them on a path to success.

3

Education Is an Expense That Should Be Planned For

Cost of attending different types of post-high school education

Source: College Board. “Trends in College Pricing 2019,” 2019. Vocational school data provided by rwm.org, 2020. Trade school costs vary by specific trade.

Tuition and fees Room and board Books and supplies Transportation Other expenses

$10,000 $20,000 $30,000 $40,000 $50,000 $60,000

Public Two-YearIn-District

Commuter

VocationalSchool

Public Four-YearIn-State

On-Campus

Public Four-YearOut-of-StateOn-Campus

Private NonprofitFour-Year

On-Campus

Total cost of attendance

3

Education Is an Expense That Should Be Planned For

Cost of attending different types of post-high school education

Source: College Board. “Trends in College Pricing 2019,” 2019. Vocational school data provided by rwm.org, 2020. Trade school costs vary by specific trade.

Tuition and fees Room and board Books and supplies Transportation Other expenses

$10,000 $20,000 $30,000 $40,000 $50,000 $60,000

Public Two-YearIn-District

Commuter

VocationalSchool

Public Four-YearIn-State

On-Campus

Public Four-YearOut-of-StateOn-Campus

Private NonprofitFour-Year

On-Campus

Total cost of attendance

Speaker Notes The type of degree earned may play a role in future salary potential.

+ Average earnings by different types of degrees are shown in blue.

+ Unemployment rate by degree is shown by the light blue line.

+ Earnings and unemployment rates are shown for people 25 years and older.

+ There is a correlation between degree earned, salary and unemployment rate.

Whatever path your student decides to take, you can help by building a plan to save for it.

4

Education Tends to Increase Future Earnings Potential

Source: Bureau of Labor Statistics, 2018. Average earnings and unemployment rates are for the year 2019.

Unemployment rate Average earnings

High schooldiploma

Vocationalschool

Associate’sdegree

Bachelor’sdegree

Master’sdegree

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$37,960$41,704

$62,296

$74,5684.10%

3.70%

2.80%

2.20%2.10%

0%

1%

2%

3%

4%

5%

$44,824

4

Education Tends to Increase Future Earnings Potential

Source: Bureau of Labor Statistics, 2018. Average earnings and unemployment rates are for the year 2019.

Unemployment rate Average earnings

High schooldiploma

Vocationalschool

Associate’sdegree

Bachelor’sdegree

Master’sdegree

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$37,960$41,704

$62,296

$74,5684.10%

3.70%

2.80%

2.20%2.10%

0%

1%

2%

3%

4%

5%

$44,824

Speaker Notes Based on historical data, future tuition and fees are expected to increase by 3%–5% annually.

This means by 2037:

+ Tuition and fees for four years of college may be as high as almost $480,000 for private school and nearly $250,000 for public, in-state schools.

+ This doesn’t include room and board, and other expenses.

+ Investing in financial strategies that grow with the market can help offset the growth in tuition costs.

Having an idea of what tuition may look like in the future can help you create a more detailed plan informed by specific goals.

5

Tuition Cost May Grow Faster Than Your Student

Projected four-year college costs today versus 18 years from now.Tuition and fees are expected to increase at a rate of 3%–5% annually. This could mean an increase of $260,935 in tuition from the time your student is born until the time they graduate high school.

Sources: College Board. “Trends in College Pricing 2019,” 2019 and Invesco, Ltd, 2019. This scenario shows calculations based on 4 years at a private college and includes tuition, room and board, and fees, and assumes an average of 4.5% increase per year. The hypothetical examples are for illustrative purposes only and do not predict or depict the performance of any specific investment. Actual results may vary.

$215,920

$476,855

2019 2037

5

Tuition Cost May Grow Faster Than Your Student

Projected four-year college costs today versus 18 years from now.Tuition and fees are expected to increase at a rate of 3%–5% annually. This could mean an increase of $260,935 in tuition from the time your student is born until the time they graduate high school.

Sources: College Board. “Trends in College Pricing 2019,” 2019 and Invesco, Ltd, 2019. This scenario shows calculations based on 4 years at a private college and includes tuition, room and board, and fees, and assumes an average of 4.5% increase per year. The hypothetical examples are for illustrative purposes only and do not predict or depict the performance of any specific investment. Actual results may vary.

$215,920

$476,855

2019 2037

Speaker Notes Building a plan is crucial, regardless of how you go about it.

+ Advisors, for example, can help build education savings into a holistic financial plan.

Show your clients how planning can help lead to success.

+ Two out of five (40%) American families say they have a plan to save for education. Of those who saved:

- Students whose parents had a plan saved 3.5x more than those without a plan. - Families also borrowed 1/3 less than non-planners.

Building a plan has its benefits. Learning what’s important when considering your plan will help you to make smarter decisions on how to save.

6

Build a Plan

Careful planning may help your savings grow.People who say they have a college savings plan, on average, borrow 18% of their total cost of college, while non-planners borrow 31%.

Source: SallieMae, “How America Pays for College,” 2019.

44%

of American families say they have a plan

to save for education.

18% 31%

Planners Non-planners

vs.

Families that plan for education savings borrow significantly less than non-planners.

6

Build a Plan

Careful planning may help your savings grow.People who say they have a college savings plan, on average, borrow 18% of their total cost of college, while non-planners borrow 31%.


44%

of American families say they have a plan

to save for education.

18% 31%

Planners Non-planners

vs.

Families that plan for education savings borrow significantly less than non-planners.

Speaker Notes Every person is different and has his/her own specific circumstances that will ultimately drive what his/her investment approach looks like.

However, there are five specific strategies that anyone can begin with today, and we’ll walk through the ways in which you can tackle each of them one by one.

1. Plan: Identify savings goals and legacy-planning objectives.

2. Invest: Discover the different ways to save.

3. Adjust: Review investment allocations based on changes in your life.

4. Grow: Learn more about how your money is invested.

5. Spend: Develop a strategy to wisely utilize the money you’ve saved.

7

Assess Your Financial Health

Calculate your current savings, spending habits and potential future expenses.

Plan Invest Adjust Mature Spend

+ Identify personal goals and associated costs.

+ Identify any professional goals.

+ Determine how education savings fit into legacy planning.

+ 529 college savings plan.

+ Coverdell Education Savings Account.

+ Trust.

+ Decide if you’d like to partner with an advisor.

+ Identify and address important life events.

+ Schedule regular reviews.

+ Learn about markets, asset classes and their roles.

+ Learn about market trends and their potential impacts.

+ Attend educational seminars.

+ Develop a strategy to spend wisely from your education savings.

+ Think about spending in both the short term and long term.

+ Only spend what you need to—think about factors such as financial aid.

7

Assess Your Financial Health

Calculate your current savings, spending habits and potential future expenses.

Plan Invest Adjust Mature Spend

+ Identify personal goals and associated costs.

+ Identify any professional goals.

+ Determine how education savings fit into legacy planning.

+ 529 college savings plan.

+ Coverdell Education Savings Account.

+ Trust.

+ Decide if you’d like to partner with an advisor.

+ Identify and address important life events.

+ Schedule regular reviews.

+ Learn about markets, asset classes and their roles.

+ Learn about market trends and their potential impacts.

+ Attend educational seminars.

+ Develop a strategy to spend wisely from your education savings.

+ Think about spending in both the short term and long term.

+ Only spend what you need to—think about factors such as financial aid.

Speaker Notes Whether you prefer to do it yourself or have someone help you, there are a variety of resources to help get you on a path to success.

The Internet, resources from the government, as well as the library and your financial advisor can all provide unique and valuable insight that will allow you to identify your goals more clearly and craft a plan to meet them.

8

Resources to Help You Start Planning

“Do it yourself” vs. “do it with help” options.

The organizations listed to the right are not affiliated with Invesco or its subsidiaries.

The Internet

Government resources

Traditional resources

Financial advisor

Many websites provide a lot of great resources and tips:

+ SavingForCollege

+ NerdWallet

+ FinAid

SallieMae reports:

+ How America Saves for College

+ How America Pays for College

Department of Education

Securities and Exchange Commission (SEC)

Federal Student Aid

The research section of the library contains information on how to get started.

High school guidance counselors may provide resources on education and vocational training.

A financial advisor can help build education into your holistic financial plan.

Visit brokercheck.org to find an advisor.

“Do it yourself” planning “Do it with help” planning

8

Resources to Help You Start Planning

“Do it yourself” vs. “do it with help” options.

