An Overview of Section 529 Plans

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• An Overview of Section 529 Plans
• Douglas Chittenden
• VP Institutional Product Management
• TIAA-CREF

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Cost of Higher Education

Source Trends in College Pricing, published by
the College Board FS-3
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College Funding Opportunities

• Qualified Tuition Programs 529
• Prepaid Tuition Plans
• College Savings Plans

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Prepaid Tuition Plans

• Allows for the purchase of future tuition at
  todays prices.
• Approx. 20 states operate pre-paid programs for
  public universities in those states.
• Typically funds may be used tax-free for tuition
  and room and board.
• A program for independent colleges and
  universities is available through the Tuition
  Plan Consortium with TIAA-CREF as the program
  manager.

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College Savings Plans

• Federal tax deferred growth and federal tax free
  withdrawals for qualified higher education
  expenses
• Some states offer additional state tax incentives
• Funds can be used at any eligible school for
  tuition, fees, room and board, books, supplies
  and required equipment such as computers
• No income limits for participation or benefits

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College Savings Plan Program Design

• Programs typically offer a range of investment
  options.
• Aged based models
• Asset based options, fixed income, equity
• Fund specific options
• Account owners can change options yearly
• States set contribution maximums set to allow for
  full funding of four years of college

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College Savings Marketplace

• 529 Assets have grown to over 90 Billion
  industry wide
• Federal Tax Permanency enacted Sunset
  Provision eliminated
• Broker-Driven Growth, 70-80 of assets are
  invested through Advisors and Brokers
• Confusing 529 Landscape
• Pre-Paid vs. Savings vs. Other College Savings
  Options such as UGMA accounts
• Large number of 529 programs to choose from

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College Savings Programs Market Overview

• Programs are maturing and assets are growing,
  driving down costs and leading to product
  innovation affinity programs etc..
• State market is segmenting as larger states
  accumulate more assets
• Industry Groups are Pushing for State Tax Equity
  more attention to suitability

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Principles for Successful College Savings Strategy

• Start Early and make continuous, on-going
  contributions
• Typical Re-contribution Rate 60
• Use a diversified portfolio of investments
• Age Based Allocation Options typically hold 60 -
  70 of program assets
• Take advantage of federal and state based tax
  incentives
• Minimize expenses

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Take Advantage of Tax Incentives

6,000 invested each year for 15 years. 6
investment return. Account owner in 27 federal
and 5 state income tax brackets. Beneficiary
child is in the 10 federal and 5 state income
tax bracket. 35 of proceeds are dividends taxed
at 27 federal and 5 state income tax rates. 30
are short-term capital gains and 35 are deferred
capital gains taxed at a 20 rate (10 for UGMA).
FS-19
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Minimize Expenses

Assumes a 10,000 deposit at birth and allowed to
grow for 18 years in the same plan, with
different annual asset-based fee charges .
Assuming a 7 return.
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TIAA-CREF College Savings Programs

• TIAA-CREF is program manager for 10 state
  programs

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TIAA-CREF College Savings Program - Independent
College (I-529) Pre-Paid Program

• I-529 program provides for the pre payment of
  tuition at Independent Colleges and Universities,
  it is operated by the Tuition Plan Consortium
  (TPC)
• Approximately 275 Member Private Colleges and
  Universities, including Princeton, Stanford,
  University of Notre Dame and Johns Hopkins (new
  member.)
• Pre-paid tuition can be applied to any member
  institution
• If child does not attend member institution,
  account owner receives a refund with a nominal
  rate of investment return