|
|  |
 |
| ADAM & AMANDA
1 child, 2 years old |
|
| Parents | | | |
Adam and Amanda live in a western suburb of Minneapolis. They have been married for four years and their first child, Maggie, is 2 years old. Adam, in his late 20s, is an associate at a Minneapolis law firm. He has been consistently receiving raises and plans on making partner at the law firm in five or six years. Amanda, in her mid-20s, was a paralegal at a law firm in St. Paul, but has taken some time off to raise Maggie.
Prior to becoming parents, Adam and Amanda's primary financial goals had been paying off Adam's law school loans and saving for a down payment for a house. Fortunately, Amanda's parents helped out with the down payment, so Adam and Amanda moved into their first home a few months before Maggie arrived. Now they realize that they have a new financial goal: Maggie's college education.
As graduates of Northwestern University, they are hoping that Maggie will attend their alma mater.They discovered that by 2023 (Maggie's anticipated start date), college expenses — including tuition, room and board, books and supplies — will be $89,322 annually, and $384,990 over four years, assuming a 5% inflation rate. Together with their financial professional, they reviewed their current financial situation and decided to set up a Pacific Life Funds 529 College Savings Plan. They were impressed with the tax-deferred growth provided by 529 plans, as well as the fact that the dollars could be distributed tax free for qualified education expenses. They set up payroll deduction through Adam's employer and designated a portion of Adam's raises (monthly investments totalling $4,000 per year over 20 years) to the account.
|
|
| |
| Grandparents | | | |
Without help, they feared they wouldn't be able to meet the anticipated costs. Adam and Amanda agreed to ask their parents if they would consider gifting "seed money" to their Pacific Life Funds 529 Plan account. Each set of grandparents committed to gifting $6,000 per year for five years, for a total of $60,000.
Total cost included tuition, room and board, books and fees.
Source: CollegeBoard.com
|
| |  | | | |
| | Key Points | |
| Contributions to Maggie's 529 plan account will grow tax-deferred. | |
Withdrawals from a 529 plan to pay qualified higher education expenses are federal income tax free. | |
Contributions made by each set of grandparents may avoid federal gift taxes and may be removed from their estate. | |
Some states offer state tax deductions to residents who invest in their state program. Check with your state as this may or may not be a factor in your overall planning strategy. |
|
| |
|
 | |  | | |
| CURRENT ASSUMPTIONS | PROPOSED 529 PLAN CONTRIBUTIONS |
|  | | | |
| Child #1 | Maggie, 2 yrs. old | | College | Northwestern Univ. |
Tuition, fees and
miscellaneous expenses
adjusted for inflation
|
2007 $38,971
2023 $89,322
| Total Projected Cost
(4 yrs.) | $384,990 | | Amount Currently Invested | $0 |
| |
|
Systematic Investment
Monthly investments totalling $4,000 each year for 20 years
$12,000 each year for five years
($6,000 per set of grandparents)
Lump-Sum Contribution
$0
| Total Amount Invested | | Total Amount Saved | | $140,000 | | $384,990 |
| Assumed annual rate of inflation for tuition | | 5% | Assumed annual rate of return for college
funding | | 8% |
|
|
| | | |
|
| | | |
Hypothetical returns do not deduct fees and expenses such as annual maintenance fees, sales charges or underlying fund expenses associated with 529 plans. This hypothetical example is for illustrative purposes and is not indicative of any investments. Withdrawals for expenses other than qualified higher education expenses are subject to income tax and an additional 10% federal tax on earnings.
| | |
|
|