The organizations listed to the right are not affiliated with Invesco or its subsidiaries.

The Internet

Government resources

Traditional resources

Financial advisor

Many websites provide a lot of great resources and tips:

+ SavingForCollege

+ NerdWallet

+ FinAid

SallieMae reports:

+ How America Saves for College

+ How America Pays for College

Department of Education

Securities and Exchange Commission (SEC)

Federal Student Aid

The research section of the library contains information on how to get started.

High school guidance counselors may provide resources on education and vocational training.

A financial advisor can help build education into your holistic financial plan.

Visit brokercheck.org to find an advisor.

“Do it yourself” planning “Do it with help” planning

Speaker Notes Putting it all together:

+ Identifying your goals will help give you focus when creating your plan.

+ Use all available resources available to get started, as this will help you get a clear picture of all the considerations and steps to take to build your plan.

+ Establishing a plan can help give you peace of mind and put you on the path to success.

+ Remember, the end result of building your plan and saving may not be to fully fund your student’s education, but every dollar saved today can help for future expenses.

9

Acquaint Yourself with the Education Savings Landscape

Putting it all together.Education costs can be manageable with a planIdentify your education savings goals early to help lessen the burden.

Use all available resourcesThere are many resources—both in-person and online—that can help you get started.

Build a planHaving a plan can lead to increased success in reaching your education savings goal. The end result of your plan may not be to fully fund your student’s education, but remember that every dollar saved today is a dollar less to borrow and can help pay for future expenses.

9

Acquaint Yourself with the Education Savings Landscape

Putting it all together.Education costs can be manageable with a planIdentify your education savings goals early to help lessen the burden.

Use all available resourcesThere are many resources—both in-person and online—that can help you get started.

Build a planHaving a plan can lead to increased success in reaching your education savings goal. The end result of your plan may not be to fully fund your student’s education, but remember that every dollar saved today is a dollar less to borrow and can help pay for future expenses.

BuildConsiderations in Building a Plan That Fits Your Needs 10

Speaker Notes + There are many ways that you can save for your student’s post-high school education, and using one or combining a few of these options can help you achieve your stated goals.

+ Take a look at the different types of accounts that families are using.

+ Some options may be better suited for education savings than others.11

Families Have Several Options to Save for Education

As shown in the data to the right, Americans save for college in a number of ways. By using these options (either alone or in combination), families can help plan for future education expenses.

Source: SallieMae, “How America Saves for College,” 2018. Personal savings is defined as a general savings account, piggy bank, Bitcoin, checking accounts, CD, investment account, juvenile life insurance and US savings bonds.

0%

10%

20%

30%

40%

50%

60%

Personal Savings Coverdell ESA Trust(UGMA/UTMA)

529 Plan Other

54%

2% 3%

38%

3%

11

Families Have Several Options to Save for Education

As shown in the data to the right, Americans save for college in a number of ways. By using these options (either alone or in combination), families can help plan for future education expenses.

Source: SallieMae, “How America Saves for College,” 2018. Personal savings is defined as a general savings account, piggy bank, Bitcoin, checking accounts, CD, investment account, juvenile life insurance and US savings bonds.

0%

10%

20%

30%

40%

50%

60%

Personal Savings Coverdell ESA Trust(UGMA/UTMA)

529 Plan Other

54%

2% 3%

38%

3%

Speaker Notes There are a variety of options you have to save for education. Some kinds of accounts have different tax treatments when it comes to growth and withdrawals in addition to considerations surrounding applying for financial aid. Let’s look at these options more closely so you can decide which are right for your situation.12

Different Options, Different Tax Treatments

You have options when saving for education. Some of these options may work better than others, depending on your situation.

Source: Federal Student Aid, Department of Education. https://studentaid.ed.gov/sa/fafsa/filling-out. Visit IRS.gov for more information.

529 PlanRothIRA

(After-Tax)

CoverdellEducationSavingsAccount

UGMA/UTMA

Traditional IRA

(Pre-Tax)

12


You have options when saving for education. Some of these options may work better than others, depending on your situation.

Source: Federal Student Aid, Department of Education. https://studentaid.ed.gov/sa/fafsa/filling-out. Visit IRS.gov for more information.

529 PlanRothIRA

(After-Tax)

CoverdellEducationSavingsAccount

UGMA/UTMA

Traditional IRA

(Pre-Tax)

Speaker Notes 529 college savings plans were designed to save for many types of post-high school education. A few highlights of the plan include:

+ Any earnings gained on money invested in a 529 college savings plan grows and gets withdrawn federal and state tax-free, provided you are using the money for qualified education expenses, such as tuition, room, board, books and supplies for post-high school education endeavors. A full list of qualified expenses can be found at irs.gov.

+ This account will remain in control of whoever established it; ownership and decision-making power do not get transferred to the account’s beneficiary, allowing the owner to maintain control over any investment or withdrawal decisions.

+ The funds, as they are not owned by the student, will only count as a 5.6% weight in FAFSA financial aid calculations.

13


529 college savings plans.

Source: Federal Student Aid, Department of Education. https://studentaid.ed.gov/sa/fafsa/filling-out1 Visit IRS.gov for more information. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

Tax implications Account control Financial aid impact

Tax-free growth and tax-free withdrawals as long as they are used for qualified education expenses.1

Owner-driven account. Parental assets: 5.6% weight in FAFSA calculations.

13


529 college savings plans.



Tax-free growth and tax-free withdrawals as long as they are used for qualified education expenses.1

Owner-driven account. Parental assets: 5.6% weight in FAFSA calculations.

Speaker Notes Individual Retirement Accounts (IRAs) offer tax-free growth on earnings (and contributions if into a traditional IRA), but withdrawals are subject to federal and state tax.

+ Depending on the age you withdraw, you may be subject to an additional penalty.

+ IRAs are owner-driven accounts, and only transfer to a beneficiary upon the death of an owner.

+ IRAs, both traditional and Roth (after-tax contributions), have no income limit for contributions unless you participate in an employer-sponsored 401(k) plan.

+ These funds are considered retirement assets and are not counted in FAFSA financial aid calculations, but withdrawals from IRAs could show up as a spike in income, which does affect financial aid calculations.

14


Individual Retirement Accounts (IRAs).



Traditional IRA (Pre-tax)

+ Tax-deductible contributions. + Tax-free growth. + Taxed on distributions. + Penalty-free withdrawals for

education expenses for you, your spouse, your child, or your grandchild.1

Roth IRA (After-tax)

+ After-tax contributions. + Tax-free growth. + Possible tax-free withdrawals.1

+ Penalty-free withdrawals for education expenses for you, your spouse, your child, or your grandchild.1

Parental-owned account. Retirement assets are not counted in FAFSA calculations; however, distributions could spike income.

14


Individual Retirement Accounts (IRAs).



Traditional IRA (Pre-tax)

+ Tax-deductible contributions. + Tax-free growth. + Taxed on distributions. + Penalty-free withdrawals for

education expenses for you, your spouse, your child, or your grandchild.1

Roth IRA (After-tax)

+ After-tax contributions. + Tax-free growth. + Possible tax-free withdrawals.1

+ Penalty-free withdrawals for education expenses for you, your spouse, your child, or your grandchild.1

Parental-owned account. Retirement assets are not counted in FAFSA calculations; however, distributions could spike income.

Speaker Notes Uniform Gift to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)

+ Balances in these accounts may have potentially unfriendly tax treatments when it comes to taking withdrawals. Please consult your tax advisor for more details.

+ The ownership of UGMA/UTMA accounts transfer to the beneficiary at the age of majority (which can vary by state) for the beneficiary to make both investment and withdrawal decisions.

+ Because the account moves ownership to the beneficiary by the time they are applying for financial aid, assets in UGMA/UTMA accounts are counted as student assets in FAFSA financial aid calculations and carry a 20% weight when calculating financial aid eligibility.

15


Uniform Gift to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA).

Source: Federal Student Aid, Department of Education. https://studentaid.ed.gov/sa/fafsa/filling-out 1 Visit IRS.gov for more information.


Higher balances could potentially be tax unfriendly.1

Yield control of account to the child at age of majority. Account may be invested in various vehicles.

Student’s assets: 20% weight in FAFSA calculations.

15


Uniform Gift to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA).



Higher balances could potentially be tax unfriendly.1

Yield control of account to the child at age of majority. Account may be invested in various vehicles.

Student’s assets: 20% weight in FAFSA calculations.

