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 | | BEN & BETH
2 children, 6 & 8 years old |
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| Parents | | | |
Ben and Beth, both 32 years old, are a young couple living
in Keene, N.H. Ben graduated from Princeton University
10 years ago and recently received his CFA designation.
He works as an analyst for a local money manager. Beth
graduated from Boston College 10 years ago and began
her career working for a brokerage firm.They have two
children — Lily, age 8, and James, age 6. After giving birth,
Beth reduced her hours at the brokerage firm to devote
more time to child rearing, but now she's back to a
full-time schedule.
Ben and Beth recently finished paying their student loans
and are now researching ways to finance their children's
education. Ben was recently promoted at his job, and he
received a significant raise.They decided that the best use
for the additional cash is to help fund Lily and James' higher
education through 529 plan accounts for each child.Their
financial professional calculated the costs of two Ivy League
educations beginning in 2017 for Lily and 2019 for James.
Assuming a 5% rate of inflation, the combined, projected
four-year college expense for both children is $541,673.The
impact of Ben's raise and the end of their student loan
payments allow them to defer $9,500 annually. Even with
this savings plan in place, they are still short.
They decided to talk to Beth's parents to see if they could help.
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| Grandparents | | | |
Beth's dad Bob will be retiring from the City of Boston's
Accounting Department, where he has been employed for
36 years. Her mom Margaret is still working and shows no
signs of slowing down. After speaking to their financial
professional, Bob and Margaret learn that their pension plans
are fully funded and they have plenty of cash reserves to
enjoy themselves during their golden years.They were happy
to help fund their grandchildren's college educations and
reduce their taxable estate at the same time.
Margaret and Bob have significant dollar amounts saved in
CDs that will be maturing soon. After speaking with their
financial professional, they decided to open their own
Pacific Life Funds 529 Plans for Lily and James and to gift
$60,000 to each child's account this year. In addition to
helping reduce the burden of higher education costs, their
contribution may be removed from their estate.Also,
since the 529 plan is in the grandparent's name, it is
generally not considered an asset of the child when
applying for financial aid.
Total cost included tuition, room and board, books and fees.
Source: CollegeBoard.com
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 | |  | | | | Key Points | | |
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| Contributions to Lily and James' 529 plan accounts will grow tax-deferred. | | Withdrawals from a 529 plan to pay qualified higher education expenses are federal income tax free. | | Contributions made by Margaret and Bob 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. |
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| CURRENT ASSUMPTIONS | | PROPOSED 529 PLAN CONTRIBUTIONS |
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| Child #1 | | Lily, 8 yrs. old | | College | | Princeton Univ. |
Tuition, fees and
miscellaneous expenses
adjusted for inflation
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2007 $35,072
2017 $57,129
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| | Child #2 | | James, 6 yrs. old | | College | | Dartmouth College |
Tuition, fees and
miscellaneous expenses
adjusted for inflation
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2007 $38,168
2019 $68,456
| Total Projected Cost
(4 yrs.) for both children | | $541,673 | | Amount Currently Invested | | $0 |
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Systematic Investment
$9,500 every year for 15 years
Lump-Sum Contribution
$120,000
| Total Amount Invested | | Total Amount Saved | | $262,500 | | $541,673 |
| Assumed annual rate of inflation for tuition | | 5% | | Assumed annual rate of return for college funding | | 8% |
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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.
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