Speaker Notes Coverdell Education Savings Accounts are a way to save for education expenses. There are a few important points to consider when thinking about using this type of account to save for post-high school education expenses:

+ There is a maximum annual contribution limit of $2,000.

+ The account is controlled by the owner until the beneficiary turns 30, then control transfers over for the beneficiary to make investment and withdrawal decisions.

+ As this account is likely not owned by the beneficiary at the time he/she is applying for financial aid, the money is considered “parent-owned” for the purposes of FAFSA financial aid calculations and carries a 5.6% weight in FAFSA calculations.

16


Coverdell Education Savings Accounts.



Tax-free growth, but $2,000 maximum annual contribution limit.1

Remains a parental-owned account until the beneficiary turns 30 years old.

Parental assets: 5.6% weight in FAFSA calculations.

16


Coverdell Education Savings Accounts.



Tax-free growth, but $2,000 maximum annual contribution limit.1

Remains a parental-owned account until the beneficiary turns 30 years old.

Parental assets: 5.6% weight in FAFSA calculations.

Speaker Notes + Not only does having a plan entice families to save more but saving in certain kinds of accounts can help money grow even more, as some accounts, such as 529 college savings plans, allow for tax-free withdrawals when used for qualified education expenses.

+ Balances in 529 plans tend to be higher than the balances of other accounts earmarked for education savings.

+ Saving in an account that has added benefits when it comes to education savings can encourage better savings behavior and help you go further in achieving your goals.

17

Saving in the Right Places Can Help Your Student Succeed

Parents who save in a 529 college savings plan typically save more than parents using other types of accounts.

Source: SallieMae, “How America Saves for College,” 2018.

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Savings

Am

ount

sav

ed

529 Plan Investment

$3,902

$5,441

$2,616

17

Saving in the Right Places Can Help Your Student Succeed

Parents who save in a 529 college savings plan typically save more than parents using other types of accounts.

Source: SallieMae, “How America Saves for College,” 2018.

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Savings

Am

ount

sav

ed

529 Plan Investment

$3,902

$5,441

$2,616

Speaker Notes There are two types of 529 college savings plans available: traditional and prepaid.

Traditional 529 college savings plans:

+ Invest in the market and therefore have the potential to grow faster than the college inflation rate; however, they offer no guarantee and are subject to investment volatility.

+ State-sponsored programs.

+ Offer a wide range of investment options or strategies.

+ Realized earnings are tax-free when funds are used for qualified education expenses.

Prepaid 529 college savings plans:

+ Buy “units or semesters of tuition” certificates at today’s tuition prices that can be used to pay for college at a future date.

+ Most prepaid plans are guaranteed by the sponsoring state or participating university. But not all come with that guarantee. Check with the individual plan for more information.

+ Certificates can be applied to other institutions if the beneficiary’s plans change. However, the value of the units may not cover the full cost of another school’s credits.

+ Most state-sponsored prepaid plans require that either the account owner or the beneficiary be a state resident when the account is opened. This does not apply to private institution plans.

+ Most prepaid plans only cover tuition and cannot be used to pay for other essential costs like room & board and other student expenses.

+ Before investing in a prepaid plan, ask what the refund policy is if the student decides not to go to college.

529 College Savings Plans: The Facts

Two types of 529 plans to fit your preferences and savings goals.

1 Subject to market risk.2 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

Traditional 529 college savings plans

Essentially an investment account1

+ Authorized by individual states.

+ Earnings not taxed when spent on qualified educational expenses.2

+ Can be used at any accredited college, including some overseas.

Prepaid 529 college savings plans

Pay tomorrow’s tuition at today’s price

+ Only valid for specific issuing state or participating institution.

+ There are no tax implications because money is not invested, “units or semesters” or “tuition certificates” are being purchased.

+ These “units or semesters” or “tuition certificates” are bought at today’s prices and can be used to pay for education at a future date.

18

529 College Savings Plans: The Facts

Two types of 529 plans to fit your preferences and savings goals.

1 Subject to market risk.2 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

Traditional 529 college savings plans

Essentially an investment account1

+ Authorized by individual states.

+ Earnings not taxed when spent on qualified educational expenses.2

+ Can be used at any accredited college, including some overseas.

Prepaid 529 college savings plans

Pay tomorrow’s tuition at today’s price

+ Only valid for specific issuing state or participating institution.

+ There are no tax implications because money is not invested, “units or semesters” or “tuition certificates” are being purchased.

+ These “units or semesters” or “tuition certificates” are bought at today’s prices and can be used to pay for education at a future date.

18

Speaker Notes Traditional 529 college savings plans can help education savings go even further than other savings vehicles.

1. Accepted at most schools nationwide

Two- and four-year colleges and universities, trade/vocational schools, graduate, online and some international schools are eligible.

2. Plans are flexible

Changing the beneficiary and investments on an account is easy.

3. Tax advantages

When used for qualified education expenses, earnings on contributions may be withdrawn free from federal and (in many cases) state taxes.

Some states allow tax deductions for 529 plan contributions.

4. Anyone can open an account

Yes, parents can open accounts, but so can grandparents, aunts, uncles, cousins, siblings, friends, neighbors, coworkers, your mailperson, your friend’s brother’s son’s cousin twice removed aunt…you get the picture.

5. Account holder maintains control

Account holder is in charge of decision-making for the account, even after the beneficiary reaches an age of majority.

19

Traditional 529 College Savings Plans: Designed for Education Savings

Traditional 529 plans have potential advantages over other savings vehicles when it comes to saving for education.

Traditional 529 college savings plan features

1Accepted

at most schools nationwide

2Plans are

flexible

3Tax

advantages

4Anyone

can open an account

5Account holder

maintains control

19

Traditional 529 College Savings Plans: Designed for Education Savings

Traditional 529 plans have potential advantages over other savings vehicles when it comes to saving for education.

Traditional 529 college savings plan features

1Accepted

at most schools nationwide

2Plans are

flexible

3Tax

advantages

4Anyone

can open an account

5Account holder

maintains control

Speaker Notes 1. Purchase “units” or “semesters” of tuition

With a prepaid 529 college savings plan, you’re not investing your money, you’re purchasing portions or whole semesters at select schools based on their current tuition rate. Those units can then be used regardless of how much the school’s tuition has grown since the initial purchase.

2. Plans are flexible

If plans change, certificates can be used at other institutions, but the value of those units purchased may not cover the full cost of another school’s credits.

3. Tax advantages

When used for qualified education expenses, earnings on contributions may be withdrawn free from federal and (in many cases) state taxes.

4. Anyone can open an account

Much like a traditional 529 college savings plan, anyone can open a prepaid 529 plan.

5. Lock in future rates with a guarantee

Some prepaid plans are sponsored by states that provide the guarantee that the current tuition can be used at a future date. Some guarantees are provided by the participating university. Others don’t come with a guarantee. Because prepaid 529 plans vary, it is best to research the details of each specific plan for more information.

20

Prepaid 529 College Savings Plans: Pay Tomorrow’s Tuition at Today’s Prices

Prepaid 529 plans can help alleviate concerns surrounding market volatility or future tuition increases.

Prepaid 529 college savings plan features

1Purchase “units” or

“semesters”of tuition

2Plans are

flexible

3Tax

advantages

4Anyone

can open an account

5Lock in future

rates with a guarantee

20

Prepaid 529 College Savings Plans: Pay Tomorrow’s Tuition at Today’s Prices

Prepaid 529 plans can help alleviate concerns surrounding market volatility or future tuition increases.

Prepaid 529 college savings plan features

1Purchase “units” or

“semesters”of tuition

2Plans are

flexible

3Tax

advantages

4Anyone

can open an account

5Lock in future

rates with a guarantee

Speaker Notes + The benefit of tax-free growth for 529 college savings plans can be significant when compared with a taxable account.

+ This graph illustrates the tax advantage of a 529 plan (Tara’s family’s choice) over a taxable account (Oliver’s family’s choice).

+ Both accounts begin with a $10,000 initial investment and assume a 5% annual rate of return.

+ By the time high school graduation came around, Tara’s account balance was at $24,066, which was $5,970 more than Oliver’s account balance of $18,096.

+ In addition, Tara has the added advantage of tax-free withdrawals when used for qualified education expenses.

$10,000

$15,000

$20,000

$25,000

Acc

ount

bal

ance

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

21

Tax-Advantaged Plans, Such as 529 College Savings Plans, Have Potential BenefitsTake a look at two families—Tara’s and Oliver’s—and how the different ways they save affected how much they had by the time Tara and Oliver were ready to graduate high school.

Both Tara and Oliver’s families started with a $10,000 balance in their accounts: Tara in a tax-advantaged 529 college savings plan and Oliver in a taxable account.

Source: Invesco, 2020. This hypothetical illustration assumes an initial investment of $10,000 and a 5% annual rate of return. The taxable account assumes a 28% federal and 5% state tax rate. The illustration does not represent the performance of any specific account or investment and does not reflect any plan fees or sales charges that may apply. If such fees or sales charges were taken into account, returns would have been lower.

Growth of $10,000 of savings over 18 years

Tara’s family: tax-advantaged account Oliver’s family: taxable savings account

Tara’s balance at age 18: $24,066

Oliver’s balance at age 18: $18,096

Tax-advantaged account grows

$5,970 more than a taxable

savings account.

$10,000

$15,000

$20,000

$25,000

Acc

ount

bal

ance

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

21

Tax-Advantaged Plans, Such as 529 College Savings Plans, Have Potential BenefitsTake a look at two families—Tara’s and Oliver’s—and how the different ways they save affected how much they had by the time Tara and Oliver were ready to graduate high school.

Both Tara and Oliver’s families started with a $10,000 balance in their accounts: Tara in a tax-advantaged 529 college savings plan and Oliver in a taxable account.

Source: Invesco, 2020. This hypothetical illustration assumes an initial investment of $10,000 and a 5% annual rate of return. The taxable account assumes a 28% federal and 5% state tax rate. The illustration does not represent the performance of any specific account or investment and does not reflect any plan fees or sales charges that may apply. If such fees or sales charges were taken into account, returns would have been lower.


Tara’s family: tax-advantaged account Oliver’s family: taxable savings account

Tara’s balance at age 18: $24,066

Oliver’s balance at age 18: $18,096

Tax-advantaged account grows

$5,970 more than a taxable

savings account.

Speaker Notes Most investors know that a 529 college savings plan is one of the best ways to save for a student’s education expenses. But did you know a 529 plan is also one of the best ways to help reduce your estate tax burden?

In addition to the education savings benefits, 529 college savings plans have the potential to double as an important estate-planning tool. Special rules that apply to 529 plans allow parents and grandparents to save for a student’s education while simultaneously reducing their taxable estate. Best of all, the account owner always retains control of the assets, unlike some other estate-planning vehicles.

22

529 College Savings Plans: Estate Tax Planning Features

Beyond education savings, 529 college savings plans can help families leave a legacy

When considering whether to use a 529 plan in your estate plan, keep in mind the following key points:1 The gift-tax exclusion applies, provided the 529 account owner

makes no other gifts to the beneficiary during a five-year period. Contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples filing jointly) made in one year may be prorated over a five-year period without subjecting the donor(s) to federal gift tax or reducing his/her federal unified estate and gift tax credit. If an individual contributes less than the $75,000 maximum ($150,000 for married couples filing jointly), additional contributions may be made without subjecting the donor to federal gift tax, up to a prorated level of $15,000 ($30,000 for married couples filing jointly) per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given beneficiary in the year of contribution. If the account owner dies before the end of the five-year period, a prorated portion of contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples filing jointly) made in one year may be included in his or her estate for estate tax purposes. Please consult your tax and/or legal advisor for further guidance.2 Non-qualified withdrawals from a 529 plan are subject to income tax and a possible 10% federal penalty on the earnings portion of the account. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

ContributionsAn individual may contribute up to $15,000 a year ($30,000 for a married couple) per beneficiary without triggering the federal gift tax.1

Accelerated giftingSpecial gift and estate tax treatment allows an individual to contribute up to $75,000 ($150,000 for a married couple) in one lump sum, per beneficiary, free of federal gift taxes (i.e., five times the annual gift tax exclusion), under a provision known as “accelerated gifting.”

Tax planningFor tax purposes, the Internal Revenue Service considers assets held in a 529 college savings plan as a completed gift and therefore treats them as the beneficiary’s assets and NOT the account owner’s.

Tax-free withdrawals2

529 college savings plan contributions and investment earnings may be withdrawn federal income tax-free if the money is used for Qualified Higher Education Expenses (QHEE).2

Control The 529 college savings plan owner maintains complete control over account assets and is allowed to make beneficiary changes or even discontinue the account and take the money back.2

Key considerations

22

529 College Savings Plans: Estate Tax Planning Features

Beyond education savings, 529 college savings plans can help families leave a legacy

When considering whether to use a 529 plan in your estate plan, keep in mind the following key points:1 The gift-tax exclusion applies, provided the 529 account owner

makes no other gifts to the beneficiary during a five-year period. Contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples filing jointly) made in one year may be prorated over a five-year period without subjecting the donor(s) to federal gift tax or reducing his/her federal unified estate and gift tax credit. If an individual contributes less than the $75,000 maximum ($150,000 for married couples filing jointly), additional contributions may be made without subjecting the donor to federal gift tax, up to a prorated level of $15,000 ($30,000 for married couples filing jointly) per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given beneficiary in the year of contribution. If the account owner dies before the end of the five-year period, a prorated portion of contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples filing jointly) made in one year may be included in his or her estate for estate tax purposes. Please consult your tax and/or legal advisor for further guidance.2 Non-qualified withdrawals from a 529 plan are subject to income tax and a possible 10% federal penalty on the earnings portion of the account. Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

ContributionsAn individual may contribute up to $15,000 a year ($30,000 for a married couple) per beneficiary without triggering the federal gift tax.1

Accelerated giftingSpecial gift and estate tax treatment allows an individual to contribute up to $75,000 ($150,000 for a married couple) in one lump sum, per beneficiary, free of federal gift taxes (i.e., five times the annual gift tax exclusion), under a provision known as “accelerated gifting.”

Tax planningFor tax purposes, the Internal Revenue Service considers assets held in a 529 college savings plan as a completed gift and therefore treats them as the beneficiary’s assets and NOT the account owner’s.

Tax-free withdrawals2

529 college savings plan contributions and investment earnings may be withdrawn federal income tax-free if the money is used for Qualified Higher Education Expenses (QHEE).2

Control The 529 college savings plan owner maintains complete control over account assets and is allowed to make beneficiary changes or even discontinue the account and take the money back.2

Key considerations

Speaker Notes + Creating a plan will help set you on a positive path for savings, but given the rising cost of school, most students and families will apply for financial aid.

+ It is a good strategy to save as well as apply for financial aid, but you need to know how savings and financial aid work together to maximize the resources available to pay for education.

+ Aid is based on a variety of factors that can be categorized in one of two ways: student merit (achievement) and financial need.

+ Income earned by parents counts more than other kinds of savings when calculating financial aid.

+ Loans, an often-used method of paying for education, come with interest that the student is required to pay back soon after graduation.

+ Some kinds of aid, such as grants for academic achievement and scholarships for sports, do not need to be repaid.

23

Financial Aid:What You Needto Know

Financial aid helps fill the gap between what school costs and what students are expected to pay.

1 Many undergraduates receive some type of financial aid.

2 Aid is based on two factors: student merit and financial need.

3 Parents’ income is the most heavily weighted factor in determining financial aid.

4 Students are required to repay education loans (plus interest).

5 Grants and/or scholarships are “free money”—they do not need to be repaid.

23

Financial Aid:What You Needto Know

Financial aid helps fill the gap between what school costs and what students are expected to pay.

1 Many undergraduates receive some type of financial aid.

2 Aid is based on two factors: student merit and financial need.

3 Parents’ income is the most heavily weighted factor in determining financial aid.

4 Students are required to repay education loans (plus interest).

5 Grants and/or scholarships are “free money”—they do not need to be repaid.

Speaker Notes When it comes to understanding of how financial aid is calculated, there are three important terms to understand:

1. FAFSA: A federal government application that asks a variety of questions related to your family’s income and assets.

+ This form must be submitted in order to get aid.

+ Find FAFSA online at FAFSA.ed.gov.

2. COA: Overall cost of attendance that includes all tuition, room, board and fees.

3. EFC: Expected family contribution. This is the amount your family will be expected to pay for education based on your particular financial circumstances.

24

Understanding Financial Aid

Important terminology.

Source: Federal Student Aid, Department of Education.https://studentaid.ed.gov/sa/types

FAFSAFree Application for Federal Student Aid

+ Helps to determine amount of federal aid families are eligible for.

+ Used by many public, private, community and vocational schools to calculate financial aid packages (the amount of aid—whether through grants, scholarships, or loans—offered by a school to a student).

COACost of attendance

+ Reflects the cost of attending a specific school.

+ Includes tuition, room, board, and related fees and expenses.

EFCExpected family contribution

+ Amount a family is expected to contribute to education costs each year.

+ Determined by FAFSA submission, not dependent on a specific school’s COA.

+ Cost of attendance – EFC = Financial need.

+ Keep in mind: EFC does not always reflect a family’s actual ability to pay.

Financial aid eligibility = +COACost of attendance


24

Understanding Financial Aid

Important terminology.

Source: Federal Student Aid, Department of Education.https://studentaid.ed.gov/sa/types

FAFSAFree Application for Federal Student Aid

+ Helps to determine amount of federal aid families are eligible for.

+ Used by many public, private, community and vocational schools to calculate financial aid packages (the amount of aid—whether through grants, scholarships, or loans—offered by a school to a student).

COACost of attendance

+ Reflects the cost of attending a specific school.

+ Includes tuition, room, board, and related fees and expenses.


+ Amount a family is expected to contribute to education costs each year.

+ Determined by FAFSA submission, not dependent on a specific school’s COA.

+ Cost of attendance – EFC = Financial need.

+ Keep in mind: EFC does not always reflect a family’s actual ability to pay.

Financial aid eligibility = +COACost of attendance


Speaker Notes Expected Family Contribution

The EFC calculation factors in the following financial resources that Tara’s family has:

1. 22%–47% of Tara’s parents’ income (based on a sliding income scale and after certain allowances).

2. 2.6%–5.64% of her parents’ nonretirement assets (including 529 plans, based on a sliding income scale and after certain allowances).

3. 20% of Tara’s assets (savings, investments, UGMAs/UTMAs, business/real estate interests).

4. 50% of Tara’s income above $6,400.

With FAFSA, Not All Money Is Considered Equally

Income and assets are considered differently when determining EFC.

For illustrative purposes only. The EFC calculation factors in the following financial resources that Tara’s family has: 1. 22%–47% of Tara’s parents’ income (based on a sliding income scale and after certain allowances). 2. 2.6%–5.64% of her parents’ nonretirement assets (including 529 plans, based on a sliding income scale and after certain allowances).Assets such as retirement accounts and real estate are excluded from the FAFSA formula when calculating EFC. A full list of excluded assets is available at irs.gov.

Example—Tara’s family: + Tara and her family have saved diligently for Tara to attend culinary school.

+ Her family has $75,000 in income and $100,000 in nonretirement assets.

+ Assuming Tara has not made any contributions, what can Tara’s family do to bridge the gap between what they are expected to pay and what they can actually pay?

Keep in mind:

Income contribution$35,250

+ + =Asset contribution$5,640

Student contribution$0

Expected family contribution

Parents’ incomeMoney earned

$75,000 x 47%

Parents’ assetsExcluding

retirement savings$100,000 x 5.64%

FAFSACalculations

25

With FAFSA, Not All Money Is Considered Equally

Income and assets are considered differently when determining EFC.

For illustrative purposes only. The EFC calculation factors in the following financial resources that Tara’s family has: 1. 22%–47% of Tara’s parents’ income (based on a sliding income scale and after certain allowances). 2. 2.6%–5.64% of her parents’ nonretirement assets (including 529 plans, based on a sliding income scale and after certain allowances).Assets such as retirement accounts and real estate are excluded from the FAFSA formula when calculating EFC. A full list of excluded assets is available at irs.gov.

Example—Tara’s family: + Tara and her family have saved diligently for Tara to attend culinary school.

+ Her family has $75,000 in income and $100,000 in nonretirement assets.

+ Assuming Tara has not made any contributions, what can Tara’s family do to bridge the gap between what they are expected to pay and what they can actually pay?

Keep in mind:

Income contribution$35,250

+ + =Asset contribution$5,640

Student contribution$0

Expected family contribution

Parents’ incomeMoney earned

$75,000 x 47%

Parents’ assetsExcluding

retirement savings$100,000 x 5.64%

FAFSACalculations

25

Speaker Notes Here are some important items to keep in mind when it comes to maximizing your financial aid opportunities.

+ Always submit a FAFSA form; you may be unaware of all available aid, and FAFSA can help identify those opportunities.

+ The way the system works today may not be the same as when your future student graduates high school, so be sure to keep up to date on any changes and contact a particular school’s admissions office for more detailed information.

+ Saving reduces your reliance on the financial aid system. You can control how much you save by building and implementing a plan.

+ Savings and investments held by a student’s parents count far less than income in calculating EFC.

+ Future financial aid eligibility is not necessarily affected by your current investment decisions.

26

Maximizing Financial Aid

Keep these points in mind when applying for financial aid.


Points to remember

Always submit a FAFSA form (you may be unaware of all available aid).

The way the system works today may not be the same when your future student graduates from high school.

Saving reduces your reliance on the financial aid system.

Savings and investments held by a student’s parents count far less than income in calculating EFC.

Future financial aid eligibility is not necessarily affected by your current investment decisions.

26

Maximizing Financial Aid

Keep these points in mind when applying for financial aid.


Points to remember

Always submit a FAFSA form (you may be unaware of all available aid).

The way the system works today may not be the same when your future student graduates from high school.

Saving reduces your reliance on the financial aid system.

Savings and investments held by a student’s parents count far less than income in calculating EFC.

Future financial aid eligibility is not necessarily affected by your current investment decisions.

Speaker Notes Federal student loans go hand in hand with student savings. Every dollar saved today is a dollar plus interest you may not have to borrow tomorrow. Consider the following points regarding federal student loans when applying for financial aid. Also important to note is that the principal, as well as interest, needs to be paid back when your student graduates.

+ First-year undergraduate: The maximum amount of federal loans that are allowed is $5,500 total, with a maximum of $3,500 in subsidized loans.

+ Second-year undergraduate: The maximum amount of federal loans that are allowed is $6,500 total, with a maximum of $4,500 in subsidized loans.

+ Third-year (and beyond) undergraduate: The maximum amount of federal loans that are allowed is $7,500 total, with a maximum of $5,500 in subsidized loans.

+ The aggregate total of federal loans is $31,000, with a maximum of $23,000 allowed in subsidized loans.

+ Please note these limits only apply to federally issued loans, not private.

27

Federal Student Loans

Consider these points when applying for financial aid.

Source: StudentAid.gov. Loan information based on dependent student status. For illustrative purposes only. This does not apply to private loans. Individual private lenders will provide their own rules on limits.

Limits: first-year undergraduate

+ $5,500 total

+ A maximum of $3,500 may be in subsidized loans.

Limits: second-year undergraduate

+ $6,500 total


Limits: third-year and beyond undergraduate

+ $7,500 total


Aggregate loan limit

+ $31,000 total


Subsidized loansThe US Department of Education

pays interest on subsidized loans while student is in school.

Unsubsidized loansInterest accrues on unsubsidized loans while student is in school.

27

Federal Student Loans

Consider these points when applying for financial aid.

Source: StudentAid.gov. Loan information based on dependent student status. For illustrative purposes only. This does not apply to private loans. Individual private lenders will provide their own rules on limits.

Limits: first-year undergraduate

+ $5,500 total


Limits: second-year undergraduate

+ $6,500 total


Limits: third-year and beyond undergraduate

+ $7,500 total


Aggregate loan limit

+ $31,000 total


Subsidized loansThe US Department of Education

pays interest on subsidized loans while student is in school.

Unsubsidized loansInterest accrues on unsubsidized loans while student is in school.

Speaker Notes + Oliver’s family is looking to finance Oliver’s hypothetical college cost of $100,000 and has not made a plan to save and thus will rely on loans.

+ Oliver would have had to borrow $75,000 to pay for his tuition—possibly putting his retirement and other financial goals at risk due to long-term interest payments.

+ College-funding strategies that emphasize savings can substantially reduce the need to borrow—having limited impact on financial aid and leaving the parents better prepared for the future.

+ The important fact is that even a little savings can go a long way toward reducing reliance on loans.

+ This, in turn, can reduce the burden of paying back these loans and the potentially significant added interest in the decades after college.

28

Student Loans

Loans can have a large impact on a student’s financial future, so it’s important to start building a savings plan early to minimize borrowing.

This chart is for illustrative purposes only.

25%Financial aid

75%Loans

Loan-focused strategyOliver’s family: Loan-focused education funding strategy.

Assume Oliver’s education costs $100,000. Relying on loans, Oliver’s funding strategy may look like this:

28

Student Loans

Loans can have a large impact on a student’s financial future, so it’s important to start building a savings plan early to minimize borrowing.


25%Financial aid

75%Loans

Loan-focused strategyOliver’s family: Loan-focused education funding strategy.

Assume Oliver’s education costs $100,000. Relying on loans, Oliver’s funding strategy may look like this:

Speaker Notes + In a savings-focused strategy, Tara’s parents saved $40,000 (about $84 on a bi-weekly basis for 18 years), which reduced the amount of loans that she had to take out to afford school.

+ Tara received $20,000 in financial aid, and only had to borrow $40,000 in loans to cover the additional expenses.

+ Compared to the loan-focused strategy visible in the middle of the pie chart, the amount of financial aid received was not much less than the loan-focused strategy, but saving helped to decrease the amount of loans taken out by 47%.

+ It’s important to stress that every dollar saved is almost a direct dollar less to borrow—and repay with interest.

29

Saving Now Means Borrowing Less Later

Start now to help relieve the burden of debt.


20%Financial aid

Increasedsavings-focusedstrategy

40%Loans

40%529 savings

Loan-focusedstrategy 25%

Financial aid

75%

Loans

Savings-focused strategyTara’s family: Savings-focused education funding strategy.

Assume Tara’s education costs $100,000 and her family saved a portion of that in a 529 college savings plan. This reduced the amount of loans she would have to take, but did not create a large reduction in the amount of financial aid received.

29

Saving Now Means Borrowing Less Later

Start now to help relieve the burden of debt.


20%Financial aid

Increasedsavings-focusedstrategy

40%Loans

40%529 savings

Loan-focusedstrategy 25%

Financial aid

75%

Loans

Savings-focused strategyTara’s family: Savings-focused education funding strategy.

Assume Tara’s education costs $100,000 and her family saved a portion of that in a 529 college savings plan. This reduced the amount of loans she would have to take, but did not create a large reduction in the amount of financial aid received.

Speaker Notes Saving now will financially benefit you and your student later. While this makes intuitive sense, how does this look in the real world?

+ Putting away money now can help jump start your savings.

+ If that money is invested, it may grow due to market performance.

+ The more savings you have, the less your student will have to find in sources elsewhere, such as loans.

+ The less money they have to pay back means more money they can use to start their own savings for longer-term goals, such as retirement or buying a house.

30

Potential to Maximize Financial Benefits During and After

Putting money away now may help you—and your student—later. Put money

away now.

1

Money may grow if

invested.

2

The more you save/invest

now, the less your future

student may have to find later.

3

After graduation, your student may have less

debt and can start their own

savings earlier.

4

30

Potential to Maximize Financial Benefits During and After

Putting money away now may help you—and your student—later. Put money

away now.

1

Money may grow if

invested.

2

The more you save/invest

now, the less your future

student may have to find later.

3

After graduation, your student may have less

debt and can start their own

savings earlier.

4

Speaker Notes Retirement savings do not equal education savings.

+ Retirement savings are meant to be for the long term, and the way accounts are designed may employ a penalty for withdrawing before a certain age.

+ Withdrawing funds while you’re saving could result in lost market gains on those missed contributions, resulting in less savings for you.

+ Plans vary in rules about borrowing.

+ Money from a retirement account may count for more when FAFSA makes its EFC calculations.

31

Retirement Savings Are Not Education Savings

Consider these four points before using retirement accounts to fund education expenses:

1Retirement

savings are meant to be long-term

strategies.

4Distributions from

retirement accounts such as IRAs can actually hurt the amount of financial aid your student may

be eligible for.

2Withdrawing funds

during your prime savings years may reduce the amount you have for

your retirement.

3Borrowing from retirement

accounts comes with stipulations (e.g., taxes and

potential penalties) that may not make it the best option

for funding college.

Retirement savings

31

Retirement Savings Are Not Education Savings

Consider these four points before using retirement accounts to fund education expenses:

1Retirement

savings are meant to be long-term

strategies.

4Distributions from

retirement accounts such as IRAs can actually hurt the amount of financial aid your student may

be eligible for.

2Withdrawing funds

during your prime savings years may reduce the amount you have for

your retirement.

3Borrowing from retirement

accounts comes with stipulations (e.g., taxes and

potential penalties) that may not make it the best option

for funding college.

Retirement savings

Speaker Notes Tara’s Family: Separate Savings for Education and Retirement

+ Tara’s family has been saving for Tara’s education expenses since she was a newborn.

+ With an income of $75,000, they divide their 10% contribution ($7,500) between Tara’s 529 college savings plan ($3,750) and their own retirement savings ($3,750).

+ When Tara turns 18, her parents have an estimated balance of $110,771 in Tara’s 529 college savings plan, making it easier to stick with their plan to not withdraw any funds from their retirement account. Once Tara graduates from college, they will be able to begin increasing the amount they contribute to their retirement account to $7,500, beginning their retirement with an estimated $348,365 in their account.

32

Saving for Both Education and Retirement Can Benefit in the Long Term

Take a look at Tara’s family’s strategy.

For illustrative purposes only.Source: Invesco, 2018. This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Investment contributions are based upon an average annual contribution of $7,500, with $3,750 going into a 529 plan and $3,750 going into retirement savings vehicles for years 0–18, then $7,500 going into retirement savings vehicles for years 19–31. Growth is determined by a 5% annual rate of return. Systematic investing does not assure a profit and does not protect against loss in declining markets. Before investing, investors should evaluate their long-term financial ability to participate in such a plan.

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

Am

ount

of

savi

ngs

Years

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 310

Balance at retirement: $348,365

Balance in 529 plan when Tara turns 18: $110,771

$0 starting balance

for 529 plan

$0 starting balance for retirement accounts

529 college savings plan Retirement savings

32

Saving for Both Education and Retirement Can Benefit in the Long Term

Take a look at Tara’s family’s strategy.

For illustrative purposes only.Source: Invesco, 2018. This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Investment contributions are based upon an average annual contribution of $7,500, with $3,750 going into a 529 plan and $3,750 going into retirement savings vehicles for years 0–18, then $7,500 going into retirement savings vehicles for years 19–31. Growth is determined by a 5% annual rate of return. Systematic investing does not assure a profit and does not protect against loss in declining markets. Before investing, investors should evaluate their long-term financial ability to participate in such a plan.

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

Am

ount

of

savi

ngs

Years

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 310

Balance at retirement: $348,365

Balance in 529 plan when Tara turns 18: $110,771

$0 starting balance

for 529 plan

$0 starting balance for retirement accounts

529 college savings plan Retirement savings

Speaker Notes Oliver’s loans added up to 50% of his annual income after graduation:

+ No extra money to contribute to his retirement savings.

+ 15 years later, once Oliver grew in his career and made a higher salary, he was able to start contributing.

Tara’s family saved diligently in a 529 college savings plan:

+ Her loan repayment was only 30% of her overall salary after graduation.

+ She was able to start saving right away in her employer’s 401(k) plan.

By the time Oliver was able to start contributing to a 401(k) plan:

+ Tara’s contributions and earnings growth had grown to $40,801.

When they were both ready to retire at age 65:

+ Tara’s contributions and earnings growth reached $468,931.91.

+ Oliver’s account had grown to $244,322.29.

+ A difference of $224,609.62!

By saving in a 529 plan, Tara’s family was able to give Tara a head start on her own savings. Having an automatic contribution set up to Tara’s 529 plan really helped her family: they were saving without having to think about it, and Tara’s debt at graduation was more manageable.

$0

$100,000

$200,000

$300,000

$400,000

$500,000

Ret

irem

ent

savi

ngs

Years After College

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42

33

Education Savings Now May Lead to a More Comfortable Retirement

Putting money away now may help you—and your student—later.

Source: Invesco 2018. This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Retirement savings assumes $5,000 in contributions per year with a 6% rate of return. Illustration is based off of loan repayments for each student. College costs represent four years of tuition and fees with a 4.5% inflation growth in cost each year. Starting salary for both individuals after graduation is $40,000. Tara’s payments represent 30% of her annual income devoted to loan payments, and Oliver’s represents 50%.


529 college savings plan saver, Tara Non-529 plan saver, Oliver Tara’s balance at retirement:$468,931.91

Oliver’s balance at retirement:$244,322.29

15 years after graduation, when Oliver has started contributing,

Tara’s 401(k) balance has reached $40,801.82

At retirement, Tara had $224,609.62

more in her account than Oliver

$0

$100,000

$200,000

$300,000

$400,000

$500,000

Ret

irem

ent

savi

ngs

Years After College

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42

33

Education Savings Now May Lead to a More Comfortable Retirement

Putting money away now may help you—and your student—later.

Source: Invesco 2018. This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Retirement savings assumes $5,000 in contributions per year with a 6% rate of return. Illustration is based off of loan repayments for each student. College costs represent four years of tuition and fees with a 4.5% inflation growth in cost each year. Starting salary for both individuals after graduation is $40,000. Tara’s payments represent 30% of her annual income devoted to loan payments, and Oliver’s represents 50%.


529 college savings plan saver, Tara Non-529 plan saver, Oliver Tara’s balance at retirement:$468,931.91

Oliver’s balance at retirement:$244,322.29

15 years after graduation, when Oliver has started contributing,

Tara’s 401(k) balance has reached $40,801.82

At retirement, Tara had $224,609.62

more in her account than Oliver

Speaker Notes Having a plan is better than no plan at all, but there are strategies that can help you create the smartest and best plan for your family.

Understand your options:

+ Look at plans designed for education savings that may be worth taking a harder look at.

+ Maximize financial aid opportunities.

+ Knowing financial aid basics and how your savings can work together with financial aid will make your money go further.

+ Don’t take money out of your retirement account.

34

Having a Plan Is Better than No Plan

Putting it all together.

Review the costs before withdrawing from retirement accounts

+ This may lessen your chance of a dignified retirement.

Understand your options + There are many ways to go about saving for college.

+ Some plans are built for college savings and have potential benefits in the financial aid process.

Maximize financial aid + Understanding how financial aid works and the detriment to not saving can focus

your plan on saving a little over time.

34

Having a Plan Is Better than No Plan

Putting it all together.

Review the costs before withdrawing from retirement accounts

+ This may lessen your chance of a dignified retirement.

Understand your options + There are many ways to go about saving for college.

+ Some plans are built for college savings and have potential benefits in the financial aid process.

Maximize financial aid + Understanding how financial aid works and the detriment to not saving can focus

your plan on saving a little over time.

CareHow to Care for the Plan and Help Maintain Consistent Saving 35

Speaker Notes Automatic Investment Programs allow you to choose how much money to deposit and when to deposit it, thus setting up savings without too much effort. This allows you to grow your savings while managing your budget.

36

Plan Features to Help Maintain a Consistent and Dedicated Savings Habit

Automatic Investment Programs (AIPs) allow for regular contributions directly to your account.

For illustrative purposes only.

January1 2 3 4 5

8 9 10 11 $

15 16 17 18 19

22 23 24 25 26

29 30 31

February1 2

5 6 7 8 $

12 13 14 15 16

19 20 21 22 23

26 27 28

March1 2

5 6 7 8 $

12 13 14 15 16

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April2 3 4 5 6

9 10 11 12 $

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30

May1 2 3 4

7 8 9 10 $

14 15 16 17 18

21 22 23 24 25

28 29 30 31

June1

4 5 6 7 $

11 12 13 14 15

18 19 20 21 22

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July2 3 4 5 6

9 10 11 12 $

16 17 18 19 20

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30 31

August1 2 3

6 7 8 9 $

13 14 15 16 17

20 21 22 23 24

27 28 29 30 31

September3 4 5 6 7

10 11 12 13 $

17 18 19 20 21

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October1 2 3 4 5

8 9 10 11 $

15 16 17 18 19

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November1 2

5 6 7 8 $

12 13 14 15 16

19 20 21 22 23

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December3 4 5 6 7

10 11 12 13 $

17 18 19 20 21

24 25 26 27 28

31

36

Plan Features to Help Maintain a Consistent and Dedicated Savings Habit

Automatic Investment Programs (AIPs) allow for regular contributions directly to your account.

For illustrative purposes only.

January1 2 3 4 5

8 9 10 11 $

15 16 17 18 19

22 23 24 25 26

29 30 31

February1 2

5 6 7 8 $

12 13 14 15 16

19 20 21 22 23

26 27 28

March1 2

5 6 7 8 $

12 13 14 15 16

19 20 21 22 23

26 27 28 29 30

April2 3 4 5 6

9 10 11 12 $

16 17 18 19 20

23 24 25 26 27

30

May1 2 3 4

7 8 9 10 $

14 15 16 17 18

21 22 23 24 25

28 29 30 31

June1

4 5 6 7 $

11 12 13 14 15

18 19 20 21 22

25 26 27 28 29

July2 3 4 5 6

9 10 11 12 $

16 17 18 19 20

23 24 25 26 27

30 31

August1 2 3

6 7 8 9 $

13 14 15 16 17

20 21 22 23 24

27 28 29 30 31

September3 4 5 6 7

10 11 12 13 $

17 18 19 20 21

24 25 26 27 28

October1 2 3 4 5

8 9 10 11 $

15 16 17 18 19

22 23 24 25 26

29 30 31

November1 2

5 6 7 8 $

12 13 14 15 16

19 20 21 22 23

26 27 28 29 30

December3 4 5 6 7

10 11 12 13 $

17 18 19 20 21

24 25 26 27 28

31

Speaker Notes A little adds up!

+ Saving for tuition can seem like a lot, but try making a game of it: forgo one coffee a week and put that money directly into your student’s education savings plan.

+ See how saving one coffee a week, or a coffee a day or even a dinner a week can add up to savings, especially when invested early and allowed to grow with the market.

+ Forgoing one cup of coffee a day, or $5, and putting those savings into a 529 college savings plan, could end up in savings of $39,118!

+ One meal a week and a coffee a day could add up to $62,589!

+ Investing can make your funds go further, so using these tips and tricks can be a fun way to save money without too much work.

Based on an annual investment return of 6%.

37

1 Source: SavingForCollege.com. Weekly cost is based on a 5-day business week.2 Source: SavingForCollege.com. This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Estimated annual investment return of 6% each year for 18 years. Assumes $5 for a cup of coffee and $15 for dinner. Weekly cost is based on a 5-day business week.

Saving a Little Can Save a Lot

Be diligent about saving a little bit for education savings.Consider saving one coffee a day…or month…it adds up! Put that money directly into savings to take advantage of potential growth. Take a look at the growth potential if you invested the money in a 529 college savings plan and it grew over 18 years…

How much they cost you…1

If you invested instead of consumed it…2

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Am

ount

of

savi

ngs

1 coffee per week 5 coffees per week 5 coffees and 1 meal out per week

$4,680$8,476 $21,600

$39,118$34,560

$62,589

Consuming Investing in 529

Cost of a coffee Cost of a meal out

1 coffee per day $5 1 meal out per week $15

Weekly cost $25 Weekly cost $15

Monthly cost $100 Monthly cost $60

Yearly cost $1,200 Yearly cost $720

Over 5 years $6,000 Over 5 years $3,600


After 18 Years $21,600 After 18 Years $12,960

37

1 Source: SavingForCollege.com. Weekly cost is based on a 5-day business week.2 Source: SavingForCollege.com. This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Estimated annual investment return of 6% each year for 18 years. Assumes $5 for a cup of coffee and $15 for dinner. Weekly cost is based on a 5-day business week.

Saving a Little Can Save a Lot

Be diligent about saving a little bit for education savings.Consider saving one coffee a day…or month…it adds up! Put that money directly into savings to take advantage of potential growth. Take a look at the growth potential if you invested the money in a 529 college savings plan and it grew over 18 years…

How much they cost you…1

If you invested instead of consumed it…2

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000A

mou

nt o

f sa

ving

s

1 coffee per week 5 coffees per week 5 coffees and 1 meal out per week

$4,680$8,476 $21,600

$39,118$34,560

$62,589

Consuming Investing in 529

Cost of a coffee Cost of a meal out

1 coffee per day $5 1 meal out per week $15

Weekly cost $25 Weekly cost $15

Monthly cost $100 Monthly cost $60

Yearly cost $1,200 Yearly cost $720



After 18 Years $21,600 After 18 Years $12,960

Speaker Notes + In this example, the family who didn’t save and relied on loans paid nearly $116,000 out-of-pocket for a $100,000 education.

+ A family who saved $25 a month in a 529 college savings plan from the student’s birth to age 18 was able to amass $5,400 in savings, reducing the amount they had to pay out of pocket.

+ A family saving $100 a month had $20,520 by the time their student reached high school graduation, and paid almost $90,000 in out-of-pocket expenses.

+ A family saving $200 a month in a 529 college savings plan may only pay $60,000 for a $100,000 education.

+ Every dollar saved and every dollar earned is one less borrowed.

+ For families who don’t plan or save, the out-of-pocket costs can be higher than the sticker price when borrowing costs and lack of earnings growth are considered.

+ Those who wait typically rely more heavily on loans and are stuck with the potentially significant added interest for decades following graduation.

38

All four scenarios show out-of-pocket costs based on an estimated $100,000 of a four-year college education at a public university. These scenarios also assume the receipt of approximately $25,000 in financial aid, which will vary depending upon how much is accumulated in a tax-advantaged savings account. The loan portion of each column is calculated to include a fixed interest rate of 6.25% to be repaid over 180 months as defined by Sallie Mae (that’s like paying off a 15-year mortgage) following graduation with 54 monthly payments of $25 made during college. All savings in the tax-advantaged account depicted in this chart assume 5% monthly compounded growth from the beneficiary’s birth until age 18. The hypothetical examples are for illustrative purposes only and do not predict or depict the performance of any specific investment. Actual results may vary.

Any Amount Helps

Saving the entire tuition amount can seem daunting, but any amount you save will help reduce future student debt.

Education costs, with and without savings

Total saved in a tax-advantaged account Total out-of-pocket costs

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Tota

l cos

t of

att

enda

nce

Monthly amount contributed to a tax-advantaged account

$0 $25 $100 $200

$115,752

$102,278

$5,400

$67,420

$20,520

$19,088

$41,040

38

All four scenarios show out-of-pocket costs based on an estimated $100,000 of a four-year college education at a public university. These scenarios also assume the receipt of approximately $25,000 in financial aid, which will vary depending upon how much is accumulated in a tax-advantaged savings account. The loan portion of each column is calculated to include a fixed interest rate of 6.25% to be repaid over 180 months as defined by Sallie Mae (that’s like paying off a 15-year mortgage) following graduation with 54 monthly payments of $25 made during college. All savings in the tax-advantaged account depicted in this chart assume 5% monthly compounded growth from the beneficiary’s birth until age 18. The hypothetical examples are for illustrative purposes only and do not predict or depict the performance of any specific investment. Actual results may vary.

Any Amount Helps

Saving the entire tuition amount can seem daunting, but any amount you save will help reduce future student debt.

Education costs, with and without savings

Total saved in a tax-advantaged account Total out-of-pocket costs

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

Tota

l cos

t of

att

enda

nce

Monthly amount contributed to a tax-advantaged account

$0 $25 $100 $200

$115,752

$102,278

$5,400

$67,420

$20,520

$19,088

$41,040

Speaker Notes With compounding, no matter how much you contribute, you’re potentially earning growth upon growth. Especially when starting early, that can really add up over time.

+ Consider $50, $100, $200 and $500 monthly contributions.

+ Over five years, those contributions can grow into the thousands—from about $4,250 (making $50 monthly contributions) to over $40,000 (making $500 monthly contributions).

+ Over the years, these savings can really grow. By the time your student reaches age 18, those $50 monthly contributions could be almost $20,000 and contributing $500/month for 18 years could reach upwards of $190,000 thanks to the benefits of compounding growth.

39

This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Assumes 5% growth on account balances every year over 5, 10, and 18 years. Compounded growth is defined as multiplying the account balance of any given year by 1.05 to show growth. There is no compounded growth in the first year of contributions.

The Power of Compounding

Contributions—both large and small—may benefit from long-term compounding of growth.

Hypothetical growth of contributions over time

$50 monthly contribution $100 monthly contribution $200 monthly contribution $500 monthly contribution

Growth over 5 years Growth over 10 years Growth over 18 years$0

$50,000

$100,000

$150,000

$200,000

$250,000

$4,247 $8,494$16,988

$42,469

$8,901$17,803

$35,606

$89,014

$19,167

$38,335

$76,669

$191,674

39

This chart is for illustrative purposes only. These hypothetical illustrations do not represent the performance of any specific investment. Assumes 5% growth on account balances every year over 5, 10, and 18 years. Compounded growth is defined as multiplying the account balance of any given year by 1.05 to show growth. There is no compounded growth in the first year of contributions.

The Power of Compounding

Contributions—both large and small—may benefit from long-term compounding of growth.

Hypothetical growth of contributions over time

$50 monthly contribution $100 monthly contribution $200 monthly contribution $500 monthly contribution

Growth over 5 years Growth over 10 years Growth over 18 years$0

$50,000

$100,000

$150,000

$200,000

$250,000

$4,247 $8,494$16,988

$42,469

$8,901$17,803

$35,606

$89,014

$19,167

$38,335

$76,669

$191,674

Speaker Notes Specifically, within 529 college savings plans, there are different ways your contributions can be invested to try to achieve growth:

Individual: A variety of fund portfolios with varying risk levels are available for you to choose and build your own portfolio.

Age-based: Use your beneficiary’s age to build a portfolio that automatically adjusts to become more conservative over time as the student approaches high school graduation.

Risk-based: Based on your preferred risk tolerance, you have the ability to choose whether you want to take on more stock exposure.

Underlying all these investment options is the asset allocation of the portfolios. Asset allocation seeks to balance your investments by creating a mix customized to your preferences and the risk you’d like to take. You pick and choose your mix to create your own unique portfolio.

40

Investment Features to Help Your Savings Grow

Understanding the different ways money can be invested. Individual

investments A variety of fund

portfolios with varying risk levels are

available for you to choose and build your own portfolio.

Age-based portfolios

Use your beneficiary’s age to build a portfolio

that automatically adjusts to become more conservative over time as the

student approaches high school graduation.

Risk-based Based on your

preferred risk tolerance, you have the ability to choose whether you want to take on more or less

stock exposure.

Asset allocationAsset allocation

seeks to balance your investments by creating

a mix customized to your preferences and the level of risk you’d like to take. You pick and choose your mix to create your own unique portfolio.

40

Investment Features to Help Your Savings Grow

Understanding the different ways money can be invested. Individual

investments A variety of fund

portfolios with varying risk levels are

available for you to choose and build your own portfolio.

Age-based portfolios

Use your beneficiary’s age to build a portfolio

that automatically adjusts to become more conservative over time as the

student approaches high school graduation.

Risk-based Based on your

preferred risk tolerance, you have the ability to choose whether you want to take on more or less

stock exposure.

Asset allocationAsset allocation

seeks to balance your investments by creating

a mix customized to your preferences and the level of risk you’d like to take. You pick and choose your mix to create your own unique portfolio.

Speaker Notes Making sure you employ tactics that help you stick with your plan will help you and your student achieve the goals you’ve set.

Save a little over time:

+ Save what you can or make a game out of it by saving the cost of a coffee or a meal out a week over time.

+ The benefits of features such as automatic investment programs can help you save with minimal effort.

+ Compounding growth helps money grow even more.

Know your investment options:

+ Pick the ones that are best for your situation.

Act now! Plan smart!

+ It’s never too early or too late to help your student achieve their educational dreams, so take action to get started today.

41

Care for Your Educational Savings Plan and Help It Grow

Putting it all together.Saving, even a little, over time may make a difference in the long run

+ Being able to put a little bit away over time can add up with investing benefits such as compound growth.

+ Features such as automatic investing can help you budget and put a regular amount away.

Understanding your investment options can help

+ Understanding the ways your money can be invested may help you make more informed decisions and may make your money go further.

Act now! Plan smart! + Once you have a plan in

place you are comfortable with, do not delay in getting started. The more you save now, the less you may need to borrow later.

41

Care for Your Educational Savings Plan and Help It Grow

Putting it all together.Saving, even a little, over time may make a difference in the long run

+ Being able to put a little bit away over time can add up with investing benefits such as compound growth.

+ Features such as automatic investing can help you budget and put a regular amount away.

Understanding your investment options can help

+ Understanding the ways your money can be invested may help you make more informed decisions and may make your money go further.

Act now! Plan smart! + Once you have a plan in

place you are comfortable with, do not delay in getting started. The more you save now, the less you may need to borrow later.

42

Disclosures Diversification does not guarantee a profit or eliminate the risk of loss.

This information is provided for general educational purposes only and is not to be considered legal or tax advice. Investors should consult with their legal or tax advisors for personalized assistance, including information regarding any specific state law requirements.

The opinions expressed are those of the author and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

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